Amdocs Limited (DOX) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2019 Amdocs Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s call, Mr. Matt Smith, Head of Investor Relations. Mr. Smith, you may begin.

Thank you, operator. Before we begin, I would 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, 2018, filed on December 10, 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. 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. And with that, I’ll turn it over to Shuky.

Thank you, Matt, and afternoon to everyone joining us today. I’m pleased to report a solid start to the fiscal year with Q1 revenue above the midpoint of guidance, despite foreign currency headwinds. Our profitability was at the higher-end of the target range as we maintained a high win rate, as we continue to execute on the strategic growth initiatives we shared with you at our Analyst Day in December. Among the highlights, we expand our customer footprint in North American Pay TV market. We won two significant managed transformation project in Europe and we secured the important Pay TV media and network function relation deals in Rest of the World. Such positive sales momentum reflects our innovation and our unique business model and continue to support the visibility provided by our record 12 months backlog. I will reveal this point later in my remarks, but now let me proceed as usual with a recap of our quarterly activities by region. Beginning with North America. We delivered year-over-year revenue growth as we progressed our strategy and continue to support the business imperative of many of our communication and media customers. Digital Pay TV, where we signed a multi-year deal to accelerate Altice USA digital and mobile offering as part of its full service strategy. Regarding the outlook in North America, we continue to experience healthy activity levels in the broader region. At AT&T, our relationship remains strong based on the critical expertise we provide in support of AT&T digital, network, media and services requirement. However, it’s a bit premature to assess the size and the timing of the future project awards and AT&T discretion spending outlook may be subject to some shifts relative to our initial expectation. As a reminder, potentially noteworthy opportunities at WarnerMedia are not reflected in our fiscal 2019 outlook. By contrast, the broader North America outlook remains relatively strong, including a T-Mobile and Sprint, where our relationship run deep and where co-activity levels are currently healthy in both customers. We are working proactively to demonstrate the value we can bring to a combined T-Mobile and Sprint. Although we remind you that consolidation activity like this can create temporary near-term uncertainty, the outcome of which can be difficult to predict. To summarize North America. Market activity levels are broadly healthy and the long-term fundamentals are positive. But we continue to expect the sequential trends may be fluctuate in the foreseeable future, before growth resume in a steadier ways. Moving to Europe. We delivered another solid quarter after adjusting for the impact of foreign currency headwinds. Over the last several years, we’ve invested organically into acquisition to build a customer and service infrastructure presence in key European markets, where our share has traditionally been much more little that is being in North America. As Tamar highlighted in our Analyst Day in December, we believe our investment are bearing fruits. For instance, we now have significant projects with three Italy’s largest service provider as compared to none just three years ago. And we have similar success stories in other parts of the region, such as Ireland, Netherland and Spain. Along these lines, we are today delighted to announce the PJSC VimpelCom, which operates under the Beeline brand in Russia, has selected Amdocs for a significant digital monetization project that includes a multi-year Managed Services agreement. Additionally, a Tier 1 service provider in Spain has chosen Amdocs for a digital managed transformation deal. Both of these service providers were former customer of Comverse and part of the BSS assets we acquired in 2015. The new agreement significantly expand the scope and the scale of our original relationship and our recognition of our leading AmdocsONE solution portfolio. Our dictation for execution and the efficiency of our managed services organization. Moreover, this support our view that we have the right investments strategy and the right solution offering to support the positive multi-year growth outlook in Europe. Turning to Rest of the World, first quarter revenue declined sequentially as a result of a normal fluctuation in customer project activity. The quarter include a new win in Pay TV media, where we signed a five-year digital transformation deal with a leading content and consumer company in Southeast Asia. This move is significant in regard to both our media momentum and our cloud capabilities. At start of this program, we are supplying our entire customer experience suite in the cloud, will bring this service provider better agility in efficiencies. We see all of our customers taking state-own [ph] processing to the cloud, and this significant step is a program that many of our customers can potentially replicate and benefit from. Rest of the World is also presenting an exciting growth opportunities in the network domain, where we are delighted that Globe Telecom in the Philippines has selected our Network Functions Virtualization solution to automate the operation and management of its Networks-as-a-Service offering for enterprise customer. This landmark transformation deal includes five-year services agreement and is a testament to the innovation and extra knowledge we bring to on up the open network automation platform. Our ability to operate agnostically in an open multi-vendor environments and a real word deployment expertise acquired from walking these early NFV mover such as AT&T, Dell, Comcast and Orange. Additionally, we believe that the word like this speak to our growing reputation for expertise in network-related software and services. As recognized by Gartner, which last month position Amdocs as the clear market leader of our ability to execute and completeness of vision in its 2018 Magic Quadrant for Operations Support Systems. Regarding the outlook, we continue to expect that market position pipeline of opportunities we support sustained growth in the Rest of the World in fiscal 2018, mainly led by Asia and the surrounding Pacific, where activity still remains relatively strong compared to Latin America. Overall, we are pleased with our regional progress in the first fiscal quarter, as we continue to win many of the world’s most significant transformational project. However, Amdocs is not just known for winning projects, but also delivering them successfully. This require the breadth of innovative solution and track record of execution, where we believe can only be provided with the unique attributes of our business model. Moreover, the project represent important footholds in the market, which translate to long-lasting customers, relationship, recurring service revenues and base for future growth across the strategic areas of focus. We led this strategic areas as for you with analyst briefing this in December, and they include the digital transformation capabilities that we have, managed services, TV, media and next-generation network, including automation, OSS, NFV and 5G capabilities. To summarize, we enter our second fiscal quarter with a record 12 months backlog, and we are on track to deliver on our financial target for the fiscal year 2018, including revenue growth within the range of roughly 2% to 6% in constant currency and normalized free cash flow generating of $600 million, which represent an improvement conversion rate and approximately 100% relative to our expected non-GAAP net income. Before handing over to Tamar, I wanted to comment briefly on the report recently issued by short seller regarding Amdocs. We believe the report is misleading and realize that numerous statements that are inaccurate. Moreover, the report was prepared without any previous interaction with Amdocs and its management team. We do not intend to comment any further on the short seller. The best response is to remain focus on our execution and performance, as we have every confidence in our strategic direction, our competitive position and our financial practices. We welcome constructive input from shareholders, and look forward to engaging with them as we continue to deliver on our strategy for growth and value creation. With that, let me turn the call over to Tamar for her remarks.

