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Amdocs (DOX -1.25%)
Q2 2022 Earnings Name
Might 11, 2022, 5:00 p.m. ET
Contents:
- Ready Remarks
- Questions and Solutions
- Name Individuals
Ready Remarks:
Operator
Good day, and thanks for standing by. Welcome to the Q2 2022 Amdocs earnings convention name. [Operator instructions] Please be suggested that at this time’s convention is being recorded. [Operator instructions] I might now like at hand the convention over to your first speaker at this time, Matthew Smith, head of investor relations.
Sir, chances are you’ll start.
Matthew Smith — Head of Investor Relations
Thanks, operator. Earlier than we start, I have to name your consideration to our disclaimer assertion on Slide 2 of the presentation. It notes that a few of our feedback at this time could also be forward-looking statements and are topic to dangers and uncertainties as described in Amdocs’ SEC filings and that we’ll talk about sure monetary info that isn’t ready in accordance with GAAP. For extra info relating to our use of non-GAAP monetary measures, together with reconciliations of those measures, we refer you to at this time’s earnings launch, which may also be furnished with the SEC on Kind 6-Okay.
Collaborating on the decision with me at this time are Shuky Sheffer, president and chief govt officer of Amdocs Administration Restricted; and Tamar Rapaport-Dagim, joint chief monetary and working officer. To help at this time’s earnings name, we’re offering a presentation, which could be discovered on the Investor Relations part of our web site. And as all the time, a replica of at this time’s ready remarks may also be posted instantly following the conclusion of this name. On at this time’s agenda, Shuky will recap our enterprise and monetary achievements for the second quarter of fiscal 2022, and we’ll replace you on the continued progress we have now made executing towards our strategic development framework.
Shuky will end by commenting on our monetary outlook, after which Tamar will present further particulars on our second quarter monetary efficiency and steering. As a reminder, our feedback at this time will check with sure monetary metrics on a professional forma foundation the place relevant, to give you a way of the underlying enterprise developments, excluding the monetary impression of open market, which we divested on December 31, 2020. And with that, I will flip it over to Shuky.
Shuky Sheffer — President and Chief Govt Officer
Thanks, Matt, and good afternoon to everybody becoming a member of us on the decision at this time. I would like to start on Slide 6 with an enormous thanks to our hundreds of workers worldwide. Following an incredible Q1, our second quarter was additionally very robust, and I couldn’t be extra happy with our operational and monetary execution for the fiscal 12 months to this point. Final quarter, we supplied the steering for the annual fixed foreign money income development of between 6% to 10% over the following three fiscal years.
And on the energy of our current efficiency, I can already say that we’re monitoring on the excessive finish of this vary on a professional forma foundation for the present fiscal 12 months to this point. I consider such nice efficiency is a testomony to our market management and the profitable training of our extremely related development technique, the credit score of which belongs to our international and numerous base of extremely proficient workers throughout all dimensions of our enterprise. I couldn’t be happy with Amdocs’ folks, and I am extremely assured that we’re well-positioned for future success. Now shifting to Slide 7, let me handle our second quarter operational highlights.
To start, total, enterprise exercise was very robust as we proceed to allow our buyer technique to supply a superior buyer expertise by supporting the extremely crucial funding in 5G and product monetization, cloud adoption, digital modernization and community automation. Exercise was significantly excessive in North America, the place Amdocs is within the coronary heart of the main strategic long-term funding occurring at our giant and long-standing clients. As an example, we proceed to help the multiyear modernization of AT&T client area, which is the core to its strategic give attention to 5G and fiber connectivity. We’re additionally glad to be core a part of T-Cellular’s modernization journey, the place we’re implementing our next-generation merchandise and cloud providers that can help T-Cellular’s long-term aggressive place, and the conclusion of the synergies associated to the Dash integration.
