Amdocs Limited (DOX) Earnings Call Transcript & Summary

[Audio Gap] walk us through kind of the basics of the story. We have some questions prepared. We'll take questions from the audience if there is any. But mostly, I wanted to start with this. And it's funny, I've known the company on and off over the years has -- it's been a little while, but I thought maybe we'd start with just an overview. Remind people who maybe aren't familiar with Amdocs. Where is the story? What is the company doing? How are you participating?

Okay. Excellent. So good afternoon. Amdocs, for those of you that are not familiar with the company, is a market leader in mission-critical systems in the telecommunication industry. We are supporting more than 400 customers globally, working and supporting customers in more than 90 different countries in which we run and operate their business. Our platform sits at the heart of the telecommunication. Every day, we're running digital experiences for more than billion customers globally. And basically, our customers are relying on Amdocs to support Amanda business, help them launch offerings, a new products, manage customers and general revenue. We have a very unique business model, outcome-based business model that is based on one hand, innovation and technology. But on the other hand, we take full accountability, responsibility for everything that we do for our customers. We bring the software. We deploy the software, we migrate customers, and then we run and operate the systems in long-term managed services. This type of business model is very unique and caused for a very deep and long-standing partnership with customers, which we have for many, many years. good visibility, long-term contract, a very high rate of contract renewals. And now with the GenAI, we see Amdocs as the primary partner of our customers to help them accelerate the adoption of AI and for that, they will realize the value that this era can bring to them, reduce complexity, accelerate the time that it takes them to launch new products and new offering, reimagine all the workflows end-to-end, which is a key and important parameter for our customers. And last but not least, of course, reduced significantly in the cost structure.

I can say 1 thing is I sat down the hall, I saw Verizon this morning. They talked about AI really impacting the business ways. One is in customer retention, customer interaction but also internally taking cost out. So maybe let's talk about AgenticAI. You're excited about this opportunity. You talked about how you can help customers. Can we drill down a little bit on how exactly your systems or doing this? What are you bringing to the table?

So the main offering of Amdocs for this era is what we call AOS. The Amdocs, the genic operating system. In our view, our customers have right now an amazing opportunity to fundamentally change the way Verizons and other customers are operating today. We are running and supporting our customers with ecosystems of systems that we've built over the years, the evolution of bid layer on layer on air and eventually, you end up with a spaghetti of systems that are running today, the entire ecosystem of any telecommunication today all over the world. And again, it's a natural evolution of an industry. But now there's an opportunity to replace all of it, all of it with a platform that in our vision should be fully autonomous, fully agentic, business to machine that will change fundamentally the way customers are operating today. And this is the vision that we are bringing today to our customers under the umbrella of AOS, the Agentic operating system.

And can we talk because it sounds amazing. Just is this a new system? Is this taking the existing system and migrate like how actually take a carrier in Latin America? How are they what do they have to do to integrate AOS?

Yes. So AOS, think about it as a technological framework. It's a set of products, tools services, migration tools, the entire portfolio that is needed in order to help a customer to embark on any journey because we know that today, customers are starting from different starting point. They have different ecosystems that they're operating today. And once they subscribe on the vision that we just described on the future fully automated, really agent operating system for the telco. There's still going to be a journey, how to take them from here to this future. Some customers have more appetite to go faster, some customers will want to transform the entire systems and they can use our latest and greatest platform that can replace all of it, some of them will try to do it in steps. So our job -- and this has been Amdocs job for years in this industry is to help them to find the right water map and the right path and the right journey to take it from where they are today to this future agenetic journey and the pace and the time and the risk level that they're willing to take during this journey. Now when I said Amdocs has been doing it for years, think about other major technological shifts that happen in the industry. Think about everyone going digital. So Amdocs was there to help our customers several years ago. It was the big wave of going all digital and was there to help them realize and become more digital. Think about the cloud, moving to the cloud. So everyone was working on prem. And then the new technology emerge and everyone wanted to start to move to the cloud. This was our job to help our customers to move from on-prem to the cloud. And now we have even a bigger opportunity because the technology and the promise is huge to bring this new technology and help them to become fully agentic for autonomous and to change the way they operate.