Thank you, Shuky. First fiscal quarter revenue of $1,012 million, was slightly above the midpoint of our guidance range and included a negative impact from foreign currency movements of approximately $4 million relative to the fourth quarter of fiscal 2018 and also relative to our Q1 guidance. Our first fiscal quarter non-GAAP operating margin was 17.3%, an increase of approximately 10 basis points compared to the prior quarter, and consistent with the higher-end of our long-term target range of 16.5% to 17.5%. We believe our consistent margin performance over time is a function of the many unique attributes of our business, including our 12 months backlog visibility, which over the years averages about 80% of our forward 12 months revenue; our highly recurring revenue streams; our scalable and sophisticated global resource allocation model; and our constant drive to improve operating efficiency, while fine-tuning our discretionary investments. Below the operating line, non-GAAP net interest and other income was $1.5 million in Q1. This was better than our guidance for an expense of few million dollars, primarily due to a capital gain, realizing cash on the sale of a technology company in which we held a small minority equity investment. For forward-looking purposes, we continue to expect the non-GAAP net interest and other expense in the range of few million dollars quarterly due to foreign currency fluctuations. Diluted non-GAAP EPS was $0.98 in Q1, in line with the midpoint of our guidance range of $0.95 to $1.01. Consistent with guidance, our non-GAAP effective tax rate of 21.9% was above the high-end of our annual target range of 13% to 17% in Q1, albeit slightly more so than we have expected. Diluted GAAP EPS was $0.72 for the first quarter, above the midpoint of our guidance range of $0.67 to $0.75. Free cash flow was $72 million in Q1. This was comprised of cash flow from operations of approximately $110 million, less $37 million in net capital expenditures and other. Normalized free cash flow was $136 million in the first fiscal quarter, which is an improvement relative to $126 million a year ago. Normalized free cash flow excludes a one-time cash payment of $55 million related to the legal suit we settled and expensed for in the prior quarter, payments of non-recurring charges of $7 million for business realignment action taken in fiscal 2018 and approximately $2 million associated with the multi-year development of our new campus in Israel. To make a quick comment, we expect new campus in Israel to be accretive to earnings per share over the long term, consistent with our previous disclosures. This primarily reflects the financial benefits of owning versus leasing on new building and does not assume the future productivity improvements we expect will result from a more collaborative work environment for our thousands of employees in Israel. I’m excited to report that we recently selected the Electra Group [ph] to build the core and shell portions of the campus for a cost of approximately $90 million. And we are on track to complete this $350 million project within the original timeframe of four to five years. DSO of 91 days increased three days quarter-over-quarter, primarily due to higher billings in the quarter. We remind you that DSO may fluctuate from quarter-to-quarter. I’m pleased to highlight that total unbilled receivables declined by $21 million, as compared to the fourth fiscal quarter of 2018 and revenue both short and long-term increased by $5 million sequentially in Q1. Our growth in unbilled receivables over the past three years reflects a record level of transformation projects we are now executing as compared with just two years ago. This increase reflects the positive trend since these kinds of projects typically represent the start of a new customer relationship that we have won as a result of our market-leading solutions and our reputation for successful execution and delivery. As a reminder, transformation project are measured in many tens of millions of dollars and can take multiple quarters or even years to execute and deliver. The quarterly revenue recognition of this project is based on percentage of completion accounting, which is a requirement in accordance with generally expected – accepted accounting principles. At the same time, invoicing for the projects depends on achieving predetermined, contract-specific milestones a discrete points along the project lifecycle. As a result, there are timing differences between revenue recognition and the invoicing of customers, which result in the creation of unbilled accounts receivable, which you see in the balance sheet. Project, therefore, tend to be working capital intensive in nature. But over the full course of the deal, revenue and cash collections ultimately converge. I address these dynamics with a slide in my presentation at our Analyst Day in December 2016, a copy of which can be found on the Investor Relations section of our website. To summarize, our high level of transformational project activity represents a positive leading indicator of our future growth and the recurring service revenue, which typically will follow. Looking ahead, we are confident in our ability to consistently meet project milestones