We additionally maintained strong gross sales momentum in Q2. We prolonged our long-standing managed providers relationship with Bell Canada for one more 5 years, as we proceed to help its cloud transformation. We gained a digital info undertaking with VodafoneZiggo in Netherlands and a brand new 5G coverage cope with a Tier 1 European operator, which expands our present footprint at this buyer. Moreover, we strengthened our partnership with PLDT within the Philippines with a three-year extension of our present managed providers settlement along with future tasks to help PLDT’s cloud journey.
I used to be particularly happy we have now very good execution in Q2. As we set one other report for quite a lot of undertaking milestone deployed. Amongst our achievements, we accomplished a serious digital transformation program for Three UK’s enterprise buyer segments, the place we moved from scoping, to constructing the cloud infrastructure, and go stay in simply 15 months. Such accomplishments bolstered our unmatched popularity for undertaking supply and strengthened our capability to keep up a excessive win price out there.
As a closing spotlight, we additional accelerated our R&D funding this quarter, underscoring our dedication to repeatedly deliver cutting-edge expertise and world-class product and platforms to market. At Cellular World Congress in Barcelona this quarter, we launched CES22, our newest open and modular cloud-native 5G suite. After the two-year pandemic, it was thrilling to expertise the constructive buyer power at this 12 months’s present, and I used to be extremely inspired by the robust suggestions we obtained in respect to our providing in strategic course all through a dozen of C11 govt conferences we hosted through the week. Nice operational efficiency interprets into very robust second quarter outcomes, the highlights of which could be seen on Slide 8.
Report income of $1.15 billion marked a 3rd straight quarter through which professional forma development was exceeding 10% 12 months over 12 months on a relentless foreign money foundation. We additionally achieved report 12 months backlog of $3.89 billion, up 10% from a 12 months in the past, and pushed by the strong gross sales momentum, I highlighted earlier. On the underside line, we delivered a non-GAAP earnings per share of $1.54, which was above the excessive finish of steering, primarily resulting from a lower-than-anticipated non-GAAP efficient tax price for the quarter. Turning to Slide 9.
Let me say just a few phrases about Amdocs’ publicity to Russia and Ukraine and our response to the humanitarian disaster unfolding. From a enterprise perspective, Amdocs’ publicity to Russia and Ukraine is immaterial and roughly 1% of income, and its impression is already mirrored in our steering. Moreover, we consider we have now taken all crucial steps to make sure we’re totally compliant with the relevant sanctions and export management, and we have now stopped all new gross sales of our product and providers in Russia. We’ve additionally taken steps to make sure the wellbeing of the staff and contractors we have now within the area and to help those that needed to go away with their households.
Moreover, we’re actively offering humanitarian support in Ukraine and neighboring nations. Amongst our many initiatives, Amdocs is a part of a donation marketing campaign to supply important providers by way of UNICEF to susceptible youngsters and affected households. We’re additionally providing monetary help to Amdocs’ workers, who’re internet hosting refugee households. Now let’s take a more in-depth have a look at our current progress executing towards our four-pillar development technique of cloud, 5G, digital and community automation is proven on Slides 10 and 11.
Starting with Cloud Providers. T-Cellular has just lately carried out Amdocs’ enterprise assurance answer on AWS, leveraging cloud and synthetic intelligence, this implementation will assist to drive margin synergies with Dash by accelerating the migration to mixed buyer base and is a part of the bigger digital transformation and prolonged hybrid cloud operation, we’re supporting for T-Cellular underneath the multiyear managed providers settlement we introduced final 12 months. Moreover, we’re proud to say that we just lately prolonged our long-term standing relationship with Bell Canada as a part of a brand new five-year managed providers engagement, to counterpoint its enterprise platform with real-time agile and cloud-ready ecosystem, as a part of its continued cloud transformation. Switching to 5G monetization, we’re excited to announce a five-year cope with a Tier 1 European operator, which is able to implement Amdocs’ coverage management answer on cloud infrastructure to help its new 5G stand-alone community.
