Welcome to day one of Citi's 2023 Tech Conference. My first meeting kicking off here today, and I'm Ashwin Shirvaikar, by the way. I head up payments processor and IT services here for Citi. It's my pleasure to kick off our meetings with Amdocs. From Amdocs, we have Shuky Sheffer, who is the CEO of the company. Shuky, thank you for doing this. Appreciate you.
Very great to be here.
Supporting us. I kind of thought that maybe it'd be good idea to maybe start off with an introductory question just for folks in the room that are not fully familiar with who Amdocs is. Maybe can you provide a short overview of Amdocs, who you are, who your clients are, and so on?
I'm not sure we have enough time. I'm just kidding. The, we are, obviously, in the telecommunications industry. If you think about, you know, service provider, like, would be like the AT&T, T-Mobile, Comcast, these are our customers, around the world. And what we do for them is, if you think about, when you get service from a company like T-Mobile or AT&T, obviously, you interact with the channels. It could be the call center, it could be the, the retail store, it could be the, the mobile application, so all the application around it. All the ordering application, catalog, all the financial system from, obviously, from accounts receivable and billing and everything that around the monetization, and then, obviously, provisioning all the services to the network.
So it's an end-to-end portfolio that cover everything that communication service provider needs. And we do both—talk about later about the product and the services. We are the market leader in this domain. We estimate our addressable market, by the way, which increased because we increased the portfolio in later years, and close to $60 billion today. If you think about what are the main growth engines for the company, there are some that are working for us for the last three, four years. There are new one, we talk about generative AI, I'm sure later on today.
But, if you think about, obviously, the move to 5G, every Amdocs customer in the world is spending $billions in deploying 5G and getting all the value and the new services that you can deploy over 5G network. Lately, obviously, we see some more even acceleration in fiber. We'll talk about this. Everyone around 5G, everyone of moving to the cloud. We see ourself as the number one enabler to move all our customers to the cloud, which is just actually, it's just started, I mean, the move to the cloud. Another thing which is extremely important for our customer, this was before COVID, I think accelerated by COVID, is the fact that they want to be digital company. They want to do everything in digital way.
And the last thing that I think is emerging with connected to 5G, now, the network today is completely software-defined, so the ability to do network automation is something that we are also being powered for network automation, network deployment. So these are the four or five growth engine that we are doubling down the last three, four years. I think the fact that we are working in a, in a, I would say, what we call the highest mission critical of our customers, at the same time, give us a lot of high visibility for our business. I mean, because we have many, many, a lot of significant part of our business is recurring.
I think that before we have a lot of prediction, I think the whole workforce and resource allocation that we are doing could be pretty accurate. So we can see that we can really continue grow our margin and do it in a very consistent way, very robust cash flow generation as part of it. So I think this is the main aspect of our business.
Okay, okay. And we'll get into
Yeah
... some of those growth drivers, sort of one at a time. But you know, one question I do get, particularly from newer investors who are looking at the name maybe for the first time, is, why do you win?
Mm-hmm.
Maybe the converse question is, in cases where maybe you don't, you know, maybe who, who, who else is a main competitor, and why would they win?
So we try to minimize this.
You try to,
... I think another aspect which is very unique in Amdocs. If you look today about there is product companies, Salesforce is a product company, and there is system integrators like Accenture, Infosys, and others. In Amdocs, we are what we call product-led services company. It means that we develop the product. By the way, we believe that our product is by far the best in the market. We do the implementation, the service implementation of our product, and later on, we actually operate and manage services. And this is a very, very unique offering, and it creates a very unique accountability model, because usually the competition to Amdocs, and by the way, we are the only one that have the whole portfolio, from the channels to the network....
So usually when we compete in RFPs and bids, we are competing, Amdocs that come with the whole portfolio, which is relevant for this specific RFP, with the services, with the operation, with everything, with a full accountability model, and the competition is a consortium. So they're bringing some system integrator that will try to glue the different products and to do a project. So in this environment, there was never real accountability, because if something goes wrong, they say, we say, this integrator, the product involved, the product guy will say, they deciding how to implement, you never get an accountability.
