Thank you for standing by and welcome to Amdocs First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd to introduce your host for today's program Mr. Matthew Smith, Head of Investor Relations. Please go ahead sir.

Thank you, John. Before we begin, I need to call your attention to our disclaimer statement on slide two of the presentation. It notes that some of our comments today may be forward-looking statements and are subject to risks and uncertainties including as described in Amdocs' SEC filings and that we will discuss certain financial information that is not prepared in accordance with GAAP. 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. 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. To support today's earnings call, we are providing a presentation, which can be found on the Investor Relations section of our website. And as always, a copy of today's prepared remarks will be also posted immediately following the conclusion of this call. On today's agenda, Shuky will recap our business and financial achievements for the first quarter fiscal 2023 and we'll update you on the continued progress we have made executing against our strategic growth framework. Shuky will finish by commenting on our financial outlook for the full year fiscal 2023, after which Tamar will provide additional details on our first quarter financial performance and forward guidance. And with that, I'll turn it over to Shuky.

Thanks Matt and good afternoon to everyone joining us on the call today. Starting on slide six, I am pleased to report strong first quarter results, sincere thanks for which go to our incredible people around the world who everyday work to support our customers’ multi-year journey toward digital modernization, 5G monetization, cloud migration, and network automation. Q1 revenue was a record $1.19 billion, up 9.5% year-over-year in constant currency and above the midpoint of our guidance. 12-month backlog of $4.09 billion was also a record high, up approximately 7% from a year ago on continued sales momentum, and we delivered non-GAAP diluted earnings per share of $1.45, which was above the guidance range, primarily due to better profitability on a higher revenue base and a lower-than-expected non-GAAP effective tax rate. Overall, our financial year is off to a strong start, positioning Amdocs to deliver consistent and profitable growth in fiscal 2023 within a global macroeconomic backdrop that remains challenging and uncertain. To provide context to our financial performance, let me review our quarterly operating achievements, as shown on slide eight. To begin, we saw continued sales momentum and further cultivated strong value-driven partnerships with new and existing customers during Q1. Notably, we deepened our long-standing relationships with customers like AT&T, T-Mobile, Verizon, Comcast, Dish, and Claro Brazil in the Americas; Vodafone and Three Group in Europe, Globe in the Philippines; and Tier 1 operator in Malaysia. Additionally, we further diversified Amdocs’ customer base by winning several new logos, including Colt Technology Services in the UK and Telefónica Móviles El Salvador in Latin America where Amdocs’ online charging system will replace the existing vendor. Amdocs Vubiquity has also continued to execute well on its strategy of servicing leading studios and direct-to-consumer platforms, winning several new projects and extensions over the…

Thank you, Shuky, and hello, everyone. Thank you for joining us. Turning to our financial highlights on Slide 17. I'm happy to report solid first quarter financial results kicking off a strong start to fiscal year 2023. Record Q1 revenue of approximately $1.186 billion, at the higher end of our guidance range was up 9.5% year-over-year in constant currency. On a reported basis, revenue increased 7.3% and was above the midpoint of guidance even if we exclude the favorable foreign currency movement of roughly $9 million compared to our guidance assumptions. On a regional basis, North America delivered another record quarter, and Europe accelerated as we continue to execute on behalf of our customers. Rest of the World declined during the first quarter, reflecting normal fluctuations in customer activity, but is on track for full year growth as new projects awards are ramping up. Altogether we expect all three operating regions to grow on a constant currency basis for the full year fiscal 2023 as we anticipated at the beginning of the year. Moving down the income statement. Our non-GAAP operating margin was 17.7% in Q1 and up 20 basis points from a year ago and up 10 basis points sequentially as we began to leverage the benefits of efficiency improvements, automation and other sophisticated tools while maintaining a high level of R&D investment. On the bottom line, non-GAAP diluted EPS of $1.45 was above our guidance range, primarily due to improved profitability on a higher revenue base and from a lower-than-anticipated non-GAAP effective tax rate of 13.7%, resulting from internal structural changes in certain jurisdictions in which we operate. Diluted GAAP EPS was $1.07 for the first fiscal quarter which was toward the high end of our guidance range of $1 to $1.08. This was primarily due to a…

Thanks, Tamar. As you can probably tell from our remarks today, we are very pleased with the strong start we have made to fiscal 2023, putting us in a great position to deliver another year of steady and profitable growth. With that, we're happy to take questions.

Certainly. [Operator Instructions] And our first question comes from the line of Ashwin Shirvaikar from Citi. Your question please.

Hi. Thank you, and congratulations on the good quarter here.

Thank you so much.

Yeah. So I want to start with the bookings and sales commentary. I think like a top quarter in your history in terms of incremental dollars added to backlog. And your comments do sound positive, but you also had the Amdocs is not immune type of commentary there. So let me ask what you're seeing in terms of your investor -- in terms of your client conversations with regards to projects, new sales? How is it evolving in terms of speed of decision-making, size of contracts, those types of things?

