Amdocs Limited Stock

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 3 billion customers globally. And basically, our customers are relying on Amdocs to support [indiscernible] business, help them launch offerings, a new products, manage customers and generate 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 their workflows end-to-end, which is a key and important [ power ] for our customers. And last but not least, of course, reduce significantly their cost structure.

I can tell you one thing as I sat down the hall, I saw Verizon this morning. They talked about AI really impacting the business 2 ways. One is in customer retention, customer interaction, but also internally taking cost out.

So maybe let's talk about Agentic AI, 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 are 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 agentic operating system. In our view, our customers have right now an amazing opportunity to fundamentally change the way Verizon and other customers are operating today. We are running and supporting our customers with ecosystems of systems that were built over the years, evolution of systems that we build layer on layer on layer.

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 -- 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 is 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, fully agentic 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 grow 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, this has been Amdocs' job for years in this industry is to help them to define the right road map and the right path and the right journey to take it from where they are today to this future agentic 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 happened 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. Amdocs was there to help them realize and become all digital.

Think about the cloud, moving to the cloud. So everyone was working on-prem. And then the new technology emerged 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, but to bring this new technology and help them to become fully agentic, full 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 again, like how did that conversation start? What was the deal? And how does that roll out?

Yes. So going back to this topic of journey, each one of our customers has 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 GenAI can bring them. Got very excited from our agentic operating systems from aOS from the technology for 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 handed over to us their entire IT and asked 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, improve time to market, accelerate their digital transformation and generate a lot of savings from their business. So the journey that we tailored together with Liberty Latin America is one 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 responsibility. We committed to these outcomes. In this journey, the customer. The LatAm is relying on us to deliver the value. Now other customers will probably define a different path and a partnership or a different approach or will take the same path that Liberty LatAm took.

But I think and our goal right now is that over the next few years, all our customers, we have 400 customers all over the world. All the 400 customers will embark on a journey, partner with us, each one 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 the other customers, look, this is how we do. 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 are 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 it wash out?

Yes. I think the formula, and this is exactly what we did with Liberty Latin America and with other customers that are in discussions right now is to look for the win-win commercial model that will work for both companies.

In order to achieve that, you need to look at the entire BSS OSS domain. And everyone realized today that the real benefit in implementing agentic solutions is if you look at the processes end-to-end. Now in each of our customers on the BSS and OSS, this spaghetti 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, let's partner. Let's look at the realistic, 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 in doing that. So our business can grow, they can get the TCO reduction that they're looking for, and there's a win-win that we can achieve.

This is exactly the formula that works very well with Liberty Latin America and it's exactly the type of discussions that we are doing right now. So there is definitely a win-win here in which one -- each of the parties is getting exactly what they are looking for in terms of cost and savings.

So there'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 ultras -- including their competitors, and they ultimately were able to take market share. It's a similar dynamic.

Before I go -- next question, I was going to ask about your partnerships with the hyperscalers. But can we just talk about the competition because clearly, you're way ahead, but you wouldn't sign a big deal with Liberty if you didn't have something leaving it. So what is the -- because historically, the competition has been very in-house or piecemeal, but now you add AI. So how do you see the competitive landscape evolving?

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 saying, "Oh, this is [indiscernible], there's no need to do that." Leave all the [indiscernible] of systems, whatever you have right now as is and just put a layer on top of it. 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 constrained by the underlying systems, and you will never be able to enjoy a real fully autonomous, fully agentic 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 giving 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 their operations, it's probably going to be the last area that they will try to do internally. They'll 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 that's -- 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, "Oh, 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 a year 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. This was the beginning of this partnership. We were trying to move applications to AWS and to 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 the 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 we get today from all the hyperscalers, including NVIDIA. So we are evolving right now in our partnership with them to the agentic era.

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, 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 agentic. I mean now it's a different journey, but all of them will be in a journey. This will accelerate significantly the adoption and the transformation of 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. Now because of GenAI. So 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 over the next 5 years.

But it's still being developed what you want to go after and then at some point, you'll lay out to people.

Correct. We will -- the beginning will start with some acquisition. We need to get in with some M&A. We need some footprint. We need to get in with some knowledge. We need some customers, we need technology.