This is a very unique business model that I think, if you remember, with us many years, probably 10, 15 years ago, there was, like, a fight between the Amdocs model and the best of breed, which is the other one. I think that, if you look at this project are so complex, most of the best of breed implementation failed miserably. I think that this business model, with the fact that we are continue to invest in this product, help us to win a lot. The competition, as I said, there is no one like Amdocs, so we can compete with Salesforce in one domain, we co-compete in other companies on billing, some on charging. I mean, there is no one that have the full portfolio.
I'm not saying... We don't have 100% win rate, unfortunately, but we do win a lot. And by the way, our main competitor is the internal IT. If you look today, the half of the IT is still done by internal IT, and this is our main competitor. So sometimes, you know, it's emotional to replace internal IT because you need to give up on your own people. So, we need to deal with it. And I think that, you know, sometimes it's not easy to rip and replace an incumbent, but overall, I think we enjoy very, very good win rate. And I think this unique accountability model, I think it's helping us a lot to win.
Okay. Okay. Yeah, I know the internal IT point. I mean, telecom company is definitely proud of their IT, IT heritage. Maybe let's talk about demand, because it's kind of probably, you know, one of the most common lead off questions, particularly nowadays, as you sort of think of both the cyclical element and the structural and secular trends. Maybe let's start with the more topical cyclical side. And as you sort of think of your own fiscal 2023 through the course of the year, your demand commentary indeed reflected the macro trends and some of the stuff going on specifically in telecom.
And, you know, what we've heard is customers prioritizing, sort of, you know, certain types of projects, maybe managed services, maybe certain types of cost saving, productivity type initiatives or initiative that may have a longer term benefit. So what are you seeing in the market? How is your visibility? Is it better or worse than six months or 10 months ago?
So we share with you, and I think that we share some of it when we report our Q3 results. First of all, it's not, you know, the same thing all over. You know, we are a global company. We are, I just mentioned, if you talk about the first question about our customers, so in the U.S., T-Mobile, AT&T, Verizon, in Bell Canada, Rogers, so very significant presence in North America, very significant presence in Europe, which is going very nicely to us from Vodafone, which is the largest in and many, many other. By far the market leader in APAC and in Latin America. There are two groups there between América Móvil and Telefónica, and both of them are customers.
So we enjoy a very, very significant presence in market share. Although it still can, I mean, we are a $5 billion company with a $60 billion addressable market, so there is a room-
Yeah.
To grow. But I think that, so not everything is the same in every geography, but I think the most. And customer wants to invest in their strategic, I would say, domains, because this is what will help them to be competitive in the future. And what we've seen lately is that usually there is a competition, internal competition between you are doing a full modernization, you are building new product, you're taking to the cloud. At the same time, you need to compete with the legacy platform. So there's always competition, internal competition, on the spend, on the budget, between how much you double down on modernization and how much you spend on your legacy system.
What we've seen more and more lately, and this is also creating some headwind to us that we discussed in Q3, is that customers doubling down on modernization. So if they're without the pressure that everyone is feeling today, they could do both. Now they are reducing some of the spend on the legacy and doubling down on the future, which I think makes sense from their perspective, because if they want to be competitive in a next generation, generative AI, cloud native environment, this is everything come with a new platform. So we see more and more prioritization. Our customer funneling more budgets to modernization. Some of it, in some customer, it's the expense of the legacy system. So this is what we see.
We don't see, you know, that still, I mean, you have to be 5G ready. I mean, you cannot I mean, this is... You cannot survive and compete, you need to be ready for fixed wireless. So I think that they still continue to invest in the strategic domain, slowing down in the legacy platform. Now, for us, you know, it's part of our business, but I call it cyclical because we've seen this, you know. By the way, probably if discussion four, five years ago, it was the opposite. There was more spend on legacy platform comparing to modernization. Now, it's actually flipped, and-
Yeah. Yeah, now, that makes, that makes sense. And in terms of the visibility into the next 12 months, is it the same as three or six months ago? Is it getting worse, getting better?
I think, I mean, you know, we always report our 12 months backlog. And which is, you know, as I said, you know, I would say in Amdocs business environment, I mean, which the business is very sticky. I mean, we've never lost a managed services customer. I mean, just, you know, moving more and more customer to managed services.
