Good day ladies and gentlemen and welcome to the Amdocs Fourth Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Later we will conduct a question--answer session and instructions will follow at that time. As a reminder today's conference is being recorded. I'd now like to introduce your host for today's conference Mr. Matt Smith, Head Investor Relations. Sir, please go ahead you.

Thank you, Lisa. Before we begin, I'd like to point out that during this call, we will discuss certain financial information that is not prepared in accordance with GAAP. The company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the company's business and to have a meaningful comparison to prior periods. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's earnings release, which will also be furnished with the SEC on Form 6-K. Also, this call includes information that constitutes forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include, but are not limited to, the effects of general economic conditions and such other risks as discussed in our earnings release today and at greater length in the company's filings with the Securities and Exchange Commission, including in our Annual Report on Form 20-F for the fiscal year ended September 30, 2017, filed on December 11, 2017, and our Form 6-K furnished for the first quarter of fiscal 2018 on February 12, 2018 and the second quarter fiscal 201 on May 25, 2018 and the first quarter of fiscal 2018, on August 2018. Amdocs may elect to update these forward-looking statements at some point in the future. However, the company specifically disclaims any obligation to do so. Additionally, we are pleased to mention that our analyst and investor briefing will be held in Tuesday, December 11 at the NASDAQ market site in New York City. Please contact investor relations for certain details and check our IR Web site several days in advance for details on how to accept the live Webcast. Participating on the call with me today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, Chief Financial and Operating Officer. With that, I'll turn it over to Shuky.

Thanks, Matt, and afternoon to everyone joining us today. This is my first earnings call as the new Chief Executive Officer of Amdocs and I would like to take this moment to thank Eli for his support and making this a smooth transition. I assumed the position of CEO October 1, and I'm very excited about the opportunity to lead Amdocs forward in fiscal 2019 and beyond. I'll talk more about the outlook for the coming year later in my remarks, but let me begin with a brief recap of our performance in Q4 and fiscal year 2018, both of which were solid and in line with our expectations. Q4 revenue was slightly above the midpoint of our guidance and includes our best quarter in more than a decade. Our operating profitability was stable and our sales momentum was healthy as we continued to meet significant new target in line with our fiscal goals. Regarding fiscal 2018, I am pleased to say that we achieved our total revenue growth target on the year, our performance include a revenue decline in AT&T of 15% as is last estimated, reevaluated spending priorities around Time Warner and the obvious requirements of core business. Nevertheless, we more than offset this headwind with the result of our strong progress with new and increasing customers in the broader North America, Europe and the rest of the world. Moreover, we grew total revenue for the year while maintaining consistent execution, closing several of our digital positions and meeting our commitments to return roughly 1% normalized free cash flow to shareholders. Altogether, we delivered full-year diluted non-GAAP earnings per share growth of 6.1% in fiscal 2018, in line with the midpoint of our guidance range of 4% to 8% as we [indiscernible]. Now, let me provide some color…

Thank you, Shuky. Fourth fiscal quarter revenue of $1 billion was slightly above the midpoint of our guidance range and included as anticipated, a negative impact from foreign currency movement of approximately $5 million relative to the third quarter of fiscal 2018. Our fourth fiscal quarter non-GAAP operating margin was 17.2%, a decrease of 10 basis points from compared to prior quarter, but consistent with our tracking at the higher end of our long-term target range of 16.5% to 17.5%. Below the operating line, non-GAAP net interest and other expense was $3.4 million in Q4, primarily reflecting foreign exchange movements. For forward-looking purpose, we continue to expect a non-GAAP net interest and other expense in the range of $2 million quarterly due to foreign currency fluctuations. Diluted non-GAAP EPS was $0.99 in Q4, above the midpoint of our guidance range of $0.95 to $1.00. Our non-GAAP effective tax rate of 17.1% in Q4 was at the high-end of our expected annual range of 13% to 17%, but still slightly better than expected. Diluted GAAP EPS was $0.31 for the fourth fiscal quarter, below our guidance range of $0.71 to $0.79, primarily due to the one-time loss of $55 million incurred to settle a previously disclosed long-running legal dispute with Vest Corporation in the U.S. District Court in Oregon. This amount includes a settlement of $50 million plus legal fees and other associated costs of another $5 million. While we excessively denied and continue to deny any and all wrongdoing to the effect of this claim and were ready to vigorously defend ourselves, we balanced and considering the relevant litigation in the recent past, we believe it made better business sense to settle this case and mutually release each party and its respective customers with no admission of liability or fault.…

[Operator Instructions] Our first question comes from the line of Shaul Eyal with Oppenheimer. Your line is now open.

