Amdocs(DOX) - 2023 Q3 - Quarterly Report

Executive Summary & Q2 Fiscal 2023 Highlights The company reported record Q2 FY23 revenue, advanced strategic initiatives, and delivered strong financial metrics Q2 Fiscal 2023 Performance Overview Amdocs achieved record quarterly revenue of $1.22 billion, an 8.2% YoY constant currency increase driven by strong regional performance Q2 FY23 Performance | Metric | Q2 FY23 Actual | YoY Change (as reported) | YoY Change (constant currency) | | :--- | :--- | :--- | :--- | | Total Revenue | $1,223 million | 6.8% | 8.2% | | North America Revenue | $829 million | 7.4% | | | Europe Revenue | $172 million | 16.6% | | | Managed Services Revenue | $719 million | | | - Managed services revenue reached a record $719 million, accounting for approximately 59% of total revenue[1] Strategic Developments The company advanced its strategy through new client deals, an expanded Microsoft partnership, and a key acquisition - Secured new deals including key awards with T-Mobile in the US, two new logos in Eastern Europe, and a significant cloud-migration engagement with PLDT in the Philippines[3] - Expanded Microsoft partnership to introduce a new AI-powered Customer Engagement Platform[3] - Launched CES23, the most advanced Customer Experience Suite, to sharpen focus on B2B growth potential[3] - Signed a definitive agreement on May 10, 2023, to acquire TEOCO's service assurance business for approximately $90 million in cash, enhancing network automation strategy[3][4] Key Financial Metrics The company reported strong EPS within guidance, robust free cash flow, and a record twelve-month backlog Earnings Per Share | Metric | Q2 FY23 Actual | Guidance Range | | :--- | :--- | :--- | | GAAP Diluted EPS | $1.23 | $1.18-$1.26 | | Non-GAAP Diluted EPS | $1.47 | $1.44-$1.50 | | GAAP Operating Margin | 14.9% | | | Non-GAAP Operating Margin | 17.8% | | Cash Flow and Backlog | Metric | Q2 FY23 Actual | YoY Change | | :--- | :--- | :--- | | Free Cash Flow | $259 million | | | Twelve-Month Backlog | $4.11 billion | 5.7% | | Share Repurchases | $106 million | | - GAAP operating margin increased by 220 basis points sequentially and 60 basis points YoY, primarily due to restructuring charges[1] Management Commentary Management highlighted strong quarterly performance, strategic progress, and a positive outlook for key technology cycles CEO Statement The CEO highlighted record revenue driven by strong regional growth, cloud-related wins, and strategic progress in 5G, AI, and B2B - Record revenue of $1.22 billion, up 8.2% in constant currency, driven by best-ever quarters in North America and Europe[3] - Continued sales momentum with multiple cloud-related wins and new deals, including T-Mobile, two new Eastern European logos, and a cloud-migration engagement with PLDT[3] - Expanded Microsoft partnership for an AI-powered Customer Engagement Platform and launched CES23 to focus on B2B growth[3] - Signed a definitive agreement to acquire TEOCO's service assurance business to enhance network automation strategy[3] CFO Statement The CFO noted strong execution with high project deployment rates, improved profitability, and robust free cash flow - Maintained a high rate of project deployments in Q2, achieving major milestones with large service providers[5] - Profitability improved sequentially and year-over-year, driven by ongoing efficiency gains[5] - Very strong free cash flow generation, supported by healthy cash collections from customers[5] - Renewed several managed services agreements, including an extended multiyear partnership with Globe in the Philippines and an expanded cloud-related engagement with a major Western European operator[5] Strategic Outlook Amdocs is well-positioned at the core of a multi-year technology investment cycle and reiterates its FY23 revenue growth outlook - Amdocs is positioned at the heart of a multi-year, technology-driven investment cycle centered around 5G, network automation, digital modernization, and cloud[6] - Amdocs' role as a trusted partner is crucial in helping service providers improve consumer and B2B experience, accelerate cost reduction, and increase efficiency amidst shifting market dynamics[6] - Reiterates fiscal 2023 constant currency revenue growth within a tighter range of 7% to 9%, while maintaining improved profitability and robust earnings to cash conversion[6] Q2 Fiscal 2023 Financial Results The company details its Q2 FY23 revenue performance, net income, and earnings per share against guidance and prior periods Revenue Performance Q2 FY23 revenue of $1,223 million surpassed the midpoint of guidance, with 8.2% YoY growth in constant currency Q2 FY23 