Yeah.
It's a very resilient business model. When you talk about. So, the—it's not mathematically exactly, but our 12-month backlog roughly represent about 80% visibility for the next 12 months. We reported last quarter another record high backlog, and which is what was sequentially bigger, around $30-$40 million, I don't recall exactly, over the previous quarter. Having said that, the same phenomena that we discussed of slowing down some legacy spend also impacted from the other side impacted our backlog. So all in all, I mean, this is what we see right now, and we see some impact on the backlog from the legacy spend also.
Okay, okay. Understood. Understood. On the structural or cyclical side of things, obviously, in your, you know, initial comments, you mentioned a few different items, digital transformation, cloud, network automation. When you look at your pipeline of opportunities, does, you know, what dominates that? What is more important? How is it changing? You know, the way the-
Okay. So as I said, digital transformation was even before COVID. I mean, it is actually, it's steady, it's consistent, it's accelerated. I think, 5G emerged significantly in the last two, three years. Like, you know, 5G deployment, 5G monetization, it's critical to our customers, so it's emerging, charging, every single bit, which is, this has continued to be very strong. By the way, talk about geographies, North America is a bit ahead of the rest of the world, but, this is something which is there and continue to accelerate. The one thing we reported that we see, growth acceleration is every... all the cloud-related deals. The move to the cloud, it start slowly, starting to pick up.
So this is a domain that we see really picking up, and we see more and more deals in Amdocs, which are cloud-related. Network automation is growing. I think it's starting to catch up because it's very dependent on the network deployment. Because the legacy, you know, 4G networks were proprietary, were not software-defined. When you move to the new core network and 5G, then you're starting to actually move to a new type of environment, which the network is software-defined, so this is where the catch up of the network automation. Couple of two things that we see lately, which I don't know if to...
One of them maybe deserve to be structural, the other one is, another thing that we see is increasing, and catching up is, B2B. If you look, every Amdocs customer have B2C platform, you know, to the consumer, and B2B. B2B, I think it's a domain which is really underserved. I mean, if you have a business and you want to buy something from, from Comcast or T-Mobile, or AT&T, it's everything is manual, Excel. So you want to, to buy 200 phones to, to your company, today, you need to go to say... It could be completely automated.
So B2B is something that we are putting a lot of effort, and this is also related to very strongly to the very important, I would say a partnership that we announced with Microsoft. We can talk about this in the... The other structural thing which we're starting to see initial sign, this is generative AI.
Yeah.
And why I call it structural? Because this is true that you can get generative AI benefits also implemented on top of legacy platforms. This can be done, but it doesn't come native, like it comes completely integrated, what we do with the new platforms. So I think customer understand that if you want to maximize the leverage of using generative AI, it's actually another reason to accelerate modernization, because it comes natively with the, with the. And if you—yes, you can, you know, you can do generative AI in some domain, also in the legacy platform, but it will not bring you. And we'll talk about Gen AI, I can give some example later on, but it will not come natively, like it come with our new platform. So this is another thing that I'm will, I think deserves to co-structure.
Yeah, yeah, yeah. They, yeah, the B2B opportunity sounds certainly a promising one. Mm-hmm. Most of those relationships I think are very bespoke and-
Yeah
-and you're-
Extremely bespoke.
As you mentioned. You know, one question I do get from investors is with regards to the 6%-10%.
Mm-hmm.
I know you'll provide your outlook four months in November. But the clarification question with regards to that is, when you had provided your six to 10 general outlook, did that sort of think about or encapsulate weak years with downturn potential, as well as sort of a more normal environment? Or what was that more about, you know, encapsulating the rather strong 5G and other demand that you were seeing?
So actually, when we gave it, I think it was a couple of years, we could not predict the-
Right
... the whole macroeconomic environment. And I think that, let's start with the big picture remain positive. I mean, that what we do to our customer is highly strategic. I mean, I can tell you that all our customer will move to the cloud in the next three, four years. I mean, it's a must. I mean, it's a... And it's not because, TCO. You move to the cloud because you get to environment with the time to market is better, it's highly secured. It's also a great, you know, TCO reduction. I give, the simple example is that, all our customers today that are running, for example, in North America, are running still an on-premise environment.