as they come due, which in turn we believe we should drive improved rate of free cash flow conversion relative to our non-GAAP net income over the long term. Moving on, our 12 months backlog was $3,370 million at the end of the first fiscal quarter, up $10 million sequentially from the end of the prior quarter. We believe our 12 months backlog continues to serve as a good indicator of our solid book of business and its year-over-year increase of over 3.4% support our outlook for fiscal 2019. Our cash balance at the end of the first fiscal quarter was approximately $459 million. During the first fiscal quarter, we repurchased $99 million of our ordinary shares. In total, we have, as of December 31, approximately $538 million of authorized capacity for share repurchase to be executed at the company’s discretion going forward with no stated expiration date. As a reminder, we retain the flexibility to vary the level of share repurchase activity from quarter-to-quarter, depending on factors, such as the outlook for M&A, financial markets and prevailing industry conditions. Now turning to our outlook. We expect revenue to be within the range of $995 million to $1,035 million for the second fiscal quarter of 2019. Embedded within this guidance, we anticipate the negligible sequential impact from foreign currency fluctuations as compared to Q1. Regarding the full fiscal year 2019, we remain on track to deliver total revenue growth in the range of roughly 2% to 6% in constant currency, the midpoint of which represents an improved rate of growth relative to the prior year fiscal 2018. On a reported basis, we now expect full-year revenue growth in the range of 0.5% to 4.5% as compared to the range of 1% to 5% previously. The outlook includes an anticipated drag from foreign currency fluctuations of about 1.5% year-over-year, as compared to an anticipated drag of about 1% previously. As we said at our Analyst Day in December, the combination of our organic investments and our strategic acquisitions have driven growth in Amdocs’ core operations over the last five years. We remain committed to M&A as a vehicle for achieving our strategic long-term objectives, and where material, we will continue to provide guidance as to the revenue contribution of a deal at the time we executed. Our M&A strategy hinges on blending the assets we acquired – of the acquired companies in the broader Amdocs to further enhance our product offering and to create synergies. Successfully doing so, however, means that within a few quarters of closing, it is no longer practical to separate the original assets from that of our core activities. Among many great examples is our relationship with PLDT, which we acquired through our acquisition of Comverse in 2015, but which is now an AmdocsONE customer as a result of the $300 million transformation deal we signed last year. Moving on, we continue to expect our non-GAAP operating margins to remain within the range of 16.5% to 17.5% in fiscal 2019. We expect our quarterly non-GAAP operating margin to fluctuate at the higher-end of this range in fiscal 2019. We expect the second fiscal quarter diluted non-GAAP EPS to be in the range of $1 to $1.06. We expect our non-GAAP effective tax rate to remain within our annual target range of 13% to 17% in the second fiscal quarter. Additionally, our second fiscal quarter non-GAAP EPS guidance incorporates an expected average diluted share count of roughly $140 million – sorry, 140 million shares and the likelihood of negative impact from foreign exchange fluctuations in non-GAAP net interest and other expense. We excluded the impact of incremental future share buyback activity during the second fiscal quarter, as the level of activity will depend on market conditions. For the full fiscal year, we continue to expect to deliver diluted non-GAAP EPS growth of 3% to 7%. Our full-year EPS outlook incorporates our expected repurchase activity over the year. We expect our non-GAAP effective tax rate to remain within the same target range of 13% to 17% for the full fiscal year 2019. To assist you in your modeling, we continue to expect free cash flow of close to $500 million in fiscal 2019. As a reminder, free cash flow in the second fiscal quarter is typically lower due to timing of annual bonus payments. As a result, our cash balance is expected to decline sequentially in Q2 before increasing again throughout the second-half of the year. We expect normalized free cash flow for the fiscal year 2019 of approximately $600 million, which equates to a conversion rate of approximately 100% relative to expected non-GAAP net income. Normalized free cash flow adjust for items, such as the previously mentioned cash payment of $55 million related to the settlement of last quarter’s legal dispute, net capital expenditure of roughly $50 million associated with our new campus in Israel and payments of non-recurring charges of $20 million for business realignment actions taken in fiscal 2018. Consistent with our previous guidance, we plan to return a majority of our normalized free cash flow to shareholders in fiscal 2019 by way of our quarterly dividend and share repurchase program. With that, we can turn it back to the operator and we are happy to take your questions.