Hi Ashwin, so as we mentioned, yes, we are not immune. I mean, we like ourselves that we are a very strong company, but we are not immune to everything that's going on around us. But I think that overall, we see a lot of demand to our services. The area of growth for Amdocs, today are highly strategic for our customers. Everyone wants to be successful in -- when they deploy 5G use cases, fixed wireless, network automation. Everyone wants to move to the cloud. So while there is some uncertainty, I can tell that we see that we continue the project with our customers. These are highly important for them and we see a very rich pipeline ahead of us.

I understand. And then, during the quarter, you did have layoffs. There's obviously the charge there, what are the forward-looking financial benefits from there? And are they now incorporated? I mean, I know you still are seeing midpoint of – of the margin range. But why should it not be more towards the upper part?

So I think in general, when we look on the opportunity for margin expansion, as I'm sure you recall, we raised the operating margin range for fiscal 2023 and the beginning of the year, where now we are guiding for a midpoint of an elevated range. So we definitely see the impact of many investments we have done and continue to do in automation and tools and the methodologies of how we deliver things. And this is, I think, is at the heart of our kind of unique opportunity in terms of how to bring value to customers as well as doing things in a more efficient way. Another very important element that has to do also with managing labor in a smart way has to do with how we think about our global delivery and our global execution when we are leveraging geographical locations around the world and what we see as our strategic sites around the world, thinking about things like locations, in terms of access to skills, cost structure, proximity to customers, et cetera, et cetera. There are many considerations that play. And we are looking on that as something that is a major, I think, differentiator as well in speed to deliver and managing demand that may change from time to time, et cetera. And of course, it's about how we are investing in our people and how we are investing in talent to make sure that they are with high retention rates in the company that they are moving and developing the skills in a way that can actually benefit them in their managing their career as well as the company. So Ashwin, we are very focused on all of these levers. And yes, we have done some adjustments in workforce that we have mentioned. But I think in the grand scheme of things, it's not something that is moving the needle either away from the company margin profile. But at the same time, it's a healthy shift that we felt that it's the right thing to do to adjust to how we are looking on our site strategy and the whole structure of how we deliver to our customers.

Understood. So more about being nimble and quicker to respond.

Yes.

Yes. Definitely.

Got it. Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Timothy Horan from Oppenheimer. Your question, please.

Thanks, guys. Kind of a qualitative question. As you have more and more cloud-based services at a cloud platform, do you think you're helping your customers more? Can you help them drive more revenue? Can you help them hyper automate a little bit more? And did the customers kind of recognize this at this point?

Was the question about moving to the cloud?

Yes. As you I mean how much more of an improvement it is for your customers as you move to the cloud.

Thank you, Tim for the question. There are many, many value moving to the cloud environment. I mean there is some basic value like you get elasticity, we just mentioned in the prepared remarks that with a very good peak retail season and always Black Friday and holiday, and we have like an amazing service to our customer. So today, in the on-premise environment, you need to buy the hardware to support Black Friday, which is much bigger than the normal. So you get some elasticity, but I think the main -- when you move to the cloud, in many cases, it's part of modernization And then you get a much secure environment, much agile environment, better operational tools. So you can do things faster and cheaper and be much more competitive, and as I said, it's also helped with the elasticity. So if you look at it, there are many, many benefits to our customer to move to the cloud. And I think this very unique agility, changing market offer and do things much faster, much more secure environment, giving all the security trust that everyone seeing today. So all in all, I think it's a very holistic value proposition, which comprise of many, many, many areas.

And just to add to that, artificial intelligence now is becoming pretty important and ChatGPT seems to be a pretty big breakthrough. Are you increasing your investments there? And is there a way for you to use ChatGPT maybe with -- for your customers for customer engagement and time to your systems?

So I think definitely, we are evaluating this. But generally speaking, we talk about how we use artificial intelligence. Obviously, in Amdocs system, we have a lot of data about our customers. And as I mentioned today, we developed a cloud environment that are helping our customers to serve their customers or their consumer better in a way that's understanding, what is the consumer demand and what will be the right offer. So this is something which is, I think, growing and we deploy more and more this type of solution to our customers to better serve their consumer or businesses based on what they know about them. Regarding ChatGPT, as we speak, we are looking to it. We think it can have some -- obviously, some place in call center application, another thing that we are looking right now. And I believe this probably in a quarter or two that will be much more mature in our evaluation of how we can integrate it to our platform.

Just to add on the AI as a topic, I think it's also important to think about it in the context of how we are automating, how we do things for our customers. So when we think about things like zero-touch operations and self-filling processes, a lot of AI-driven decision rules going into that and...

This is from the operational perspective…

We feel this is enhancing our operation to be much more technology-led and innovative in how we can deliver value to our customers.

Thanks guys.

Thank you. One moment for our next question. And our next question comes from the line of Tal Liani from Bank of America. Your question please.

Hi. It is Matalan Brookston [ph] for Tal, Bank of America today. Just two questions from me. First, I was going to be looking at your guide. I just wanted to understand the breakout of organic growth, given that -- the deal that was announced last year and was factored to have around 60 bps of revenue growth in the guide as of 4Q, given that that's not happening anymore, I wanted to know just if there's any commentary on organic growth without the deal.