They need to have the hardware capacity to support Black Friday or the holiday season, which is almost to to three times the normal capacity. When you have a cloud environment, you have elasticity, you can add resources, consumption, et cetera. So, you're doing it for many reason. So everyone will move to the cloud. I mean, it's, by the way, they're highly secure. We know how much security is important today. Everyone will have to support 5G. Everyone want to deploy fixed wireless because, you know what? I think the first time in many, many years that in the top 10 broadband provider, you have a mobile company in fixed wireless, it's T-Mobile. So, and everyone will have to deploy fixed wireless. People wants to, you know, to deploy fiber.
You know, the government here in the U.S. is also putting a lot of money in accelerating this. And eventually everyone will want to enjoy and deploy the capabilities of generative AI. So I think that, as I said, the big picture is positive because our customer will have to invest. And you know that at least you know, we roughly 60% of our business is managed services, which is, you know, highly resilient, and so this is, I mean, the good news. The bad news, that like anyone else, we are facing, you know, headwinds because of legacy investment platform, et cetera, that and many some customers, you know, are more cautious in spending. So we are not, you know, immune completely to this.
So it does impact us. As you mentioned, we are going to give our formal guidance because we are a October to September company. We are going to give our formal guidance when we finish the year in and give the formal guidance in November. But I want to add from and this will be more clear in regard the revenue guidance. I can-- But I think I can share now, is that from the margin profitability perspective, I think that it looks good. And I think that we enjoying for many years now, actually even more, the all the investment that we've done in automation. We are doing so many managed services, so everything is been doing automation.
And our agreements with our customers, we, unlike some of our competitors, it is not a rate card type of relationship. We are committed to one operation and certain service level. So every automation efficiency we bring to the business actually impact our margin for the good. So this is one, a lot of, I would say, generative AI capabilities that we can see can also even accelerate automation in our domain. So we already shared with the investors that we believe that our journey to improve profitability will continue to next year. We see another year of double-digit EPS growth. So from this perspective, I think that we share.
Yeah. Yeah. No, that's, that's sort of important to point out. In terms of, of, of the inputs into your margin trajectory, is, is it possible to sort of parse out the relative impact? I mean, you mentioned generative AI a couple of times. We'll talk about that, in, in, in some more detail, but, the impact of maybe that, the impact of, moving forward to a location, you know, as opposed to many distributed offices, so you've done that. You know, that it makes some revenue, mixed impact as well.
I think the main reason is automation-
Automation
... and generative AI. And I want to give one quick example to make it easier.... And when, because we are doing the product, we are doing the implementation of the systems-
Yeah.
which is very complex, by the way, and then we do the operation. When we are doing the whole thing, we are the only one that, you know, When we are not doing this, other companies, there could be like, Infosys will do the managed services, and there'll be someone else will do the product. Because it's one company, so if, for example, our team, you know, level one, level two, get a lot of call and they see there is some reason that some of the orders are not, you know, going through smoothly to the system, and this require a lot of work to, you know, to make them work, they can take this information and feed it back to the product people.
The product people will analyze it and fix it in a way that we will not have to do like others, throw people at the problem. Actually, we will fix the problem, the core, because we are doing also the product, and this will definitely impact not just this specific account that we founded, but it... the whole Amdocs accounts worldwide. So this is a very unique case, automation like this. generative AI is a step completely. It's a leapfrog, I mean, from automation that we can discuss in a second. And we saw some good progress in this domain, and already we initiate a lot of programs in the company.
This give us the confidence that we've done a significant reduction in force already in Q4, and we are taking some, I think roughly $50 million restructuring charges in Q4, and because we want to start clean next year after we've done all this, you know, reduction in force, which is mainly built on automation that we've done.
Okay. So, can you, I guess, a three-part question, and you answer it in whichever order. The first part is, maybe talk about your capability. The second part is, you mentioned it in the context of cost and productivity a couple of times.
Mm-hmm.
So definitely that. But the third part is, you also have the relationship and partnership, say, for example, with, for example, Microsoft-
Mm-hmm. Yeah.