Thank you. [Operator Instructions] Our next – our first question comes from Jackson Ader with JPMorgan.

Great. Thanks, guys. Good evening. The first question for you, Tamar…

Hi, Jackson.

…hi. First question for you Tamar, if we can have maybe a little bit of color on the company’s factoring program, and how much it contributed to cash flow in 2018 and then also how much where we should be expecting for 2019?

So in 2018, we adopted the factoring program as part of expanding our liquidity vehicles. We’ve had before revolver facility of $500 million. We’ve always had cash in the balance sheet and obviously, we can use that as well. And we felt that having the attractive terms that we could achieve for the factoring program would be an interesting addition. The materiality of the factoring was not significant relative to the overall collection. And I can assure you that the improvement we’re talking about in terms of normalized free cash flowing in 2019 will result from normal business operations and not from any material use of the factoring. So it’s just another vehicle, but not one that we expect to use in a material way.

Okay, understood. Thank you. And then a quick follow-up. On the campus build out, so it was only a couple of million dollars in additional CapEx this quarter. Can you either give us some more detail on what the remaining, call it, $150 million or so is made up of in the campus build out? And then also when should we expect the CapEx hit to come in, in fiscal 2019?

So within the $350 million that we have in the program, first of all, there was around almost $100 million invested in the land of which half was funded by our partner in the venture. So that’s $50 million. $90, as we said, is going for the core and shell of the program. And then on top of that, there is a façade, the glasses, that aluminum, the fital, the equipment, the land development, elevators, I mean there are many, many items that go into the $350 net investment that we are planning. In terms of the investment in 2019, as indicated, we plan it to be around $50 million. You’re absolutely right that in Q1, it was an immaterial amount of only two. And the majority of the $50 million will probably happen in the second-half of the fiscal year.

Okay, great. Thank you very much.

Thank you. Our next question comes from Ashwin Shirvaikar with Citibank.

Hi, Shuky. Hi, Tamar.

Hi, Ashwin.

Hi.

I guess – hey. So my question is Amdocs continues to sign these transformational deals. So obviously, a good indicator in and of itself. To the extent, these large multi-period projects lead to the use of percent completion accounting, which is normal. Can you first give us what proportion of total revenues is POC? And may be sort of, if you can provide a status update on maybe the one or two-year old project in terms of hitting milestones, that would really help? Eventually, where I’m going is the implication this has on your operating in free cash flow. If you could – if you talk about this?

Thank you, Ashwin. We are running dozens of transformational projects. It’s actually the record high level for the company just to give you an indication. Three years ago, it was less than 10. So quite significant increase in the level of transformational projects that we’re seeing. Now what differentiates this transformation project just from regular modernization that is ongoing is that, usually it’s large in scale. It includes putting up a new stack. Many times, it’s involving new customer for us. We just talked in the last Analyst Day about the fact that we’ve added 10 new countries in which we didn’t have any activity several years ago and now comprise already tens of millions of dollars for the company. Usually, this is the beginning of a relationship with the new logo, they then translates later on to decades hopefully of doing business with that customer and moving to more recurring nature of revenue and up-sell opportunities. Now in terms of the overall size of revenue, I would say roughly speaking, it’s about a quarter, don’t take it literally. But we are running the majority of the revenue of Amdocs is more recurring in nature. As you can see every quarter, we’re disclosing managed services engagements as part of the total revenues is over 50% these days. On top of that, there are different kinds of recurring revenue, such as ongoing support, maintenance and just incremental modernization work we are doing. And we are very happy about the transformation projects yet. As we’ve indicated, it does require working capital investment just because of the nature of how it works and the lag that we see between progressing on the revenue as we progress with the work of the project and while the invoicing is coming more as a step function. In terms of examples, for example, we talked a couple of years ago, we bought a big win of transformation with the Singtel Group that included both Singapore and Australia, and we are very happy to see that we are making progress there, achieved major milestones already in this transformation. We are seeing, on the other hand, newer activities. We mentioned Italy is a growth driver for the company in the last year. So, for example, we are running this very transformation project with Vodafone Italy, that is relatively earlier in its phases of the journey. So at the end of the day, the portfolio of deals, but those wins, such as the ones we talked about today with VimpelCom in Russia, a leading Tier 1 carrier in Spain, a leading carrier in Southeast APAC, I mean those are great new wins that should, obviously, support moving forward additional projects. So we are very happy about that.