Thank you. Good afternoon, guys. Question on AT&T. You mentioned the current inability to forecast the growth assumption within the U.S. region, you mentioned also AT&T in that respect. Is it because of changing dynamics, or is it because of the ongoing consolidation in a way similar to what we had seen back in 2015 on the heels of the AT&T/DirectTV transaction, is it anything along these lines? Just trying to get a better understanding with respect to the dynamics.

Shaul, just to make it maybe clear, we're seeing a clear contrast in the demands and the trends between AT&T and rest of North America. So, while we're actually seeing a very good momentum in winning new business across the board in North America, we mentioned pay-TV as a growth driver, we just mentioned the new win with U.S. Cellular around digital mobilization and there are others that we cannot provide by name. In AT&T, we are still not seeing the appetite coming back for major new investments and therefore we are being cautious in our view and talking about relatively staying with no significant changes relative to our Q4 level fiscal 2018. Now, I think some of it is definitely about prioritization and planning ahead -- how they are going to move forward with WarnerMedia. Some of it may have to do with other parts of the business and how they are realigning priorities. So, it's important to indicate but at the same time what we are saying and continuing to support many activities across AT&T, across many buying centers and different type of things. We're still not seeing enough new indications coming along investment decisions to refuel that growth that we like to see in that account, as well. But definitely the overall North American picture is a contrast between the dynamics in AT&T and the rest of the business doing actually at a very positive momentum.

Thank you for that, Tamar. I'm sorry. Go ahead.

I want to add -- it's Shuky -- that definitely the partnership with AT&T remains strong and we don't lose any business to competition. We are at the heart of the AT&T opportunity, so I want to echo Tamar. Obviously, part of it relates to the Time Warner acquisition, but overall difficult to predict.

Right. This is extremely helpful color. Thank you for that. And maybe on Vubiquity, I don't know, Tamar, if you can -- if you want to disclose the contribution or even if you're not disclosing, maybe just a word about the progress you see with Vubiquity over the course of the past few quarters?

We don't disclose the number, maybe Tamar will share some, but overall what we see with Vubiquity is that traditionally Vubiquity had a very strong success with many media customers. And we see an increased pipeline for additional customers from APAC to North America to Europe, leveraging our existing partnership with our customers. As I mentioned before, we see major conversions to pay-TV, both in Europe, like in North America. So, we can leverage this relationship during this great offering of Vubiquity. We see increase in pipeline. These deals sometimes are 10 cycles long, but overall it looks promising.

Got it. Thank you for that, Shuky. Thank you, Tamar. I'll step aside now.

Thanks Shaul.

Our next question comes from Ashwin Shirvaikar with Citi. Your line is now open.

Thank you. Good evening. Hi, Shuky. Hi, Tamar. Shuky, congratulations on your first Amdocs CEO call.

Thank you.

I want to go back to the specific assumptions that are in there on a full year basis. If I could, starting with revenue, I understand that 4Q North America you're assuming -- 1Q you're assuming similar to 4Q, but on a full-year basis, what sort of assumptions are you making on the revenue line? And then, the margin expansion that we have seen -- a steady margin expansion over the last few years, would you expect that to continue. There's some uncertainty about margins versus tax since you only provided tax for that quarter.

So, clarification, the message around no significant change relative to Q4 is specific on our assumptions on AT&T. In general in North America, we are seeing good momentum as I mentioned across the board. It's actually both in the U.S. and Canada, pay-TV, wireless. We are actually seeing quite a nice level of activity. In terms of how we're looking on the margin, it's a combination between the factors of continuing to expand into many new logos and many new countries. We gave Italy as an example. We are continuing to see very strong momentum with new logos in [Maytech] [ph] et cetera, between of course, many activities we are wanting to improve the margins of the performing edges of the company. We are not building a margin expansion per se as a driver this year. We would like to continue to push for growth and we have accelerated as you've seen on a constant currency basis, with this funding 4% relative to 2.3% on a constant currency growth of '18. We are putting the focus on the acceleration of growth and grabbing the opportunities we're seeing around the world to win new business and maintain more or less the margin at around the higher end of the 16.5% to 17.5% that is targeted. On a tax rate level, again just to clarify, the annual basis projection is to remain in the range of 13% to 17%, which is consistent with what we've had in fiscal '18. Specifically in Q1, the [indiscernible] that we are expecting to be higher level of the high end. But that's because we've seen volatility in tax rates between quarters before, so I don't think it's something to worry about. It's just giving you additional color of how exactly the specific EPS guidance on a non-GAAP basis in Q1.