Revenue | Metric | Three months ended March 31, 2023 (Actual) | Guidance Range | | :--- | :--- | :--- | | Revenue | $1,223 million | $1,200 - $1,240 million | | Revenue Growth (as reported) | 6.8% | | | Revenue Growth (constant currency) | 8.2% | | - Revenue for Q2 FY23 was at the midpoint of Amdocs' guidance, even after adjusting for a positive foreign currency impact of approximately $3 million compared to guidance assumptions[10] - Q2 FY23 revenue included a positive impact from foreign currency movements of approximately $7 million relative to Q1 FY23[10] Net Income and Earnings Per Share GAAP diluted EPS was $1.23 and Non-GAAP diluted EPS was $1.47 for Q2 FY23 Q2 FY23 Net Income and EPS | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | GAAP Net Income attributable to Amdocs Limited | $149,603 thousand | $158,497 thousand | | GAAP Diluted EPS | $1.23 | $1.28 | | Non-GAAP Net Income attributable to Amdocs Limited | $178,592 thousand | $190,944 thousand | | Non-GAAP Diluted EPS | $1.47 | $1.54 | - Non-GAAP net income excludes amortization of purchased intangible assets, acquisition-related costs, changes in acquisition liabilities, equity-based compensation, and other, net of related tax effects[8] Capital Allocation & Backlog The company details its shareholder return activities and reports a record twelve-month backlog Shareholder Returns Amdocs continued its commitment to shareholder returns via quarterly dividends and share repurchases totaling $106 million - The Board approved a quarterly cash dividend payment of $0.435 per share, payable on July 28, 2023, to shareholders of record on June 30, 2023[11] - Repurchased $106 million of ordinary shares during the second fiscal quarter of 2023[11] Twelve-Month Backlog The twelve-month backlog reached a record $4.11 billion at the end of Q2 FY23, a 5.7% year-over-year increase Backlog | Metric | As of March 31, 2023 | YoY Change | | :--- | :--- | :--- | | Twelve-Month Backlog | $4.11 billion | 5.7% | - The backlog comprises anticipated revenue from contracts, estimated revenue from managed services contracts, letters of intent, maintenance, and estimated ongoing support activities[12] Financial Outlook Amdocs provides its financial guidance for the third quarter and reiterates its outlook for the full fiscal year 2023 Third Quarter Fiscal 2023 Outlook For Q3 FY23, Amdocs projects revenue between $1,215 million and $1,255 million and Non-GAAP diluted EPS between $1.45 and $1.51 Q3 2023 Guidance | Metric | Q3 2023 Guidance Range | | :--- | :--- | | Revenue | $1,215-$1,255 million | | GAAP Diluted EPS | $1.16-$1.26 | | Non-GAAP Diluted EPS | $1.45-$1.51 | - Third quarter revenue guidance assumes immaterial sequential impact from foreign currency fluctuations compared to Q2 FY23[15] - Non-GAAP diluted EPS guidance excludes equity-based compensation expense of approximately $0.15-$0.17 per share and amortization of purchased intangible assets and other acquisition-related costs of approximately $0.08 per share[15] Full Year Fiscal 2023 Outlook Amdocs reiterated its full-year FY23 outlook, tightening revenue growth to 7.0%-9.0% in constant currency and maintaining its free cash flow target FY 2023 Guidance | Metric | FY 2023 Current Guidance | FY 2023 Previous Guidance | | :--- | :--- | :--- | | Revenue growth (as reported) | 6.0%-8.0% | 5.0%-9.0% | | Revenue growth (constant currency) | 7.0%-9.0% | 6.0%-10.0% | | GAAP diluted EPS growth | 3.0%-10.0% | 3.0%-10.0% | | Non-GAAP diluted EPS growth | 9.0%-13.0% | 9.0%-13.0% | | Free Cash Flow | ~$700 million | ~$700 million | - Full year fiscal 2023 revenue guidance incorporates an expected unfavorable impact from foreign currency fluctuations of approximately 1% year-over-year, consistent with previous expectations[18] - Non-GAAP diluted EPS growth excludes various items including equity-based compensation expense of approximately $0.58-$0.63 per share and restructuring charges of approximately $0.15 per share[18] - Non-GAAP effective tax rate is anticipated to be within a range of 13.0% to 17.0% for the full year fiscal 2023[18] Non-GAAP Financial Measures This section defines the non-GAAP financial measures used by Amdocs and explains management's rationale for their use Definition and Exclusions Non-GAAP measures exclude items like amortization, acquisition costs, restructuring charges, and equity-based compensation to provide additional performance insights - Non-GAAP measures exclude amortization of purchased intangible assets and other acquisition-related costs, changes in certain acquisition-related liabilities measured at fair value, restructuring and unusual charges or benefits, equity-based