Can you talk about -- because you signed a large deal with Liberty Latin America. Correct -- can you talk about let's go even back to even like how did that conversation start? What was the deal? And how do -- how does that roll out?

Yes. So going back to this topic of journey. Each one of our customers have different appetite and therefore, we're going to tailor a different journey for each one of them. Liberty Latin America. It's a case of good customers that decided that they want to see all the benefits and enjoy all the benefits that Jenny can bring them. Got very excited from our Agentic operating systems from AOS on the technology from what it could bring and also decided that the best way to achieve it is by basically outsourcing and giving Amdocs the keys to transform their entire organization. So they hand it over to us their entire IT and ask us to take the responsibility on implementing AOS and generating the same value that we are committed to do and they wanted to get and achieve it quickly, improved time to market, accelerate their digital transformation and generate a lot of savings from their business. So the journey that we tailor together with BT Latin America is that they basically rely on us completely to be the one that will transform them and for that, we got into a 10-year agreement, which will allow us to complete it. We took the entire force, we committed to these outcomes. So in this journey, the customer levitate time is allowing us to deliver the value our other customers will probably define different paths and a partnership or a different approach or we'll take the same path at Liberty. But I think in our goal right now is that over the next few years [Audio Gap]. All our customers, we have 400 customers all the 400 customers will embark on a journey, partner with us, each of them, again, in a different path. To get them to this realization of the value that this technology can bring.

Okay. So this is -- could be a model for how things are done, but it's not -- like maybe that could also be a one-off. And I guess as you're more successful with them, it brings a testimonial to take to other customers, look, this is how we're Okay. Can we talk a little bit about what are the risks and I guess the opportunities for Amdocs specifically as customers start to do this because there's things that are going to take cost out. So there's part of the business you could lose, but there are other things you can get like how does the -- how does it wash out?

Yes. I think the formula, and this is exactly what we did with Liberty Latin Omani Latin America and with other customers that we're in discussions right now is to look for the win-win commercial model that we work for both companies. In order to achieve that, we need to look at the entire BSS OSS domain. And everyone realized today that the real benefit in implementing genic solutions is if you look at the processes end to end. Now in each of our customers on the BSS and OSS this page of systems. Part of it is Amdocs. We are part of this ecosystem. Usually, our portion is give or take, 1/3 of the entire footprint of our customers. So what we're trying to do is the following. We're telling our customers, that's partner. Let's look at the holistic, the entire domain and try to revolutionize and change completely and transform completely the entire domain. You will get all the savings, and you will get, again, to your point, they're trying to reduce cost. Let's look at ways to reduce the total TCO. On the other hand, Amdocs will play a bigger role and help you doing that. So our business can grow, they can get the TCO reduction that they're looking for, and there is a win-win that we can achieve. This is exactly the formula that worked very well with Liberty Latin America, and it's exactly the type of discussions that we are doing right now. So it's -- there is definitely a win-win here in which 1 -- each of the parties is getting exactly what they are looking for in terms of cost savings.

So it's an opportunity to take -- there's a bigger pie than what you have to -- it just reminds me years ago, I remember there was an ultrasound company who decided to start offering services where they were going to service all the ultra -- including their competitors, and they ultimately were able to take market share. It's a similar dynamic -- before I go to next question, I was going to say about your partnerships with pesos. But can we just talk about the competition because clearly, you're way ahead with you wouldn't sign a big deal with Liberty if you didn't have something leading it. So what is the -- because the history of the competition has been very in-house or piecemeal, but now you add AI. So -- how do you see the competitive landscape evolve...

