Amdocs' results are usually dull. There are few surprises given its spoon-feeding of guidance to the financial analyst community and its high proportion of recurring revenue. Thanks to its managed services-heavy business model, Amdocs starts its new fiscal year with 80% of its revenue goal already sitting in backlog. While the results for its fiscal fourth quarter, ended in September, are true to form, Amdocs did manage to rustle up an upbeat outlook along with a flurry of contract announcements.
For its fourth fiscal quarter, ending September, Amdocs' revenue grew 1.8% year-on-year in constant currency, in line with guidance. Managed Services (58% of the total) grew 5%, in line with the June quarter, while Software & Professional Services (42% of revenue) declined 1%, better than the 5% decline in the June quarter. GAAP diluted EPS of $1.01 was above the midpoint of the guidance range. Non-GAAP diluted EPS of $1.23 was just above the guidance range. The board approved a 10% increase in the quarterly dividend.
Guidance for fiscal 2021 is for revenue growth of 3.5% to 7.5% in constant currency. The recent Openet acquisition contributes 1.5% points to this, i.e., organic growth guidance for FY21 is around 2% to 6%. This is faster than the 2.4% growth rate in FY20.
According to the Seeking Alpha transcript, Amdocs attributes the acceleration to a rush to digitalize customer engagement to cope with the new normal under COVID-19. 5G is another driver, notably for charging systems. The third driver cited by Amdocs' CEO, Shuky Sheffer, was cloud migration.
However, Amdocs expects the ramp-up of customer activity to be weighted towards the second fiscal half of its fiscal year. Revenue guidance for the first quarter, ending December, is only around 3%. Moreover, when stripping out the contribution from Openet, organic growth will be around 1.5%, below the 1.8% growth in the September quarter just reported.
Alongside results, Amdocs announced an agreement with AWS to deliver an integrated, cloud-native BSS offering and to jointly build and promote a range of services to help customers migrate and modernize their systems. The agreement expands on existing work to enable Amdocs' BSS and service automation portfolio to run natively on AWS. As part of the deal, AWS will be Amdocs' preferred cloud provider for Amdocs' internal IT transformation.
Several operators are already using AWS-hosted Amdocs products, including Globe Telecom in the Philippines and Orange Spain. On the results call, Sheffer said Amdocs looked forward to working closely with AWS as well with other firms like Microsoft Azure and Google Cloud. While it hasn't yet officially signed up to IBM's "Cloud for Telecommunications" its logo was seen (by me) gracing the slides of the analyst pre-briefing last month.
On the results call Sheffer said he believes Amdocs' addressable market for cloud services will grow to be billions of dollars in the coming years. He did not say that this would be an incremental growth opportunity. In reality, it is probably just a different way of delivering Amdocs' existing OSS/BSS products and services, in my view.
Shameless plug: For more on the topic of hosting OSS/BSS in the public cloud check out my latest report (paywall): "Public Cloud for OSS."
Inevitably 5G was mentioned multiple times on the call, often in the context of Amdocs's acquisition of Openet. Alongside the results, Amdocs announced a new contract with AT&T for Openet's 5G charging solution. AT&T is a long-time customer of Openet whose solution is certified to run on AWS and Azure.
Amdocs also announced a 5G-ready converged charging deal with Sky UK (a subsidiary of Comcast) for its MVNO. Also in support of 5G, Amdocs announced a product catalog deployment with KT Corp in Korea. Amdocs' product catalog is also supporting fellow Korean operator LG Uplus's 5G service.
Sheffer noted that 5G requires new charging and policy systems and that with Openet he believes Amdocs has the best product on the market. However, we note that Amdocs' guidance for Openet to contribute 1.5% points to revenue growth this year implies a dollar figure of $63 million, some 10% below the revenue that Amdocs said Openet generated in 2018 and 2019.
Amdocs announced a new contract with A1 Bulgaria to improve its digital sales and customer care ("digicare") processes, obviating the need for customers to sign contracts in store. Amdocs will implement its contract management process and digitize the document lifecycle, enabling A1's customers to engage remotely across any device.
Amdocs also noted a new project with a North American banking group, for their digital user experience consultancy, projectkt202. This is noteworthy as diversification into verticals outside of telecom and media could be the key to greater growth for Amdocs.
Focusing the portfolio
Amdocs announced it is selling its OpenMarket business to Infobip for $300m. OpenMarket provides mobile messaging services and has been deemed non-core. It was inherited with the acquisition of Qpass for $275 million in 2006. Amdocs subsequently acquired MX Telecom for $104 million in 2010 to expand OpenMarket.
The acquirer, Infobip, is an Application-to-Person SMS messaging company, like Twilio. According to Reuters, it raised over $200 million in private equity this July in a deal that values it at over $1 billion. Revenue last year grew 38% to $710 million. In comparison, Twilio (which floated on the NYSE in 2016) had revenue last year of $1.1 billion and has a market capitalization of $44.8 billion.
It is a shame Amdocs could not have built a rival to Twilio in the A2P messaging market but at least it is doing the right thing and returning the proceeds from the OpenMarket disposal to investors via a share buyback.
- Openet opts to dance with the 'dinosaur'
- IBM assembles telco gang to go after 5G cloud biz
- Twilio pays $3.2B for data platform Segment
— James Crawshaw, Principal Analyst, Omdia