compensation expense, other, and tax effects related to these items[21][23] - Free cash flow is defined as cash generated by operating activities less net capital expenditures and other[22] - Normalized free cash flow, no longer applicable since Q1 2023, previously adjusted for capital expenditures related to new campus development, payments for non-recurring charges, and acquisition-related liabilities[22][38] Management's Rationale Management believes non-GAAP measures offer useful information regarding financial trends and are used for internal budgeting and monitoring - Non-GAAP measures provide useful information to investors and management regarding financial and business trends, as well as the net cash generated after capital spending[24] - Amdocs' management uses non-GAAP financial statements for internal budgeting and monitoring, excluding items like amortization of purchased intangibles, acquisition-related liabilities, restructuring charges, and equity-based compensation[25] - Significant groups of investors exclude these items when reviewing results, as their amounts can vary greatly depending on company-specific assumptions[25] Consolidated Financial Statements This section presents the company's consolidated statements of income, balance sheets, and cash flows for the reporting period Consolidated Statements of Income The income statement details revenues, expenses, and net income for the three and six months ended March 31, 2023 Statements of Income (in thousands, except per share data) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Six months ended March 31, 2023 | Six months ended March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,223,304 | $1,145,271 | $2,409,024 | $2,249,903 | | Operating income | $182,277 | $163,651 | $332,351 | $323,797 | | Net income attributable to Amdocs Limited | $149,603 | $158,497 | $279,270 | $292,099 | | Diluted earnings per share | $1.23 | $1.28 | $2.30 | $2.34 | | Cash dividends declared per ordinary share | $0.435 | $0.395 | $0.830 | $0.755 | Selected Financial Metrics (Non-GAAP) This section presents key non-GAAP metrics, showing non-GAAP diluted EPS of $1.47 for Q2 FY23 and $2.92 for the six-month period Non-GAAP Metrics (in thousands, except per share data) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Six months ended March 31, 2023 | Six months ended March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,223,304 | $1,145,271 | $2,409,024 | $2,249,903 | | Non-GAAP operating income | $217,737 | $201,625 | $427,275 | $395,232 | | Non-GAAP net income attributable to Amdocs Limited | $178,592 | $190,944 | $354,929 | $341,079 | | Non-GAAP diluted earnings per share | $1.47 | $1.54 | $2.92 | $2.74 | Free Cash Flows Amdocs reported strong free cash flow of $259.4 million for the quarter and $308.9 million for the six months ended March 31, 2023 Free Cash Flow (in thousands) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Six months ended March 31, 2023 | Six months ended March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $294,476 | $168,856 | $377,702 | $372,974 | | Purchases of property and equipment, net | $(35,119) | $(47,271) | $(68,822) | $(104,496) | | Free Cash Flow | $259,357 | $121,585 | $308,880 | $268,478 | - Normalized Free Cash Flow is no longer applicable since Q1 2023[38] Condensed Consolidated Balance Sheets The balance sheet shows total assets increased to $6.46 billion as of March 31, 2023 Balance Sheet Highlights (in thousands) | Metric | As of March 31, 2023 | As of September 30, 2022 | | :--- | :--- | :--- | | Total current assets | $2,104,936 | $2,003,147 | | Total assets | $6,464,170 | $6,390,393 | | Total current liabilities | $1,324,897 | $1,252,680 | | Total Amdocs Limited Shareholders' equity | $3,586,141 | $3,517,769 | | Total liabilities and equity | $6,464,170 | $6,390,393 | - Cash and cash equivalents increased to $623.4 million as of March 31, 2023, from $573.4 million as of September 30, 2022[44] Consolidated Statements of Cash Flows The cash flow statement details cash movements from operating, investing, and financing activities for the six-month period Cash Flow Highlights (in thousands) | Metric | Six months ended March 31, 2023 | Six months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $377,702 | $372,974 | | Net cash used in investing activities | $(61,055) | $(143,084) | | Net cash used in financing activities | $(266,620) | $(345,898) | | Net increase (decrease) in cash and cash equivalents | $50,027 | $(116,008) | | Cash and cash equivalents at end of period | $623,404 | $593,056 | - Repurchase of shares amounted to $205.6 million for the six months ended March 31, 2023[46] Reconciliation