5G stand-alone community can be central to unleashing the total potential of 5G and Amdocs’ coverage management answer is a key component that can allow this buyer to launch cutting-edge 5G providers and enterprise mannequin for its residential and enterprise clients, whereas lowering operational prices. Inside digital, we expanded our long-term standing relationship with VodafoneZiggo within the Netherlands, which has chosen Amdocs’ product and providers for a wide-ranging digital transformation tasks. Amdocs will migrate fastened line buyer to a platform beforehand constructed by Amdocs for VodafoneZiggo’s cell clients, thereby leading to a unified buyer journey, shorter common dealing with instances, diminished time to market, and price financial savings linked to the retirement of its previous fixed-line IT stack. Q2 was additionally a productive quarter in community automation.
Among the many buyer highlights, we’re delighted to announce that we have now continued to broaden our relationship with Comcast, which has chosen Amdocs for a multiyear community automation testing deal. In Europe, we signed a first-ever settlement with Vodafone Albania, which expanded beforehand introduced deal to supply stock next-generation OSS capabilities for Vodafone’s Cellular suits and cable providing in Germany, Romania and Czech Republic. We additionally efficiently accomplished a community stock modernization undertaking with Fastweb, which is able to allow the Italian service supplier to enhance time to market with progressive new providers within the 5G and cloud space. As a closing remark, let me point out Amdocs Media, which has been chosen to deploy our Amdocs MarketONE SaaS platform on the general public cloud for Virgin Media O2.
MarketONE will give shoppers the flexibility so as to add leisure subscription to their month-to-month invoice or take pleasure in them as a part of an even bigger bundle with their present broadband, cell and cable packages. Moreover, Virgin Media O2 will be capable to simply broaden its rising portfolio of recent OTT companions, as its look to additional enhance buyer loyalty. General, this thrilling undertaking offers one other signal of constructive buyer traction for MarketONE, which has already been chosen by T-Cellular, AT&T Mexico and others. Now turning to our monetary outlook on Slide 12.
As I mentioned in the beginning of my remarks, I couldn’t be extra happy with our Q2 efficiency. Our gross sales momentum is powerful, and we see a big and increasing pipeline of alternatives forward of us, which we anticipated to monetize by leveraging our progressive market distinctive expertise, our unmatched observe report of execution, and our extremely expert clever worker base, which is concentrated on delivering worth to our clients worldwide. Wrapping the whole lot collectively, we’re assured that Amdocs can ship annual income development throughout the vary of 6% to 10% on a relentless foreign money foundation over the three fiscal years 2022 to 2024. And as an organization, we have now entered a brand new space of accelerative development.
Concerning fiscal 12 months 2022 particularly, we at the moment are monitoring on the excessive finish of our income development steering vary of 8% to 10% on a professional forma fixed foreign money foundation. Equally, we’re additionally monitoring on the excessive finish of our diluted non-GAAP earnings-per-share development steering vary of 9% to 12% on a professional forma foundation in fiscal 12 months 2022, which pretty place us to ship double-digit, anticipated whole shareholder return for the second 12 months working, together with our dividend yield of roughly 2%. With that, let me flip the decision to Tamar for her remarks.
Tamar Rapaport-Dagim — Chief Monetary and Working Officer
Thanks, Shuky, and hiya, everybody. Thanks for becoming a member of us. As a reminder, my feedback at this time will check with sure monetary metrics on a professional forma foundation, which exclude the monetary impression of OpenMarket, which we divested on December 31, 2020. Turning to our monetary highlights on Slide 14.
I am very proud of our distinctive efficiency within the second fiscal quarter, which adopted an already robust begin to the 12 months. Report Q2 income of $1.15 billion was up 10.1% 12 months over 12 months, pushed by our best-ever quarter in North America and sequential development in Europe and remainder of the world. Income was in keeping with the excessive finish of steering, together with an immaterial impression from overseas foreign money actions in comparison with our steering assumptions. Transferring down the revenue assertion.