Got it. And then the second question is with regards to inorganic contribution and I completely understand your point, companies you acquired get any greater than so on and so forth, but it would still be useful if you can provide a status update fairly close to the one-year anniversary under Vubiquity and Projekt202. And how they are doing relative to your original expectations with regards to revenues and integration? Any – anything you can provide on contribution will be great, too?

So looking on the acquisitions we’ve done last year, we talked quite a lot during the last Analyst Day around the media opportunity. Vubiquity is the center of our media offering, and we’re very happy with the acceptance we’re seeing in the market globally for media offering, whether it’s from the size of the communication service providers, we want to add entertainments to the connectivity services that have been more traditional in terms of what they used to do and now adding more entertainment or the other way around for different content providers that want to go over the top directly to consumers. We’ve seen an increase in the pipeline over the last less than a year since the acquisition, and we’re very happy to start seeing some convergence of this pipeline already. As you know, sales cycles are long in our space, but we’re definitely starting to see the convergence and very happy about that. Projekt202 another exciting domain we added to our capabilities around the digital experience layer. Projekt202 is a boutique consulting a side that is actually helping us deliver with our customers the revealing of the reality of how their consumer – customers are actually consuming their services. And then in return creating a much more focused and much more deliberate experience that we can help them develop and improve. And we’re very excited to see the progress there as well with many of our customers adopting this. We just talked as an example about the fact that in Altice, we talked today about the new win with Altice to support them launch their MVNO services and Projekt202, for example, is part of that scope of the deal. So overall, Ashwin, we are happy with the progress. And as we always say, usually it takes more than just the first year, of course, to realize the synergies, but very happy. Now taking a broader kind of look back, if you look on Comverse that we’ve done in 2015 and now already several years later, we are seeing a lot of customers that the original footprint into – was to the Comverse acquisition, and now we’re talking about major deals with these customers. So just looking on the announcements today, VimpelCom in Russia is to be a prepaid customer of Comverse, the leading provider in Spain that we mentioned, the win with is a customer of what used to be Comverse now, we are sending the full AmdocsONE suite. So we’re very focused on continuing to drive synergies. Obviously, this is an example of a deal that already a couple of years past and we’re seeing wonderful synergies from that.

I want to – Ashwin, this is Shuky. I want to add that another characteristic of the new deals that we have among the one we announced this quarter, this is not a BSS deals. It’s a complete activities of all our offerings. So part of its obviously BSS, but it’s part from network or it says Projekt202, some media components, artificial intelligence. So we are very happy to see the deals that we are selling today in the many transformation deal actually bringing most of the components of the new portfolio of the company into play in one large deal, which is a very good, I think, testament to the breadth of our offering.

It’s good to hear. Thank you.

Thank you. Our next question comes from Shaul Eyal with Oppenheimer.

Thank you. Good afternoon, Shuky, Tamar and Matt. I want to maybe build a little bit on Ashwin’s former question specifically on Vubiquity, maybe try and approach from a different perspective. And Tamar, I completely get the longer-term nature of the Amdocs’ transaction – M&A transactions and the fruition that they generate and yield longer-term. But maybe just as you anniversarize the first year of Vubiquity, is it – has been coming in line a little better below your expectations? You can provide us kind of with a qualitative comment, not necessarily the numbers, if it makes it a little easier? And I have a follow-up.

In terms of the activity level, we are seeing a separate between the revenue and pipeline. From revenue point of view, it’s more or less in line with what we expected. From Pipeline point of view, it’s actually better. So in terms of kinds of the expectation moving forward and now we’re seeing the acceptance in the market to the joint offerings that Amdocs and Vubiquity can bring. We’re very encouraged with the reaction we’re very encouraged with the kinds of dialogue and pipeline progression. So time will tell how this pipeline is converting into deals. But I would say, this is a definitely a good start. And when we are looking also on the geo distribution of the activity just to remind you, Vubiquity has been more focused historically in North America and to a lesser extent, internationally and now with the outreach of Amdocs, for example, in APAC, Vubiquity do not have business in APAC before and with the outreach of Amdocs and the breadth of customers we have in the Southeast APAC region. We can take that forward and bring to the very different expansion and reach in terms of the sales pipeline. Shuky, anything to add?