Got it. And then, as I think about you had the comment on Europe, the new signings and such, would that imply that the strong European growth that we have seen in this quarter should continue?

Europe is based on many project activities relative to the -- if I'm looking at recurring revenue versus project activity, specifically in the European region we are still seeing a high percentage of project activity. And therefore, when we're looking on the 17% year-over-year growth of Q4, we don't believe this is sustainable moving forward, given some natural fluctuations we're seeing with projects that are ramping down, just getting to the finish line and where new business is ramping up. But at the same time, the win rate is very healthy. We're continuing to see new wins in the backdrop already and we have also a solid pipeline. So, we do believe Europe will continue to be a growth area for us. Just wanted to set expectations at the right level for moderation relative to that strong double-digit growth we have seen in Q4.

The trend in Europe, which is now both consolidation and convergence. So, you see Vodafone is buying both Kabel Deutschland, now they bought LGI, the same in the U.K. between VT and Everything Everywhere. This consolidation and convergence activity, I think is our switch off because this is where we need to modernize the support system and be able to offer these to the market. So, this is why we said that we are very optimistic about Europe.

Understood. Thank you.

Thank you, Ashwin.

Our next question comes from Jackson Ader with JPMorgan. Your line is now open.

Great. Thank you. Good evening, everybody. My question is, if we think about the sales efforts that -- when you're going after some of the emerging opportunities, let's say, like pay-TV or Vubiquity, relative to your traditional markets, what does the sales effort look like when you're trying to close for those deals? Does it require more resources, less resources, sales cycles? What does it look like?

Actually, what we do is we have -- when we are leveraging the existing sales or account management people that we have to, they are ready. They're managing all our customers worldwide. We train them to identify if our customer -- for example, many of our wireless customers want to with YouTube. So, every opportunity with one of these customers is in the direction of getting what's stopping delivery digital with content, immediately it will present an opportunity for us. So, traditionally what we do is leverage the existing workflow that we have in the long-term relationship with the customer, and then, we bring all the experts from Vubiquity who can explain to the customer the variable position. But overall, we are very dependent and it's working well for us in the existing workforce or sales force.

Okay. That's actually all we had tonight. Thank you.

Our next question comes from Tom Roderick with Stifel. You're line is now open.

Yes. Hi. I'm Matt VanVliet in for Tom. Thanks for taking my question. I guess looking at some of the 5G trials and potential rollouts coming down the pike here, just curious at maybe what level of involvement or projects that you've been involved with here looking at that technology rollout and what part you could potentially play in line with some of the carriers?

So, in 5G -- so, everyone is trying to deploy 5G. We have two angles to 5G. One is more like the network related activity. When you started to deploy 5G, you need capacity of fallout, optimization, planning, ready optimization and many services that we've had for several years that you need when you deploy 5G. So, this is one area of growth in 5G deployment we identify and see an opportunity. The other one and even more important, there is no rationale of deploying 5G if you cannot monetize it. The ability to monetize 5G is only if you build a capacity or ability in your IT system to leverage the 5G. I can give some examples. If you don't have the right charging and writing capabilities to support the new IoT, robotics, network slicing and all this new stuff that the 5G is offering, then you are not able to monetize it. So, our perspective, as I mentioned, two angles, one, we roll the 5G rollout and deployment and the other one to help our customers to monetize this huge investment in the support system to be able to monetize it for the new services that the 5G can offer.

And then, as you are looking at other opportunities for sort of next-gen capabilities, have there been any, or do you have any updates in terms of some of the ONAP projects that you had that you had released before, are those progressing well? And what's maybe being altered or tweaked to make that a better program?

So, related to NFV, I want to take a moment to explain because I think NFV is only one part of our network offering. But regarding specifically to NFV or ONAP, we have a lot of points of contact. We mentioned some proof of concept in terms of project, like in Comcast and Telstra. So, while we see this proof of concept start it's a very small engagement. Many times the project can become more significant. There are many proof of concepts. It takes a little bit more time than we anticipated to turn into project as data still is moving to NFV. But, we do have momentum that people are trying this more and more. NVF is one part of our broader network offering. Just to remind everyone that NFV is mainly around the virtualization of the network, but at same time, we have a lot of services around the virtualization to inventory and ready optimization, transition to virtual network, hybrid network operation, service assurance, autonomous service assurance. So, there are many services around the network which we are now developing and successfully selling. In NFV, we are still waiting for the breakthrough, although we see some momentum mainly right now in many customers trying this technology in POC.