So the idea is to get in with an acquisition. But the main play is the telco play, whatever we have there. So we're not looking for a big acquisition or major penetration to this industry. We don't need it. We need enough and the rest we're going to bring from what we have in telecom.

Some domain expertise and then you can build on that. Makes a lot of sense.

Exactly.

Okay. Now since you become CEO, you've emphasized transforming Amdocs. AI first, you've gone through this strategic assessment, 4 pillars of growth. Can you just maybe talk about what drove you there? And...

The main focus is the growth of the strategy, the 4 pillars of the growth strategy. Pillar 1, aOS for telecommunication, Pillar 2 that you mentioned, expanding to an additional vertical. Pillar 3 is new growth horizons that we believe that we have opportunity to emerge right now with new offerings for the industry.

But in order to support the growth strategy, those 3 Pillars, it requires an internal transformation of the company. We have to lead the example. We want Amdocs internally to be customer 0 of everything that we are offering right now to our customers.

So if we are selling aOS right now to our customers, the same principles and the same concept we want to apply internally in the company, accelerating agentic SDLC processes, changing the agentic operations to become agentic operations, changing the way of working, changing the structure of the teams.

So everything that we believe that will make Amdocs as agentic first organization and to lead by example.

I'll take on.

It's a major change. It's a major transformation. We've been in this journey for a while. We are definitely accelerating. In the last 5, 6 months, we are definitely accelerating. We are scaling it, rolling it all over the company. We spent a lot of time trying to learn and probably made some mistakes and we knew how to fix it.

So now we're ready to go at scale and do it across the entire company, but it's a transformation. It's -- when was the last time that agents and humans were working together in the same team, and it's new to all of us.

I saw the matrix. That was about the closest we got.

Exactly. So we are getting very close to that, but it's a transformation. Many companies are going through this transformation right now, but it's probably key and fundamental to support the growth strategy.

I don't know if you saw, we had our CIO on stage yesterday, and he was talking about the same thing. And he said, one of the things that's really helped is they create these sort of like thought leaders, people that kind of champions that work and work with the employees and then give feedback to IT so that like it becomes iterative.

And I see it as an employee. It works when you have people that are like, look, let me help you, how do I do it? So it's a great -- when it gets done, it's going to be a beautiful thing. Okay. Let's talk about growth outlook. So historically, Amdocs has grown sort of low single-digit growth. What's the potential for that to accelerate? What time frame? How much of the 4 pillars kind of get you there?

We need -- in order to accelerate the growth, we need a few things to happen. On the first pillar, we think that we have an amazing opportunity with aOS to accelerate the growth. The main consideration, how quick it's going to happen depends a lot on how quickly our customers will move, adapt and embark on these journeys.

We talked about other transformation that Amdocs did in the past, for example, the digital transformation that we did for our customers or the cloud transformation that we did. So digital went much faster. Customers adopted it much quicker, and we were running very quickly and many of our customers were transforming and becoming all digital.

So we saw an accelerated growth in those years for 6%, 8% a year because it was moving very quickly in the industry. The cloud went slower, even though it was a very good compelling event, it went slower. So we saw growth, but not at the same pace. Now the question is how quickly the industry, our customers will adopt AI and will embark on these journeys.

We want to believe that it's going to be similar to the digital transformation because it's been driven by the business. It's not a back-office infrastructure change. It's more of a business-driven transformation. So we want to believe that it's going to happen faster. I think there's a lot of pressure right now from Board, from CEOs to the entire organization and our customer base to move faster, look for things that are more fundamental, meaningful that will help them transform the companies, their company.

So I think this will hopefully go faster, but time will tell, and we see how quickly the industry will move in this direction. The new vertical -- we need to get started. There's a huge potential to grow, but we are starting small and it's going to take time. We believe that this is a growth engine for the mid and long term and the new horizons.

We just need to pick 2 or 3 good examples that can accelerate quickly, and we're working on that right now. So all in all, I think that each one of the growth pillars has a great potential. We just want to accelerate. Right now, there's a sense of urgency to get started in all of them and to make the right investment and to push forward because we want to build the company for the next 5 years and beyond. So overall, we're quite optimistic on the strategy that we put in place.

I remember talking to an AI expert 2 years ago, and we talked about difference between cloud and AI. And one of the things that they stuck in my mind, which I never forget, they said, because I remember the cloud transition. They said in the cloud transition, part of the challenge was the incumbents were fighting it.