Revenue opportunity.
Yes.
So maybe these three areas-
Okay.
Broadly, I think.
When we look at generative AI, and we have done several announcements this domain, we come with our framework for generative AI. I mean, first of all, like every good corporation, and we see that we can do things better, in finance, in HR, in any corporate like activities. So we are looking to see, and we have a lot of initiatives, how to do this. The second thing when we talk about, I will give an example of automation, that we can apply, take automation that we've done before, but take it to the next level. We have, I don't know, 12, 15 years of history in our managed services system.
So think about this, that every time there was a problem in customer, so it will have in the system. This was the customer, this was the problem, this is, was the triage results, this was the root cause analysis, this is how it was solved, and this is the model that was touched, and this is the script that was run at the same time. This is all, all, all, you know, thousands and thousands of this in our system. Now, we had some automation before to do some self-healing, but now we are building tools that, you know, support Amdocs employee can rather have this problem.
You can also speech to text, but let's say even writing this, and it will immediately telling, you know, this problem happened in this customer, this was the issue, this is how it resolved, this is the model that you need to touch. It completely elevate the capabilities of doing support, and this means that we can do support in much more much more automated way. Another thing, we develop a software to our customer. By the way, we own the intellectual property, so in many cases it's ours. And there is some silo in the organization, meaning that you can have a situation that someone has developed some feature in for a customer in Europe, at the same time, someone is developing the same feature for a customer in the US.
So it's almost duplicate. Now we are pulling into this, to one large language model, all the requirements, everything that we are doing. So every developer of Amdocs will say, "I know I want to develop this," and they tell, "Okay, this already developed. Already, you can, you know, take it, and you are 80% there." So the whole sharing, this is couple of example, but we have many of these that things, can... This is-
You're building your own language model, right?
Yes, we are building our own. Now, we build a framework, because if you think when you do a framework for telco, first of all, it has to be telco grade. You know, all of us are using ChatGPT, and you're writing a question. Sometimes you can wait 20 seconds, 40 seconds. There's no, like, service level until you get. So we are building large language models. You know, I think we are using Llama of Meta, but. And actually putting all the data, telco taxonomy, that it will be, you know. And there is privacy issues, security issues, there are many, many.
So when we build, we build our framework that we announced a couple of three months ago. It's actually telco grade, meaning that we know how to secure it. We know how to make sure that we'll get the results in a timely manner, in milliseconds. So this is something that we are building that will fit telco environment. And we take all the data that we have. Another example, and before we'll get to the Microsoft, is how we are going to improve our products. Today we have the best catalog in the market, you know, everyone is using it. Even Verizon decided to use it because it's really a great catalog. And the catalog is, like, the most, I would say, easy way to define offering.
Every offer is being defined in the catalog. So, today, if you want to define an offer, you go in, you define some offer you're trying to say, think about this as now that you will go to the same catalog and say, "I will want to create an offer to millennial in Dallas, in this age, in this average, in this area in the city, that can spend this type of money," and it will give you four different options to pick out of them. And then it also predict what will be the uptake. So this is really take our products to the next level.
Yeah.
Now, definitely. When we announced the partnership with Microsoft, this was before the generative AI. This was about creating with them what we call a CEP, which is Customer Engagement Platform. And we are combining from, actually integrating from Microsoft, all their CRM suite of
Dynamics part.
Yes, the Dynamics CRM suite, contact center, lead management, campaign management, all the contact center I know, Teams, all the everything that's connected to the robust, Dynamics platform, to all the Amdocs monetization platform to be, and we are doing it R&D to R&D. Going to be a joint platform, which we believe is, obviously, the main competitor will be Salesforce, but we believe it's much, stronger because it's pre-integrated. Now, definitely we work with Microsoft to see how we can embed Copilot and other... Now, some of this thing coming is natively from Microsoft. Like, you know, that, when customer call, you know, in the contact center, immediately you can do voice sentiment and it, and predict what will be the the answer, and create a, generating email response and upsell opportunities.
I mean, this has come actually natively from Microsoft, but we are now in discussion with Microsoft how we can obviously... It's our powerhouse in this domain, how we can take this together and even take it further.