Yes. So in terms of competition, our approach, and this is what we are discussing with our customers, we believe that in order to achieve the ultimate goals and what AI can really bring you, you need to look for a major transformation of the entire domain. Competition is coming to our customers and saying, "Oh, there's a second, there's no need to do that." Leave all these are of systems, whatever you have right now as is and just put a layer on top of it. And this is a valid alternative approach. Again, we don't believe that this is going to bring our customers the value that they need. Yes, it's going to add some value. You put some agents on top of the legacy system, but still you're going to be constraints by the underlying systems, and you will never be able to enjoy a real fully autonomous, fully agenetic ecosystem that will transform significantly the way you operate. But a valid alternative option that definitely for short-term accomplishment and some small gains here and there, you can look at this option of putting some layer on top of it. So this is one type of competition that we are facing these days. The other competition is internal IT, which was always a competitor of Amdocs because some of the things they are doing internally, some of the things we are doing -- so this opportunity right now to leverage AI is getting more appetite for the internal IT maybe to do things by themselves. But I think when it comes to mission-critical systems, the heart of the operations, it's probably going to be the last area that they will try to do internally. They will probably try to maybe look at other applications that are more on the fringe and less critical for running their business. So -- but in terms of competition, I think these are the 2 alternatives that we see today.

It's funny. I remember talking to a CIO executive earlier this year, and he said a year, 1.5 years ago when AI first really became apparent. He thought I can just get rid of all my systems like Workday or whoever like I can just do all this on my own. He goes, later, my thinking evolved to, why am I replacing these. Maybe I can work with them and maybe I use the internal to build functionality on top of it. Can we talk about your partnerships with NVIDIA with the hyperscalers, what do they bring to the party? And I guess, related to that, do you need partnerships with the frontier models also as you bring AI in? Or is that something you have internally?

Yes. So we have good partnership with all the hyperscalers. It started mainly on the journey to the cloud. It was the beginning of this partnership. We will try to move applications to AWS and Azure and we've been going on in this journey, continue to go on this journey these days. Today, it's -- we are shifting and moving more to partnering around large language models and partnering with them. They are providing us a variety of options. Again, everyone is trying right now to optimize the cost and to make sure that you're using some open source and some more expensive frontier models and so on and so forth. So this is also some kind of the support that you get today from all the hyperscalers, including NVIDIA. So we are evolving right now in our partnership with them to the Argenticerea.

So closing out this AOS discussion, it just seems to me like there's an opportunity for Amdocs to move beyond your core -- within your core business to take more share in that sense.

Absolutely. If you think about what is the ultimate goal for us, what will be an ultimate achievement of our strategy is in the moment that we have all our 400 customers all over the world, all of them embarking on a journey to move from where they are right now to this future genetic. We know it's a different journey, but all of them will be in a journey. This will accelerate significantly the adoption and the transformation for our customers.

All right. Now the other growth vector is to go into new verticals and new opportunities. So maybe can we talk a little bit about where do you see an opportunity to go beyond sort of the traditional telecom?

Yes. So the thinking behind this growth engine is that we have done some amazing things in the telecom industry for many years. We know how to work with large customers. We know how to deal with mission-critical systems. And these are skills that we have been proven, and we believe that can be relevant for additional industry. We are not talking about industries. We're talking about one industry. We believe in the verticals -- we're not going to go horizontal. This is not Amdocs. We are looking for one more vertical that we can add on top of our telecommunication, which will continue to be a top focus for the company. We're talking about high regulated industries with complexity, things that are similar to what we did in telecommunication. And we think that the time is now. It's now because of January, GenAI is opening an opportunity right now for customers to think their journeys. We're investing a lot with AOS in the telecommunication domain. And we can definitely leverage this investment and bring it to additional industry. And the same ideas that we are bringing to telco will be definitely relevant for additional industry. So our plan is to get started. The sooner we can get it ready and organized and we have the right penetration point, and we know how to get started. We're going to do it soon. But we look at it as a midterm, long-term additional growth engine for the company, more customers, more TAM that we did not have before in telecommunication. That's why it's a major growth pillar for us for the next 5 years.

Okay. But it's still being developed, what you want to go after. And then at some point, you'll relay out the people.