Remember who the incumbents were 25 years ago, they're like, don't go to the cloud, it's not safe and create. And so they slowed the process down. They go, look who is driving the AI today? It's the incumbents. I mean the biggest players in cloud are the biggest players in AI. So that has the potential to accelerate. So that hopefully provides more of a tailwind, less of a -- I can't imagine a Board today who's not thinking AI or what we're going to do.

So let's talk about margins because one of the things about AI is it has not only the potential to drive revenue, it also has the potential to take cost out. So how does Amdocs think about the margin benefits of AI internally, but also with customers? Do you share it? Do you keep it? How do you price for it?

Yes. So the internal transformation that I meant, the fourth pillar of the internal transformation should drive a company that has less people, more technology. Therefore, even though technology cost is going to go up, we think that the net-net over time, should generate better margins for the company.

On the same time, we want to share it with our customers. And this is going back to this -- we have a bigger piece of the pie, and we're going to share and we're going to give them a TCO reduction. Some of it is going to be our reduction, some of it is going to be the entire domain reduction. So we're going to share it, of course, with our customers because we are altogether in this goal to try to reduce the total TCO for our customers. So overall, a great potential for us to become more profitable and also for our customers to reduce cost significantly. I think there is a win-win for both of us here.

Okay. So last question, I'm going to actually put the 2 together, and that is, how do you think about capital allocation and how do you think about M&A, especially -- and again, it didn't sound like you were thinking about a huge M&A, but just how do you think about returning cash versus making investments? And how do you balance sort of the near-term shareholder demands versus this longer-term bigger opportunity?

I would say that we put right now a strategy that we strongly believe can drive the company for the long term. Strong growth engines that can develop and grow the company for many years to come. And we are quite determined to make the right investment in order to make it work.

Right.

So if we need to think about short-term considerations versus long term, this management team is thinking right now about long term. And we believe that we are building the right growth engines that will make Amdocs a great company also for the next 5 and 10 years.

So if we need an M&A right now in order to support expansion to another industry, we definitely want to go and do it. If we need to invest right now and do some growth on the new horizons and the new vertical, if we need to make sure that our aOS is the leading platform and there's no one better than us because that can help our customers, we're going to make this investment.

We are quite determined to make sure that we are supporting the strategy in the right way. Some of it is organic, some of it is, of course, through M&A. But the main goal right now is to make sure that behind the strategies that we're very confident that this is the right strategy. We are supporting the right capital to make it happen. Appreciate it.

Well, Shimie, thank you for your time, much. And -- there's a lot to follow. I mean, again, AI has created this like unsettled but also much larger opportunity. So we're going after bigger opportunities. And so I think you have an excellent strategy just as far as the way you're thinking about layering in the growth. So wish you much success.

Thank you. Thank you all for coming.

Excellent. Thank you for the time.

Thanks for attending our conference.

Thank you very much. All right.

Thank you. All right.

All right. I think we can go ahead and get started. Thank you all for coming today. I have 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, a 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 providers and telecom operators, supporting digital experiences. 3 billion customers are impacted by our systems on a daily basis. As mission-critical systems, our customers rely on us to launch new products and offerings for them to manage customers and to generate revenue for our customers.

We have a unique business model, outcome-based business model that, on one 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 the products, implementing them in their customers' environment, migrating customers and then running and supporting the operations of the systems in a 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 offerings 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 one 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 models lately. This is not the case for Amdocs. We have been forever. The 40 years of the company's existence, we were 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 and 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.

Great. 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 one 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 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 of 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 four-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 I 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 one of those 400 customers and starting a journey, which we know, by the way, is going to be a different journey from one 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 verticals. 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. Like 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 solving for customers.

One customer here, one 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 as another growth engine for the company. Again, these are opportunities that did not exist before. And now with the agentic era is coming to life, and we are looking for ways 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 zero" of everything that we're offering right now for our customers. For that, we need to transform internally. We are 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 organization, a lot of other changes that we do in the company in order to be 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 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 would like to see -- and this is the next phase -- that those initial engagements 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 Tier 2, 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 budgets in order to make it happen. Those type of customers will 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 the phase that we are right now, moving from initial engagement to meaningful long-term journeys with key customers.