Yes, I think that the – like we have done in other places, Vubiquity is part of Amdocs Media. So we are not obviously, it’s had its own pipeline and its own very good relationship with many, many content creators and content distributors in the world. But when we try today to push media, it’s not just – obviously, Vubiquity is a big part of it. But we are adding our user identity solution. We are adding our monetization with virtual solution. So we are trying to package deal, which are end-to-end media offering. And obviously, we have also these deals separately. But I think the unique value of Amdocs is a billing to package like – a complete end-to-end, everyone wants to go OTT, we can come and bring end-to-end solution from the content delivery to monetization, to customer experience to everything.

Got it. This is a great color. Thank you for that Tamar and Shuky. And maybe Shuky or Tamar, on the end of the front, so another solid announcement with Globe. Shuky, can you talk to us about the end of the selling process? Are you seeing some acceleration with a rate of C-Level executives willingness to adopt and implement NFE capability?

The trend that we see the – that – I think a couple of years ago – a year ago, everyone was looking – there is no more big bang in NFV. I think that the industry standardizing the way that people are starting to implement use cases that bring their value in NFV. The most popular and common use case is about B2B. So this is we see people are starting with the B2B domain before consumer. So we see more demand to start use cases and to deploy, not necessarily an end-to-end NFV across all the network components and the processes, but more use cases on this prospect, we see the activity intensify.

Understood. Thank you very much. Good luck.

Thank you.

Thank you. Our next question comes from Tal Liani with Bank of America.

Hi, guys. I have first a more personal question to Shuky and then the question on AT&T. Shuky, you recently joined the company – or not joined, became the CEO, and you’re known to be hard on sales team in a good way. Meaning, you’re more sales-oriented than previous CEOs of a company. Can you tell us about your experience with deal closure or sales closure? Where can you improve and what can you do with different processes for sales organization in order to improve the growth rate? That’s question number one. The second question I have is about AT&T. A lot of it was disclosed already in terms of their projects. It’s known that revenues were down 15% last fiscal year. What needs to change or what needs to happen for this customer to grow? Meaning, give us a little bit of the color of what is declining when revenues are declining 15%? Because there are certain parts that are not declining certain parts that are declining. What needs to change in order for that part that is declining to grow? And I’ll stop here. Thanks.

Okay. Regarding sales, so you’re right. Sales is something, which is dear to my heart. I think the company – we have two DNAs. One, we know sales is the lifeline of the company. So the whole company is focused how to deliver sales. I think that from a competitive position, the company maybe in the best place ever. I mean, we look some of our competitors withdrawing. And I think that the overall, if you look about AmdocsONE portfolio, recognition from Gartner, I think that there is a major focus to win every deal in the market, and so this is one. And there’s major focus in the company across all the units. The other DNA of the company, which I think help to the first one, is that we also know to deliver. So it’s not just shiny sales process, but we deliver what we promise. So between the two, I think that Amdocs is now positioned to win the majority of the deals, transformation deals in the market, I think that our win rate prove this, and we are very excited about where we are today. And as you mentioned, the whole company is sales-driven with the intention to meet our growth targets. So this is regarding sales. Regarding AT&T, and I think, I shared this before. We are operating in many, many places with AT&T. This is not like we are working with them in consumer, in enterprise, in digital domain, in enterprise domain, in [indiscernible] Mexico. So we are all over working in many, many domains of AT&T. If you look at the activity of AT&T, in some cases, we see positive momentum, some cases, slow to mature, and we would like it to mature faster. I think that we have to tell exactly this partnership of AT&T and there is lot of alignment. Obviously, like anywhere else you see that AT&T is under a lot of pressure, this is impact, obviously, the discretionary spending. But we believe that AT&T is the number one telecom in the world or now it’s a company that deliver content and media and everything. And I believe that over time, the discretionary spending will improve. But I think the more important point is that, while we are facing what I just described with AT&T, we are able to offset with a very healthy activity from – on the rest of North America and all the other growth engine of the company, either coming – penetrating to logos like we now this quarter, like the network domain, the growth in Europe, the growth in APAC. So overall, I think that we are committing to the midpoint between 2% to 6%. And we hope that over time, AT&T spending will get back to normal

Okay, great. Thank you.

Thank you. Our next question comes from Tom Roderick with Stifel.

Yes. This is Matt Van Vliet on for Tom. Thanks for taking the question. I guess, first off, looking at the VimpelCom deal that you announced. I think, this is one that maybe Ericsson had signed or at least mention a big deal. Just curious in terms of that deal specifically or overall, some of the news I heard about Ericsson pulling back in some of the BSS markets that they’ve previously been operating in. What are you seeing from an overall sales opportunity now, and what you’re expecting over the next couple of years?

