Amdocs Limited (DOX) Earnings Call Transcript & Summary

All right. I think we can go ahead and get started. [indiscernible] the pleasure of hosting Amdocs President and CEO, Shimie Hortig. Shimie, thank you for joining me today.

Thank you for the invitation.

Of course. I would like to touch on both some near-term and longer-term dynamics. But Shimie, since Amdocs is new for many investors, can you start by just telling us a little bit more about Amdocs' role in the global telco market and some of the support that you provide for your customers?

Okay. Good afternoon. So for those of you who are not familiar with Amdocs, market leader in the telecommunication industry. We are providing mission-critical systems for more than 400 service providers all over the world, the largest one and the most significant one globally in more than 90 countries in which we basically run and transform their business. We sit at the heart of the operation of the telecom -- service provider telecom operators, supporting digital experiences, 3 billion customers are impacted by our systems on a daily basis. As a mission-critical system, our customers will earn us to launch new products and offering for them to manage customers and to generate revenue for our customers. We have a unique business model, outcome-based business model that on 1 hand, is committed to innovation and to technology leadership. On the other hand, we take full responsibility on everything that we do for our customers, from developing their products, implementing them in the customers' environment, migrating customers and then running and supporting the operations of the systems in the long-term managed services agreement. We have a very deep and long-lasting relationship with our customers for many years. Recurring revenue, very high visibility and high renewal rate of our contracts with our customers. And now with the agentic era, we see ourselves as the primary partner for our customers for this journey, basically helping them to unlock the value that this technology can bring and to generate the business value of reducing complexity, reimagining the workflows end-to-end launching faster offering to the market and obviously reducing the cost structure.

Yes. So we're definitely going to talk a lot about what your agentic vision is for the company. But 1 of the things I did want to touch on that you mentioned briefly there is your outcome-based business model. Can you talk a little bit more about that and specifically how that drives, in your view, part of Amdocs' competitive moat?

Yes. So some companies are changing their business model lately. This is not the case for Amdocs. We've been forever. The 40 years of the company's existence, we're always an outcome-based company. We're always committed to our customers and getting paid based on meeting KPIs, SLAs. And therefore, this was always the engagement. We are not a [ time material ] kind of a company. We don't provide bodies or services. It's all outcome-based engagement. And in today's environment, when it's more technology led and not people led and so on, then this business model is definitely the right model also going forward.

So you talked a little bit about your excitement for the agentic era and what the long-term opportunity that this presents to help the telco industry. In your view, what does agentic mean for the global telco industry? And where do you think we are now on the adoption curve?

Yes. So I think for an industry -- and we know this industry very well for many years. It's an amazing opportunity to fundamentally change the way our customers operate. We know the complexity, and we know how cumbersome the flows and the processes in the telco today. And we think that it's an amazing opportunity to change it fundamentally. The challenge right now is that, on 1 hand, the technology can provide -- there's a lot of excitement, and the technology is getting better every week, every day. But on the other hand, we don't see a lot of adoption so far by our customers. So we see our role, and that's why we came with the aOS, the agentic operating system, to help them realize the value and accelerate the adoption. Because right now, to your question, how far are we? We think that we are quite early in the journey. Customers are mainly dealing with some experiments. They're implementing use cases. They're implementing some agents here and there. But in order to reach to the more long-term benefit or fundamentally change the way they operate the environment, we will need to move to the next level. And here comes aOS, and this is exactly the strategy that we have for our company for the future.

Yes. We're going to talk a lot about aOS. But before we jump to that, can we just talk a little bit about your longer-term vision? And more specifically, your stated 4-pillar strategy for the long-term success of the business?

Yes. So the strategy that we outlined for the company going forward is based on 4 pillars, as you mentioned. The first pillar, we call it aOS, the Agentic Operating System. In this pillar, we see ourselves helping and partnering right now with 400 customers that we have today all over the world to take them from where they are today to the future agentic operating system. In order to do that, we came up with aOS, the Agentic Operating System of Amdocs, which is the technological framework that basically includes everything that is needed from products, services, tools, migration tools in order to help customers start to realize the value of the agentic technology. And we see ourselves partnering with each and every 1 of those 400 customers and starting a journey, which we know, by the way, is going to be a different journey from 1 customer to another based on the preference of the customers based on the starting point, but a journey that we start to realize the value of agentic. That's the main first pillar of our strategy. In the second pillar, we talk about expanding to additional vertical. We believe that the success that we have been having for many years in telecommunication. And aOS, the Agentic Operating System that we are developing and preparing right now for telecommunication can be relevant for additional verticals. We're talking about high regulated industries that we can take everything that we do there and help this industry to transform as well, again, leveraging our agentic offering from telco. And we think that the time is now. This is the right time. The industries are changing. This is the opportunity for Amdocs to expand and to bring all the value that we have for additional industry. The third pillar talks about new growth horizons. We are facing right now, a lot of opportunities for new growth opportunities on top of BSS, OSS and aOS on top of going to additional industry, we are seeing right now a lot of challenges and new needs that were never there before for our customers, again, all coming from the agentic era that we are serving for customers. 1 customer here, 1 customer there. We're just serving it on the spot. And we want to look into it and identify at least 2 or 3 offerings that we can commercialize and go and sell it globally. It's another growth engine for the company. Again, these are opportunities that did not exist before. And now with the agentic era coming to life, and we are looking for way to make it a growth engine for the company. So that's the third pillar that we're going to focus on. And the fourth one is the internal transformation of the company. We want to see ourselves as "Customer 0" of everything that we're offering right now for our customers. For that, we need to transform internally. We're accelerating the internal transformation. We are adopting agentic SDLC processes. We are implementing agentic operations. We are changing the way of working, more builders, less enablers, flattening the organizations, a lot of other changes that we do in the company in order to able to support the growth strategy 1, 2 and 3 will not happen without us transforming internally as a company. So these are the 4 pillars that we see. And that will take us in the next several years.