So, given the fact that we are reiterating the guidance even though this deal is not coming through, you understand that whatever was supposed to come from this deal, the 60 basis points of growth are going to be coming from organic additional and incremental revenue, and therefore, we can hold the line on our expectations of growth for the year. So pretty much, you can say that the year is growing based on organic revenue growth. There is some, I would say, full year impact of small deals we've done last year, but that's marginal, but we definitely are pleased to see an improvement in our organic performance despite the fact milestone is not happening.

Got it. Okay.

Just to be clear, we are not counting on any future M&A that has not been announced to make the numbers. This is based on the current known business and the assets that we have.

Okay. Perfect. That was going to be one follow-up. So then I'll pivot to the other follow-up. Just wanted to see if there's any concern in spending deceleration with service providers? And have you noticed any incremental change as the first quarter progressed?

Look, looking on the deal signings and the strong momentum of sales we've done in Q1. You can clearly see the outcome of that in the strength of the backlog and the fact we're reporting a record number and a very strong sequential increase of $120 million to the backlog versus prior quarter. We are seeing a solid pipeline. Yes, naturally, people are focusing sometimes about how to create an immediate impact, a shorter-term impact. We're bringing them a lot of tools and capabilities that enable them both to accelerate revenue generation, as well as deal with efficiencies and cost structure. For example, our model of managed services or what we call the transformational and managed services together is like the sweet spot of both. We can help our customers with our product suite, modernize their systems, move to the cloud, be ready for the 5G and digital world. And at the same time, provide them under a multiyear agreement, a committed cost structure, predefined KPIs and we take the full accountability for that. So, we are coming either with this model or some of it depends on their appetite and how we want to go about it.

Got it. Thanks, so much.

Thank you.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Will Power from Baird. Your question, please.

Great. Thanks. It looked like nice results. I guess, first question is just on a couple of the geographies. I mean, North America, of course, strong, but I'm curious on the European strength, if there's any other color there on what drove that year-over-year growth. I'm really just trying to understand the durability of this higher revenue level. But I guess on the flip side, Rest of World was weaker year-over-year. I know you expect that to still grow. So, I'm just trying to understand the confidence level and the drivers of growing that rest of world business year-over-year?

Yes. Sure. So yes, we are very pleased with the performance of North America continues to be strong. And to remind you, in Europe, specifically, I've been talking for some quarters now about the fact that Europe is growing on a constant currency basis, but unfortunately, the reported number, didn't look as much because the currency was a big headwind. Finally, now when we have a quarter where the currency was not a headwind, you can clearly see the reported number of Europe growing. So it's not only just a constant currency growth, it's also on a reported level growth. And the fact is, we have been seeing a very strong momentum of wins and new activities in Europe for some quarters now, fueling our business. So it usually takes a bit of time between signing in deals, starting to recognize revenue, and we continue to see very nice signings. So it's not just that we are using in a way the past deals that have already gone into the backlog. We are continuing to see new deals. You've seen the pipeline and the new logos that we talked about, for example, called in Europe, as well as expansion of relationship and organization with Vodafone and with Three UK, and there are many other examples that we could not name specifically. So, we are happy about the momentum we are seeing, and we feel it will continue. And regarding the rest of the world, our business in rest of the world depends also on project activity and -- sometimes there is a specific quarter like we just had in Q1 where certain activities naturally and as they mature and the project go live and then does a matter of the timing of the beginning of the new project awards. So that's when we have, on the one hand, Q1 with some softness, but the confidence we see a fast recovery and for the full year that we will see growth in the region.

Okay. And then, Tamar, if I could slip in one more. I know you all focus, I think, more on operating margins, but the gross margin has kind of continued to tick up I wonder if you have any comments on kind of the key drivers of the gross margin expansion and what the outlook is for that going forward?

So as we usually say, we are focused on the operating margin more so than the elements underneath such as the gross margin versus the R&D, and we are investing in R&D, and we have accelerated investment in R&D. And some of this investment goes into automation that helps us do our execution better and more efficiently. But it's not necessarily that you should take the gross margin per se on a standalone basis and draw significant conclusions from that. On the other hand, for example, you can see that the SG&A was a bit higher this quarter. Again, there are some specific items that go into that, not necessarily consistent expected in the next quarter. So that's why we are very focused on bottom line on the operating margin, and we feel that we will be able to execute on the operating margin around the midpoint of our new elevated range give or take a few tens of basis points maybe one direction, the other direction. We think that this will be the continued consistency of activity of the company.

Okay. Understood. Thank you.

Thanks.

[Operator Instructions] And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matthew Smith for any further remarks.

Yeah. Thanks, John, and thanks, everyone, for joining today's call and for your ongoing interest in Amdocs. We do look forward to hearing from you soon. And please reach out to us here in the IR group if you do have any additional questions. And with that, have a great evening. Thanks.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.