So VimpelCom is a long-term customer of Amdocs. It used to be from the postpaid days and also it’s a longtime customer of Comverse for the prepaid. And as you rightfully mentioned, Ericsson announced the winning this, the all VimpelCom group about, I think three years ago. Eventually, this project was canceled. I thought we call the details, but the thing, it was publicly canceled. And we are walking in the last year very closely with the VimpelCom and Beeline group, and I think we deliver a very strong relationship. And actually, the new deal is what we call, as we mentioned, managed transformation. So we do at the same time, we do managed services and we modernize all the systems of Beeline or VimpelCom to our newly cloud-based – native cloud-based AmdocsONE portfolio. Regarding Ericsson, in general, we saw the announcement like you guys. We were aware of all the issues, because this is something that we see in the market. As you might imagine, as we speak, we are looking exactly what is – what type of potential it presents for us. But I believe it does represent opportunities in the market.

And then looking at the trends with both the DSOs and some of the unbilled receivables, the unbilled, Tamar, I think, you said tick down this quarter. Just curious if we’ve reached sort of a high watermark in terms of some of the digital transformation projects that you have that have been driving that unbilled receivables figure higher? And we should expect it to sort of flatten out here some quarters up, some quarters down, or should we continue to see that number grow as the projects that you’re signing layer in with existing projects underway and the projects overall seem to be getting slightly bigger?

So it’s hard to provide an accurate forecast on the quarterly basis for this metric. But definitely, the fact that we are guiding for $600 million of normalized free cash flow this year, that is reflecting the conversion rate of roughly 100%. Earnings to cash is an indication that we believe we should start converting those unbilled accounts receivables to billings. Actually, already in Q1, we’ve seen a very high level of billings. And we are continuing to track obviously as we move forward with the different milestones achieved in this project that should enable us to hit billing milestones and collect the money. Art the same time, as you rightfully indicated, we are happy to see new projects starting. Those new projects should also require some working capital investment. But all of that has been taking into consideration in our annual guidance for $600 million normalized free cash flow.

Great. Thank you.

Thank you. [Operator Instructions] Our next question comes from Will Power with Baird.

Great, thanks. Yes. I’ve got just a couple of follow-ups, I guess. Maybe just just coming back to the unbilled receivables question, thanks for all the color, by the way, Tamar. But I guess, the other question I still have there and also heard from investors. I’m just trying to understand what’s different today about transformation projects you’re taking on versus maybe at different times in the past, because I think there may have been times in the past where transformation projects were as much as 25% of revenue as well, and yes, we didn’t see the increase in unbilled receivables to the degree we have. So any color there about the nature of these transformation projects versus once maybe you’ve been a part of it in the past?

I think, we need to differentiate between the regular project activity that can be a gradual modernization with existing customers. But oftentimes, we have, say, for example, T-Mobile. This is an existing customer and we’ve been supporting T-Mobile with the carrier strategy and that’s included all kinds of modernization to their systems. But that’s what I would call an ongoing project activity. This is different than when you go into a new transformational project that is putting in a new stack into the customer environment. Very different in terms of the dynamics, meaning, usually, it’s a new relationship with a customer. It’s very different in terms of how the contract is being structured, which is more of a milestone-oriented invoicing. So if we’re looking on the level of transformational projects that we have, we’re actually at the highest level I can recall as a company. And I’ve just given an indication, the fact that just several years ago, it was probably less than a third in terms of the number of transformational projects we are running. So we are very excited about this, because which means that we see many relationship with new customers or igniting major activities with customers in which we did not have anything meaningful that is new. And this is usually driving, not only the revenue that is coming from the project itself, it’s usually driving a follow-up sale opportunity. We are very excited to see more and more of managed transformation, which means that in addition to the fact that we are doing the build up of the new stack of the software. We are also taking responsibility to run the systems on behalf of the customer. Oftentimes, it includes taking over and running legacy systems as they go through this transition, which is very unique to the accountability model Amdocs can provide. We do not just bring the new best software and take the responsibility to deploy it. We are also helping the customer transition from old to new in a way that we are taking the responsibility and managing this process. So overall, you – we are seeing this high level of transformational projects. At the same time, this is translated to a high level of unbilled receivable, as explained before.

Yes. Okay, all right. No, I appreciate that. Okay. And then I guess, there’s a recurring question that’s been kind of around organic growth. I know you partly answered this. I know we’re happy with Vubiquity and the media growth you’re seeing generally in the opportunity there. Is there anyway to get any further breakdown as to the contribution from – if you look at the Vubiquity, UXP, Projekt202? What they contributed in the quarter just to help us frame what those contributed versus kind of the legacy business?