Our Q2 non-GAAP working margin of 17.6% was up 10 foundation factors sequentially, and unchanged as in contrast with a 12 months in the past, as accelerated R&D investments and the impact of the aggressive labor surroundings had been greater than offset by our relentless give attention to operational excellence, together with the continued implementation of automation and different subtle instruments, designed to repeatedly enhance effectivity. On the underside line, non-GAAP diluted EPS of $1.54 was above the excessive finish of our steering vary. Diluted non-GAAP EPS features a non-GAAP efficient tax price of 1.6%, which was a lot decrease than we anticipated for the quarter, primarily resulting from launch of tax reserves linked with funding selections for the development of our new campus in Israel. This tax profit was among the many situations contemplated in our non-GAAP efficient tax price steering for the total fiscal 12 months 2022, which continues to be anticipated to be inside a variety of 13% to 17%.
Diluted GAAP EPS was $1.28 for the second fiscal quarter, which was additionally above the steering vary of $0.96 to $1.04, primarily because of the decrease efficient tax price we anticipated for the — than we anticipated for the quarter. Transferring to Slide 15. Strong gross sales momentum through the second quarter translated to report excessive 12 months backlog of $3.89 billion, which was up 10% from a 12 months in the past. On a sequential foundation, 12 months backlog was up $60 million as in comparison with December 31.
As a reminder, our 12 months backlog consists of anticipated income associated to contracts, estimated income for managed providers contracts, letters of intent, upkeep, and estimated ongoing help actions. To additional make clear, a brand new cope with the client will solely be included in 12 months backlog as soon as contract is duly signed. Given the general nature of the work included, our 12-month backlog has historically served as a very good main indicator of our enterprise, having constantly averaged round 80% of forward-looking 12 months income over time. Turning to Slide 16.
Q2 was additionally a report excessive quarter for income from managed providers engagements, which grew 5% from a 12 months in the past, equating to roughly 58% of whole income. Our multiyear managed providers engagements underpin the resiliency of our enterprise with recurring income streams, near 100% renewal charges, and expanded actions, which can additionally embody large-scale digital transformation undertaking with present clients. As an example, we just lately prolonged our managed providers relationship with Bell Canada for one more 5 years by way of 2027, as we proceed to help its cloud transformation. Moreover, we strengthened our partnership with PLDT within the Philippines, the place this main operator has awarded Amdocs a three-year extension of our present managed providers settlement by way of 2028, along with future tasks to help PLDT’s cloud journey.
Turning to the stability sheet and money move. As you possibly can see on Slide 17, DSO of 81 days elevated by two days 12 months over 12 months and two days sequentially in Q2, primarily reflecting greater invoicing ranges triggered by a report variety of milestone deliveries achieved within the quarter. Moreover, the online constructive distinction of deferred income nonbilled receivables additional improved in Q2. Altogether, we generated normalized free money move of $160 million.
This was a robust efficiency contemplating that Amdocs’ free money move tends to be seasonally weaker in our second fiscal quarter because of the timing of annual bonus funds. We consider we’re nicely on observe to reaching our goal of $650 million for the total fiscal 12 months 2022. General, we ended the quarter with a robust money stability of roughly $856 million, together with mixture borrowings of roughly $650 million. Our stability sheet stays robust, and with ample liquidity, we count on to be in a very good place to proceed to help our ongoing enterprise wants, whereas retaining the capability to fund our future strategic development investments as and when the best alternatives come up.
Turning to capital allocation on Slide 18. As you possibly can see within the first chart, we repurchased $130 million of our shares within the second quarter. Together with money dividend funds of $44 million, we returned $174 million to shareholders in Q2, equating to greater than 100% of normalized free money move. We count on to return a majority of our normalized free money move to shareholders for the total fiscal 12 months 2022.
As an added level, our normalized free money move outlook of $650 million assumes a conversion price of roughly 100% of non-GAAP internet revenue, which is per our long-term common. Normalized free money move excludes anticipated capex of about $131 million in relation to the event of our new Israeli campus, per our earlier expectation. Now turning to our outlook on Slide 19. The prevailing stage of macroeconomic enterprise and operational uncertainty stays elevated, together with with respect to the magnitude and period of the COVID-19 pandemic.
