Amdocs Limited (DOX) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlighted strong financial performance, including record high managed services revenue and improved profitability. The company has a robust pipeline and strategic focus on cloud and AI, with optimistic guidance for future growth. Although T-Mobile's reduced spending poses a challenge, Amdocs' strategic initiatives and shareholder return plans mitigate this. The Q&A session revealed management's confidence in AI-driven growth and strategic investments. Overall, the positive financial metrics and strategic focus suggest a favorable stock price movement in the short term.

Key Financial Performance

Revenue Growth (Fiscal 2025) Revenue grew by 3.1% in a pro forma constant currency, reflecting the phaseout of certain low-margin noncore business activities to sharpen Amdocs' strategic focus and improve business visibility.

Cloud Revenue Contribution Cloud revenue grew by double digits and contributed over 30% of total revenue in fiscal 2025, up from 25% in the prior year, driven by strong demand for cloud-native solutions and migration services.

Managed Services Revenue Managed Services revenue reached a record $3 billion in fiscal 2025, up 3.1% year-over-year, supported by high renewal rates and expanded customer activities under long-term agreements.

Profitability Improvement Profitability improved by 300 basis points year-over-year, including 60 basis points from ongoing business transformation and efficiency gains.

Non-GAAP Diluted EPS Growth Non-GAAP diluted earnings per share grew by 8.5% in fiscal 2025, driven by sustained revenue growth, improved profitability, and share repurchase activity.

Q4 Revenue Revenue for Q4 was $1.15 billion, up 2.8% year-over-year in pro forma constant currency, exceeding the midpoint of guidance.

Q4 Non-GAAP Operating Margin Non-GAAP operating margin for Q4 was 21.6%, improving by 290 basis points year-over-year, driven by the phaseout of low-margin activities and efficiency gains.

12-Month Backlog The 12-month backlog was $4.19 billion at the end of Q4, up $40 million sequentially and 3.2% year-over-year, driven by strong sales momentum.

Free Cash Flow (Fiscal 2025) Free cash flow before restructuring payments was $735 million, above the guidance range, reflecting strong operational performance.

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Operating Highlights

Cloud Solutions: Delivered double-digit growth in cloud, contributing over 30% of total revenue. Signed agreements with AT&T, Lumen Technologies, and TELUS for cloud modernization and migration.

Generative AI: Transitioned from proof-of-concept trials to actual deals. Telefonica Germany deployed generative AI use cases, and e& UAE achieved double-digit improvement in Net Promoter Scores using Amdocs' amAIz platform.

SaaS Platforms: Signed agreements with AT&T for eSIM cloud platform and Orange Belgium for modernization initiatives using ConnectX platform.

International Expansion: Expanded footprint with BT-EE in the U.K., Altice SFR in France, Telia in Finland, KT in South Korea, and Claro Brazil.

New Logos: Added new customers like Fidium in the U.S. and expanded managed services agreements with PLDT in the Philippines and Globe in the Philippines.

Managed Services: Managed services revenue reached $3 billion, representing 66% of total revenue. Expanded agreements with TELUS and PLDT.

Operational Efficiency: Profitability improved by 300 basis points, driven by business transformation and efficiency gains.

Generative AI Investment: Accelerating investment in generative AI, including the development of a Cognitive Core platform to enhance telecom operations.

Focus on Cloud and AI: Prioritizing cloud migration and generative AI to drive innovation and cost savings for customers.

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Risk or Challenges

Macroeconomic Environment: The company is closely monitoring the uncertain global macroeconomic environment, which could impact customer demand and spending behavior.

Revenue Decline at T-Mobile: The fiscal year 2026 revenue guidance assumes a revenue decline at T-Mobile due to reduced discretionary spending.

Geopolitical and Business Uncertainty: Prevailing levels of geopolitical and business uncertainty are being monitored, which could affect operations and strategic plans.

Generative AI Investment: Accelerating investment in generative AI and next-generation Cognitive Core platform may increase costs and impact profitability in the short term.

Tax and Regulatory Changes: The company anticipates a moderate increase in its non-GAAP effective tax rate due to regulatory changes, including the implementation of the Pillar 2 global minimum tax and other evolving international tax requirements.

Finance Costs: Higher finance costs are expected due to a reduced cash balance and funding of strategic long-term growth plans.

Customer Spending Behavior: Potential changes in customer spending behavior, particularly in discretionary spending, could impact revenue growth.

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Guidance & Outlook

Revenue Growth: Expected revenue growth in the range of 1.7% to 5.7% as reported and 1.0% to 5.0% in constant currency for fiscal year 2026.