So to remind you, when we acquired Vubiquity, we said it’s running at about $100 million annual run rate of revenue. And as you can imagine, we are trying to grow from that base. So we are continuing to push for better performance there. UXP has been very small in terms of the revenue. It’s added significantly to our offering around the digital identity and the User Lifecycle Management, as Shuky mentioned, this is now part of the overall media offering. So it contributed more in the technology side and the product offering and less from revenue point of view. And Projekt202 has been relatively small in terms of the revenue, but we are seeing a very nice pickup since acquisition. And the fact, we can take Projekt202 that was more focused on non-telco customers and take it now to all of our customer base is actually enabling us to grow this. So it’s not huge in terms of revenue yet, but definitely we see the opportunity and the growth that can come from that. And many times, it’s small engagements. It’s more meaningful in terms of the strategic presence it gives us and the ability to help customers twice a digital experience. But over time, we believe it can generate also more interesting revenue levels.

I want to add that the more this offering is blended into the Amdocs offering, it’s almost impossible to classify. I think that in the deal that we mentioned in Southeast Asia with a media company, I think that we have components of Projekt202 and UXP and others. So in one deal, and we have one price for the customer to do everything, and we have like five different offerings. So it’s more and more digital. When we blend this offering within our portfolio in the company, it’s almost impossible to track the revenue per offering.

Okay. Maybe just final follow-up. Shuky, just coming back to AT&T and some of the comments you made in your prepared remarks, I just want to make sure I understand where that stands. Has the outlook or the visibility there changed from where you were a quarter or so? It feels like maybe it’s gotten worse or maybe that’s not the case, or is that a business you think can be flat or you think you can actually decline again year-over-year based on just some of the uncertainties there?

I think, it’s too early to say, first quarter was solid. As I mentioned, in some areas, we see positive momentum, and in some areas, they are slow to mature. But I think it’s too early to say. But overall, I can tell you that, as I said, Q1 was solid, and we hopefully be able to continue this way.

Okay. Thank you.

Thank you. And our final question today comes from Damian Wille with Barclays.

Hey, guys, thanks. A lot of the questions have been asked kind of gotten picked over. So I guess, I'll go a little high level. So I guess, just following up on may be what you’re just talking about, obviously, you’ve done a lot of M&A in the last few years in media assets and it sort of diversified the business. But can you gives an update on how you plan to take those diverse services to market? Like are you bundling the sales channel into one point of contact where there are multiple points of contact? Just generally, how or whether you’ve adapted the sales force to match the sort of evolution of your product offering?

So this is something that we pay a lot of – spend a lot of time how do it in the most efficient way. An because on one hand, we have significant relationship across the world, and we have executives that know the customer intimately. On the other hand, we have a lot of offering and the question is, how we can push them in the most effective way to bring value to our customers. So what we’ve done in order to make it easy, actually we split all our offerings to five, which is build on our consumer offering, all our media offering, enterprise offering, our network offering and all our services offering. And the way we build it is that the team on the ground are responsible to identify the issues of the customer have over this opportunity. And then we follow up with the skillful experts that are coming over to talk to the customer to understand the potential. And so far, it works for us very well. So we are mainly using the existing sales channel that we have today to push almost double. If I compare the number of offering to, as you mentioned, two, three years ago, we almost doubled the offering. So we are using the same sales channels and bring that the identified opportunities and bring the expert. Obviously, we need to open some experienced centers and now, obviously, we want to take Vubiquity or the media offering to APAC and to Southeast. So definitely, we need to open a new center and expertise in Singapore, for example. So we’re making sure that we have the local experts, while leveraging the existing sales channel.

Helpful. And then maybe as a quick follow-up on – I – I’m hoping if you can give some color about when you expect the new deal wins this quarter to ramp up? And I mean, one of those have been in the Philippines, which obviously you guys have had a lot of success in. Is it right to think that, that deal should run faster than the previous deals in that geography, because you already have the infrastructure there? So that one specifically and then just more broadly about the timing that you can give on that are ramping of those deals that you announced?

So in general when we are signing a deal, it starts with a high level design, which is a bit slower in terms of the recognition. And then as you go and finish that phase of the digital design, you start actually to build up the development that goes into the project, which is higher in terms of the revenue. So you should expect those deals to start making the impact more towards the second-half of the year. And again, each deal has its own characteristics, and we’ll not go by one by one here and some of them can obviously ramp up faster than others, such as the example you mentioned in Philippines. But in general, there is usually several months of high level design, and then we go in and start ramping up the development.

Okay, great. Thank you.

Ladies and gentlemen, thank you for participating in today’s question-and-answer session. I would now like to turn the call back over to Mr. Matt Smith for any closing remarks.

Yes. Thank you very much for joining our call this evening and for your interest in Amdocs. We look forward to hearing from you in the next few days. And if you have any additional questions, please call the Investor Relations Group. Have a great evening. And with that, we’ll wrap up the call. Thanks.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may all disconnect, and have a wonderful day.