Maybe just to add some clarity, I mean with all these early phase projects, et cetera, we're already making several tens of millions of dollars around it. And I continue to see growth from year-to-year. Of course, what we're looking for is that inflection point that will make it a business of hundreds of millions of dollars and that will take some time, but we are still very bullish about this opportunity and believe that that in conjunction with all the services that Shuky mentioned that are quite robust, we can get our network domain to be a very important part of the overall growth story.

We plan to present it in much more details in the Analyst Day on December 11, to show the broader service that we do around the NFV and all the other network-related services that we are offering today.

Great. Thank you.

[Operator Instructions] Our next question comes from the line of Will Power with Baird. Your line is now open.

Yes, great. Thank you. Yes. I wanted to come back to North America just to make sure I'm clear. I guess given the comments around AT&T, is it the expectation that North America can in fact grow year-over-year, or does AT&T continue to pressure that. And if you expect it to grow, is that cable? What are biggest drivers of potential North American growth outside of AT&T?

It can grow, but obviously the different permutations that will be there in terms of balance between the different accounts and the ramp up, we find exactly what the pace of the direction that we will see. I think the good news here is that we're seeing a broad base, the activity levels have been healthy, pay-TV continued to be a growth driver. That we will be continuing to see second, third project within the same account we've penetrated and we are continuously seeing modernization happening. We mentioned also a new win in U.S. Cellular with digital modernization, so we are continuing to see also that as a driver of activities.

Another trend is that you see that all the pay-TV customers are now going wireless. Obviously, we have a good offering in this domain.

And also the different activities that we mentioned around the network software-related and service-related activities we can offer a very relevant, as those kinds of investments are happening across North America. So, will it end up in a material growth, yet to be seen in terms of how those drivers translate into pace of revenue recognition. But in terms of just as an indication, a significant part, for example, of the growth of the 12-month backlog this quarter came from activity, signing new deals in North America.

Okay. And then, Shuky, just strategically as you look longer term for Amdocs, what are kind of the key areas you'd left to see the company invest in for future growth opportunities, both from an organic standpoint. And I'd be curious if there was any color on how you're thinking about M&A, where are the areas you might want to invest there and maybe what does the pipeline generally look like on that front? Thanks.

So, generally speaking, I see the thing in three main growth engines for Amdocs and as I mentioned we are going to talk much more broadly on this in the Analyst Day, but all our customers are doing one shape or other digital transformation. And I think we are totally capable to deliver the best solution in the market in digital data. This is true, by the way, in all regions to North America, to Europe, to APAC, to Latin America. Everywhere is going digital and I think that we have the right tools and offers. By the way that we mentioned last year is very important, very prominent position like UXP to support this digital transformation. So, this trend is happening and obviously we are very well positioned. The other one is when we talk about media. So, with the acquisition of Vubiquity and also the acquisition of -- that we have in -- regarding subscription billing and Vubiquity, I think we have a good solution for the media. And all our customers, in one way or the other, videos through OTT or any other pay-TV offering need these services, so I believe this will be another growth engine for us. MSO in general and all the cable and pay-TV, as Tamar mentioned, was a very solid growth engine for us and we believe it will continue to be so. This is something that traditionally was in North America. We'll see -- it will happen in Europe too. Because over there we see a lot of consolidation in between the pay-TV, Comcast bought Sky. So, there is some activity in this domain, but the majority of the activity is in North America and surprisingly in APAC. So, we see this continuing to be a very solid growth engine for us. Network and all network-related activities accelerated by 5G would be another area that we believe we will see growth in the future. And overall, I am only four weeks in the job. We are looking at additional growth engines for the company. We are conducting the company a very solid view about what's going on in the industry and what will be other areas for Amdocs to compete and to be relevant. M&A is always something. It's a tool that -- Tamar mentioned it's a something we will do if we think it's relevant to our offering, or relevant to the market conditions. So, we will do this if necessary, sampling the technology that we don't have, or cloud services or whatever it would be. So, all the time we are looking, what is relevant for us and what could be added value to our offers. This is, as I said, I'm going to share -- the whole management team is going to share in much more detail -- our strategy for 2019 and looking forward for the next years in our Analyst Day.

Great. Thank you.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Smith for closing remarks.

Thank you, Liz. And thank you everyone for joining us this evening. We look forward to hearing from you in the coming days. And if you do have any additional questions, please give us a call at the Investor Relations line. Have a great evening. And with that, we'll conclude the call. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great.