The third quarter and full fiscal 12 months 2022 income steering displays what we contemplate to be the most definitely end result better of the knowledge we have now at this time, however we can not predict all attainable situations. With that mentioned, we’re monitoring in keeping with the excessive finish of our full 12 months fiscal 2022 income development steering of 8% to 10% on a professional forma fixed foreign money foundation, which incorporates constructive contributions from every of our three working areas of North America, Europe and Remainder of the world. Our annual outlook consists of third fiscal quarter income inside a variety of $1.14 billion to $1.18 billion, the midpoint of which represents the most definitely end result primarily based on our inside evaluation, equating to wholesome development of roughly 9% as reported from a 12 months in the past. On a reported foundation, full 12 months income development can be monitoring in keeping with the excessive finish of our steering vary of 5.2% to 7.2% 12 months over 12 months.
Our reported income outlook anticipates an unfavorable overseas foreign money impression of roughly 80 foundation factors 12 months over 12 months as in contrast with our earlier expectation of 60 foundation factors. Transferring down the revenue assertion, we anticipate non-GAAP working margin to trace roughly in keeping with the midpoint of our annual goal vary of 17.2% to 17.8% within the first — within the third fiscal quarter and the fourth quarter. This outlook continues to imagine an accelerated tempo of R&D funding to help our clients in keeping with our technique, balanced with our fixed give attention to operational excellence, as talked about earlier. Under the working line, we anticipate that overseas foreign money fluctuations will proceed to impression our non-GAAP internet curiosity and different expense strains within the vary of some million {dollars} on a quarterly foundation.
We count on that non-GAAP efficient tax price within the third and fourth fiscal quarters can be above the excessive finish of our annual goal vary of 13% to 17%. For the total fiscal 12 months 2022, we count on our non-GAAP efficient tax price to be inside this annual goal vary of 13% to 17%. Bringing the whole lot collectively, we count on to ship professional forma non-GAAP diluted earnings-per-share development in keeping with the excessive finish of our steering vary of 9% to 12% for the total fiscal 12 months 2022. On a reported foundation, we additionally count on non-GAAP diluted earnings-per-share development in keeping with the excessive finish of our steering vary of seven.3% to 10.3% 12 months over 12 months.
General, we’re pretty on observe to ship double-digit whole shareholders’ return for the second fiscal 12 months working in 2022, assuming the upper finish of our professional forma non-GAAP earnings-per-share development steering plus our dividend yield. With that, again to you, Shuky.
Shuky Sheffer — President and Chief Govt Officer
Thanks, Tamar. Properly, as you possibly can in all probability inform from our remarks at this time, we’re excited by our first half efficiency, our current strategic progress and the robust outlook we have now supplied for the primary fiscal 12 months. With that, we’re blissful to take your questions. Operator?
Questions & Solutions:
Operator
Thanks. [Operator instructions] Your first query will come from Ashwin Shirvaikar with Citi. Your line is open.
Ashwin Shirvaikar — Citi — Analyst
Thanks, and congratulations on the strong quarter right here. So possibly I can ask each my questions collectively. The primary one is simply given the developments within the strong backlog, is it affordable to imagine this form of development price might proceed into fiscal ’23? And to make sure, it is a directional query, I am clearly not searching for 2023 steering. After which the second query partially associated is Bell Canada renewal.
Is there any like value discounting or income margin impression — income or margin impression that we must always fear about? Or are you simply absorbing this sort of impression?
Shuky Sheffer — President and Chief Govt Officer
Let me begin with the second query for Bell Canada. I feel we mentioned it earlier than. We by no means renew an settlement as what we name an apples-to-apples. So the brand new settlement is a complete settlement, each for managed providers and each for cloud transformation.
We’re very proud of this settlement and doesn’t suggest any stress on our numbers.