Okay.
But we see the generative AI, it is not just another. This is a key, I would say, focus in the company. I mean, Anthony is leading all our technology, he's leading it. We are doing it across the board. We're identifying internally more than 80 use cases that we are in the process of deploy in all the different domain. You know, bringing more value to our customers, bringing more automation, and do what. This is why we feel comfortable to do these steps, because we see some initial results to do this significant step of reduction in force now, because we already predict already for next year and the year after, what are the saving that we are going to get for using this technology.
So all in all, I think we are very positive and bullish about this.
Right. Yeah. So, you know, maybe sort of a broader question, because this is a topic of discussion with a lot of investors, is: How will the gains and benefits of Gen AI be shared between a vendor or a product company versus a client? Do you think the nature of contracts will change for you?
No. I can tell you that, it is true that, generative AI is probably it's something will have impact. I'm not definitely dismissing it. But this is... Remember that, when we are have engagement with our customers, we don't always—it's not about, okay, rate card, how much, how much, scrum team will cost after, you are in... We are not in this discussion. I think that when you see, for example, when we extend a managed services agreement, so the discussion is not, "Okay, I'm going to do the same scope for less money." I mean, we always lose in this discussion.
Usually, you can see that our extension, our build of, okay, extending the managed services, moving to the cloud, moving to the new catalog and ordering platform, it's always a lot of things that we are trying to combine together. It's never an apple to apple. So, because you have to do it, because you want not just to do the... If you're doing the same things, you're not bringing value. I mean, you become like the furniture of the building. I mean, you have to bring more and more, more and more value. And in this discussion, I think that our customers will see, I would say, improving margin... Sorry, improving cost from their perspective, TCO reduction.
In many cases, I believe that some of this saving actually will be funneled to accelerate technology. So yes, we know we will have to deal with it, but I don't think it's new to us. I mean, this is always... I can tell you that we do managed services today much better than we've done 10 years ago. Doesn't matter that... And by the way, and the last comment, in some respect, the environments become more complex, which requires actually more spend. So Gen AI is some, a little bit, I would say, I would say, some, mitigate this, because there is no even one Amdocs customer, which is in a pure cloud environment.
Mm-hmm.
For the five to seven years, you are running hybrid environment, some of it on the cloud. So it's not that, it's like a clean cut. I mean, so some of it, I think that, some of the saving can be used to accelerate technology, some of it to accelerate, obviously, to mitigate complexity, but and we are getting prepared for that.
... Okay, okay. We only have a couple of minutes left-
Mm-hmm.
You know, and of course, at least seven more questions. But in terms of some of the other topics, right? Say, 5G, for example, journey to cloud, maybe a broader question about these, where do you think customers are in their journey?
Mm-hmm.
Right. Are we still early stage-
Yeah
... mid stage? Where are we?
So it depends on geography. I think the U.S. is a bit ahead of 5G. I think that and also in fixed wireless, for example. So you think the rest of the world is a follower in 5G deployment. I think the only outlier is APAC, which, Singapore and Korea are literally the only countries in the world that deployed the, what we call standalone 5G, which is not even deployed in the U.S. in scale. So I think that we see 5G, Fiber, broadband, and fixed wireless, you know, moving to... I think from cloud perspective, all, everyone is behind. I mean, this is true for the, I mean, everyone is just starting to move, which means that this cycle or this structure will take some time until...
I think the U.S. is now accelerating fiber. I think we talked about this. I think from all the territories, I think Latin America is a bit still behind in 5G deployment, which means that we're going to get there finally, and we're going to be there already. But digital transformation, move to the cloud, 5G deployment, I mean, it's relevant for everyone. I think that the U.S. is a bit ahead, but I think that everyone is starting to catch up.
Fantastic. And that's a great note to end the discussion on. We're out of time. A lot more questions.
Thank you for the opportunity. Thank you, guys. We'll be happy to share any information. As I said, I think that we remain positive about the environment. Obviously, like everyone else, we have headwinds that we are dealing with, but overall, I think the company is in a good spot.
Fantastic. Thank you.
Thank you.
Thank you very much.