of GAAP to Non-GAAP Measures This section provides a detailed reconciliation of GAAP to Non-GAAP financial metrics for the reported periods Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP Adjustments for items like amortization and equity-based compensation bridge the gap between GAAP and non-GAAP operating income and net income Three Months Ended March 31, 2023 (Operating Income Reconciliation): | Metric | GAAP | Amortization of purchased intangible assets and other | Equity based compensation expense | Changes in certain acquisitions related liabilities measured at fair value | Tax effect | Non-GAAP | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating income | $182,277 | $12,940 | $21,361 | $1,159 | $0 | $217,737 | Six Months Ended March 31, 2023 (Operating Income Reconciliation): | Metric | GAAP | Amortization of purchased intangible assets and other | Equity based compensation expense | Changes in certain acquisitions related liabilities measured at fair value | Restructuring charges | Tax effect | Non-GAAP | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating income | $332,351 | $28,253 | $40,851 | $1,284 | $24,536 | $0 | $427,275 | - The reconciliation details the specific impact of adjustments on various line items in the Consolidated Statements of Income, including cost of revenue, research and development, selling, general and administrative, and income taxes[26][40][42] Supplementary Information This section provides supplementary data including revenue by geography and trends in managed services and backlog Revenue by Geography North America and Europe continue to be key growth regions, with revenues of $829.0 million and $171.7 million respectively in Q2 FY23 Revenue by Geography (in millions) | Region | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | North America | $829.0 | $812.7 | $794.4 | $788.0 | $772.2 | | Europe | $171.7 | $168.7 | $146.4 | $146.1 | $147.2 | | Rest of the World | $222.6 | $204.3 | $225.7 | $226.2 | $225.9 | | Total Revenue | $1,223.3 | $1,185.7 | $1,166.5 | $1,160.3 | $1,145.3 | Managed Services Revenue Managed Services revenue continued its growth trajectory, reaching $718.9 million in Q2 FY23 Managed Services Revenue (in millions) | Metric | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Managed Services Revenue | $718.9 | $699.8 | $714.6 | $717.9 | $663.4 | 12-Month Backlog Trend The 12-month backlog shows a consistent upward trend, reaching a record $4,110 million as of March 31, 2023 12-Month Backlog (in millions) | Metric | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | 12-Month Backlog | $4,110 | $4,090 | $3,970 | $3,950 | $3,890 | Additional Information This section includes company information, conference call details, forward-looking statements, and contact information About Amdocs Amdocs is a leading provider of software and services to communications and media companies, with $4.58 billion in revenue in fiscal 2022 - Amdocs provides market-leading software products and services to communications and media companies[27] - The company has 31,000 employees globally and focuses on accelerating service providers' migration to the cloud, enabling 5G differentiation, and digitalizing and automating operations[27] - Amdocs had revenue of $4.58 billion in fiscal 2022[27] Conference Call and Earnings Webcast Presentation Details Amdocs hosted a conference call on May 10, 2023, to discuss its Q2 FY23 results - A conference call and earnings webcast presentation was held on May 10, 2023, at 5:00 p.m. Eastern Time[19] - Participants could register to receive dial-in numbers and a unique access PIN, or access the live webcast via the Amdocs website[20] Forward-Looking Statements This release contains forward-looking statements that involve risks and uncertainties related to macroeconomic conditions, competition, and other factors - Forward-looking statements are subject to risks and uncertainties, including general macro-economic conditions, geopolitical events, inflationary environment, and their effects on clients' businesses[30] - Other risks include Amdocs' ability to grow in its markets, integrate acquired businesses, adverse effects of market competition, rapid technological shifts, potential loss of major customers, and risks associated with international operations[30] - Amdocs disclaims any obligation to update these forward-looking statements, which are discussed in greater length in its SEC filings[30] Contact Information Contact information for Amdocs' Head of Investor Relations is provided for inquiries - Contact: Matthew Smith, Head of Investor Relations, Amdocs. Phone: 314-212-8328, Email: dox_info@amdocs.com[31]