Tamar Rapaport-Dagim — Chief Monetary and Working Officer
Concerning the trying ahead and the way we must always learn into the 12 months backlog as a number one indicator, so by definition, it is a 12-month backlog, that means it covers half two of the present fiscal 12 months and the primary half of the following fiscal 12 months. And positively, the actual fact we’re monitoring already for a number of quarters on the neighborhood of the ten% year-over-year development of the backlog is displaying the good conversion and momentum we’re seeing in signing new enterprise in persevering with to see this 100% renewal price in managed providers, the whole lot that we talked about, which provides us robust confidence. As you mentioned, it’s kind of too early to information for 2023, however the momentum is there. The pipeline is powerful.
The very fact we’re seeing this development in all the important thing three areas may be very encouraging. As I mentioned already within the prior quarter, Europe is anticipated to speed up within the second half of the 12 months. By the best way, a lot of the foreign money impression we’re speaking about on the corporate stage is impacting our Europe numbers. So we consider that on a relentless foreign money foundation, Europe is already rising and goes to speed up within the second half of the 12 months.
And in addition the momentum we’re persevering with to see when it comes to the relevance of the providing we deliver to market, to the expansion strategic pillars and the funding areas of our clients. As we mentioned earlier than, we proceed to see all indications that these funding areas are multiyear funding domains, so not solely the packages we’re working are already secured for a lot of of those instances for a few years, additionally the funding plans we’re seeing by dialogue with our clients.
Ashwin Shirvaikar — Citi — Analyst
Bought it. Thanks. Good things.
Shuky Sheffer — President and Chief Govt Officer
Thanks.
Tamar Rapaport-Dagim — Chief Monetary and Working Officer
Thanks, Ashwin.
Operator
Your subsequent query will come from Will Energy with Baird. Your line is open.
Charlie Erlikh — Baird — Analyst
Hey, guys. That is Charlie Erlikh on for Will. Thanks for taking the query. Tamar, I am simply trying on the third quarter steering and the total 12 months steering.
And I feel if my math is true, it implies that This autumn income was down sequentially a bit from Q3. Am I doing my math proper? Is that right? And if that’s the case, what can be the reason for that?
Tamar Rapaport-Dagim — Chief Monetary and Working Officer
No, it isn’t right. And that is why we — look, speaking about midpoint, it isn’t right. Clearly, the rationale we’re giving each the vary, but in addition focusing on and saying very clearly, we consider the most definitely state of affairs is that we finish the 12 months on the excessive finish of the vary of 8% to 10%. We have to give a variety with a view to handle totally different situations which will play out, however we’re assured within the outlook that we’re giving.
And no, I do not assume we must always see a sequential decline.
Charlie Erlikh — Baird — Analyst
OK. No, that is useful. Thanks.
Shuky Sheffer — President and Chief Govt Officer
The quick reply isn’t any.
Charlie Erlikh — Baird — Analyst
Sure. After which on the R&D investments that you simply talked about; are you able to simply discuss somewhat bit extra about what these investments are going towards?
Shuky Sheffer — President and Chief Govt Officer
I imply, clearly, given our place, we see a number of alternative to proceed to reinforce our merchandise to help all the brand new use instances that can exist and are creating proper now, each for client and B2B. So it is within the community area, in our monetization platform, it is throughout the board. And we all the time strive as a lot as we will to be forward of the market, creating our merchandise to be able to take it to market. So it is primarily in the identical pillars, however attending to the following stage of capabilities.
Charlie Erlikh — Baird — Analyst
Glorious. All proper. Thanks, each.
Tamar Rapaport-Dagim — Chief Monetary and Working Officer
Thanks.
Operator
[Operator instructions] And I am displaying no additional questions right now. I’ll now hand it again over to Matthew Smith for closing remarks.
Matthew Smith — Head of Investor Relations
Thanks very a lot, all people, for becoming a member of the decision this night. And when you do have any additional questions, please contact us right here within the Investor Relations group. With that, have an incredible night time. Thanks.
Operator
[Operator signoff]
Period: 31 minutes
Name members:
Matthew Smith — Head of Investor Relations
Shuky Sheffer — President and Chief Govt Officer
Tamar Rapaport-Dagim — Chief Monetary and Working Officer
Ashwin Shirvaikar — Citi — Analyst
Charlie Erlikh — Baird — Analyst