Profitability: Non-GAAP operating margin is expected to increase by roughly 20 basis points year-over-year at the midpoint of the target range.

Earnings Per Share: Non-GAAP diluted earnings per share growth is projected between 4% to 8% in fiscal 2026.

Free Cash Flow: Expected free cash flow of between $710 million to $730 million in fiscal 2026, excluding restructuring payments.

Dividend Increase: Proposed 8% increase in quarterly cash dividend to $0.569 per share, subject to shareholder approval.

Generative AI Investment: Accelerating investment in generative AI, including the development of a next-generation Cognitive Core platform to enhance customer experiences and operational efficiency.

Cloud Services: Cloud will remain a primary focus, with ongoing support for global telco customers in their multiyear cloud journeys.

Managed Services: Continued expansion of managed services agreements, including new long-term contracts with PLDT in the Philippines and TELUS in Canada.

Market Conditions: Monitoring the uncertain global macroeconomic environment and its potential impact on customer demand and spending behavior.

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Shareholder Return Plan

Dividend Yield: Achieved double-digit expected total shareholder return, including dividend yield in fiscal 2025.

Dividend Increase: Proposed an 8% increase in quarterly cash dividend to $0.569 per share for fiscal 2026, subject to shareholder approval.

Share Repurchase: Repurchased $136 million of shares in the fourth quarter of fiscal 2025.

Share Repurchase Authority: Remaining repurchase authority of up to $1 billion as of September 30, 2025.

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Key Q&A

Q:How impactful do you think AI will be to the telecom industry, and how much can it improve productivity over time and generate new services?

A:AI is gradually improving productivity, quality, and speed in software development and operations. Initial offerings include add-ons like call center agents for care and commerce. The next phase, called Cognitive Core, aims to disrupt operations by adding a layer on top of BSS systems to support agentic activity. This is expected to be a significant growth engine for Amdocs by mid-2026.

Q:When will the Cognitive Core offering hit the market?

A:Mid-2026.

Q:Why is there a decision to reallocate more capital into R&D, and what are the growth factors to consider?

A:The decision is driven by the opportunity to capture growth in areas like GenAI and sales/marketing. Investments are being made to accelerate coverage of opportunities, with examples like Telefonica Germany and etisalat adopting the amAIz platform. The company is moving from proof of concept to commercial deals, which is expected to drive growth.

Q:Are customers expecting better pricing or contract terms due to Amdocs' use of AI internally?

A:Yes, customers expect savings due to AI, but Amdocs mitigates pricing pressure by expanding the scope of agreements, adding new products, and showcasing efficiencies. This approach minimizes the impact of pricing pressure.

Q:Why is cash flow expected to be down next year, and what are the growth drivers?

A:Cash flow guidance remains consistent with the previous year at $710 million to $730 million. Growth drivers include strong sales momentum contributing to the second half of fiscal 2026, offset by lower discretionary spending from T-Mobile. The company is focused on maintaining long-term relationships and capturing new opportunities.

Q:What is the status of T-Mobile's discretionary spending and its impact on Amdocs?

A:T-Mobile is reducing discretionary spending, which impacts Amdocs' revenue. However, Amdocs continues to support T-Mobile's core billing activities and has factored these changes into its guidance.

Q:What is the long-term growth outlook for Amdocs, and can it achieve sustainable growth above 3%-4%?

A:Amdocs aims to establish multiple growth engines, such as cloud and GenAI, to achieve mid-single-digit growth. Investments in unique offerings and new technologies are expected to drive sustainable growth.

Q:What is the organic constant currency growth implied in the guidance for fiscal 1Q '26 and full year '26?

A:Approximately half of the growth is expected to come from inorganic contributions, with flexibility for strategic growth opportunities like fiber and other acquisitions.

Q:Where are customers focusing their AI budgets, and how does this align with Amdocs' investments?

A:Customers are investing in AI for call center improvements and data preparation for real-time support. Amdocs is scaling its investments to include a Cognitive Core layer, which will augment core systems and provide broader capabilities.

Q:What are the below-the-line pressures mentioned in the guidance?

A:Pressures include an elevated effective tax rate (16%-19%) due to regulatory changes and higher financing costs due to a lower cash balance and strategic investments.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing whether T-Mobile's reduced discretionary spending is due to project completion or deprioritization. They also did not provide specific details on the top 10 customers, deferring this information to the annual report.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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Amdocs Q2 2025 slides: Revenue grows 4% YoY, stock dips despite earnings beat

2025-05-07

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