All right. So I definitely want to go into a little bit more detail on the Agentic Operating System, really exciting opportunity for the business. You've generated a strong level of initial customer interest here. And one of the things you mentioned in your earlier answers was about where we are in the adoption curve and how we're very early innings. So sort of in that note, when we think about aOS, what should investors watch for to distinguish from early-stage experimentation to a more durable commercial adoption opportunity?

Yes. So as you mentioned, we are quite encouraged from the fact that we already have 10 customers that are using and acquired the aOS platform and already implementing and starting to see concrete value from implementing aOS. What we do, we like to see, and this is the next phase, that those initial engagement with customers around aOS will evolve to some meaningful journey with the customer in which we are targeting together with the customer to fundamentally change the way they operate. That's the next level of adoption of aOS. And we're happy to report that we have some initial examples of customers that started this journey in a meaningful way. So the last example that we shared about a month ago in August is Liberty Latin America. This customer basically decided to go all in with Amdocs. They handed over the entire IT program of Liberty LatAm to Amdocs and asked us to take the full responsibility to transform, leveraging aOS, and to get them all the benefit that they would like to achieve from the agentic era. Much better support to the business, faster launch of products to the market. And not less important, to reduce significantly their cost structure. So they went all in, outsourced the entire IT organization to Amdocs and asked us to leverage our aOS to help them transform the organization. We believe that there are going to be many other customers that will do the same, mainly due to Tier 3 customers, not the leading one in the world, but definitely the Tier 2, Tier 3 customers because they are under a lot of pressure to generate savings to generate acceleration of the support of the business. Not all of them has the right talent and capacity and budget in order to make it happen. Those type of customers, we partner with Amdocs in a significant way. And other customers will probably define a different journey or a joint venture or any kind of partnership with Amdocs that will help them realize the value of the agentic era. So what you should see right now is customers moving. And Liberty Latin America is a great example of a customer that is moving to a meaningful journey, trying to fundamentally change the way they operate. And that's a phase that we are right now, moving from initial engagement to meaningful long-term journeys with key customers.

So you brought up the Liberty LatAm deal. What was it about that deal that was unique and made them ready to move from a defined project to an end-to-end transformation, especially in the early stages that we're in?

I think it's, first and foremost, aOS, they got really excited on the technology, from the capabilities, what we're able to demonstrate to them. So this created the main differentiator compared to competitors that came with maybe concept of your -- your [ mass polar ] or other ways to help them reduce cost. But what really triggered the differentiator was the technology in aOS that they got very excited. The other thing that you see is that there is a lot of pressure. And it's not just in Liberty Latin America, it's everywhere with all our customers, from the Board, from the CEO office, to the CTO and CIO to accelerate, accelerate the benefits and the potential of AI. What CIOs and CTOs are doing today is not good enough for the Board, not good enough for the CEO. They are pushing them to accelerate. And the push to accelerate and to get a quicker return and quicker outcome and benefits from that is accelerating the discussion with Amdocs on how Amdocs can help in a meaningful way to accelerate the entire process. So these are the two main reasons, the need to accelerate the benefits, plus the excitement from the technology and aOS that we shared with them.

So you've positioned aOS as a potential growth catalyst for Amdocs. What, in your view, needs to happen to -- with aOS specifically to move you beyond your historical roughly low to mid-single-digit growth profile to something that accelerates via the aOS engine that you're positioning here?

I think the acceleration in our implementation of aOS is highly dependent on how quickly the industry is going to move forward. We already see in a matter of few months that they are moving for experiments and trying to do things here and there to something more meaningful. So this next phase is happening. But the key is going to be the how aggressive the industry will be in trying to implement and get the benefit of the agentic technology. If I compare it to other technological shift, major shift that we supported our customers in the past, it reminds me more the days of the digital transformation, in which we saw a much faster acceleration. All our customers wanted to move fast to become digital-first organizations. And therefore, we saw a lot of acceleration in our growth because our customers were moving fast. We saw that the cloud journey and the cloud transformation will also accelerate our growth. In this case, it happens slower. So again, it all depends on how aggressive our customers are going to be in their desire to start to realize the agentic value. We would like to think about it more as the days of the digital transformation rather than the cloud, which was moving a little bit slower than what we expected.

So that's an interesting point then. So when you think about the opportunity from aOS, which carries the most execution risk, proving the technology, driving accelerating customer adoption or converting that adoption into revenue?

I think it's going to move very quickly once the customer will make up their mind and start to move faster. So the adoption, the decision right now, some of our customers are still evaluating options and not sure if they want to go Option 1, Option B, Option C. The minute they will make a decision that they want to push forward, you will see the acceleration and the adoption of the technology, which I think we're getting a lot of good feedback. So we're not concerned about the technology or the feedback on the technology, it's very positive. I think it's the strategic decision that just experiments here and there is not good enough. And if they really want to transform and change the way an operator or carriers are operating today, they need to do something meaningful. This will be the trigger that will accelerate those journeys all over the world.

And so as the aOS adoption scales, how much of the opportunity, in your view, comes from expanding your share of customer IT spend versus actually changing how the work is delivered and priced?