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?

Yes. I think it's, first and foremost, aOS. They got really excited, from 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 mess for less 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're 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 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 there?

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 from 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 shifts 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 thought that the cloud journey and the cloud transformation will also accelerate our growth. In this case, it happened 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 or Option B, Option C. The minute they will make a decision that they want to push forward, we will see the acceleration, the acceleration in 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 experiment here and there is not good enough. And if they really want to transform and change the way an operator or a carrier is 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?

Right now, in all the discussion, the growth that we will see is coming mainly from expanding the footprint that we have today. Today, in the domain that we are focusing on, BSS, OSS, the Amdocs footprint is usually, give or take, 1/3 on average. Different customers, a bit less, a bit more. But give or take, we're about 1/3 of the spend of our customers. And we believe that right now, when everyone is looking to transform the entire BSS domain end-to-end, they will look to give us a bigger piece of the pie and help us transform and help them move faster.

Today is that -- on top of the Amdocs systems, our customers build more and more systems and layers and layers and layers of systems and became a very complex and very cumbersome ecosystems. I'm not going to work for them in the future. So we will take a bigger portion of the pie, and we will help them transform and help them reduce the cost and improve the time to market. That's the plan.

So AI should allow Amdocs to perform existing work more efficiently. How do you ensure that productivity becomes financial leverage for the business rather than revenue pressure?

Yes. So one of the goals that we have together with our customers is to help them reduce the cost. But when you look at the cost, it's not necessarily just the Amdocs cost, it's the entire cost of the entire BSS domain. Again, Amdocs is just a portion, let's say, 1/3 of this entire spend. If they want to realize the value, we need to show them how they can shrink and reduce significantly the total cost of running their BSS and OSS ecosystem.

So definitely, any engagement will include a reduction in the total TCO of our customers. But a win-win engagement will allow Amdocs to increase our share and to grow while we are providing them the total TCO reduction for our customers. We can only do it by what we said, internal transformation, which we know how to do things better, cheaper also internally and definitely share it with our customers.

But we believe that there's definitely a win-win model here that our customers will benefit from that. We will benefit from that. It's not the first time that we're having this kind of discussion with our customers. And now we just have a better lever and a better technology that will allow us to achieve this faster.

Okay. So let's talk a little bit more about Pillars 2 and 3 of your strategy, which is new vertical as well as new growth horizons. Can you go into a little bit more detail on each of those, the drivers behind the vision for those two pillars and where you think Amdocs is positioned to be differentiated within those?

Yes. So the idea that we can expand to additional vertical is not a new idea at Amdocs. We've been looking into it and examining it and looking into it for quite some time.

The concept is very straightforward. If we know to be successful in telecommunication and we know how to help our customers to transform and we know how to transform in mission-critical systems, and we're coming right now with aOS, the agentic operating systems for telecommunication, there is no reason that we cannot take the same benefits and the same playbook and everything that we do in telecommunication and try to help additional industry to transform.

And we are not talking about becoming a horizontal company. This is not us. We are very focused on one vertical. In our plans right now, we're talking about one additional vertical that we're going to be specializing and focusing and go deep in this industry. But we want to become and leverage all the experience that we have all these years in telecommunication, bring it to this additional industry and help this industry adapt and realize the value of the agentic opportunity.

And the time is now because of the capabilities and the opportunities with the agentic technology. So we think it should happen now. However, it's a midterm, long-term play. We don't think that we are going to conquer the world in this new vertical so quickly. But over time, as long as we bring more value and more capabilities that we knew how to do very well in telecommunication to this new industry, I think we can help customers in this new industry.

And from our perspective, it's a growth engine because we are starting from a very small footprint. We don't have a lot of business there. For us, every engagement is going to be an upside. So on top of the growth that we plan to have within telecommunications, we want to see another growth engine coming from additional vertical over time, again, leveraging everything that we know how to do well in telecommunication in the new vertical.

The third pillar is talking about opportunities that we see right now that are completely new. Everyone is looking right now about a lot of opportunity. Many start-ups are coming up every other day, trying to leverage the agentic technology. We have the benefit that we see all these opportunities and we see all these challenges and all the needs, the new needs that our customers have today, and we are solving it for them. We are solving it today, so we can solve it, can solve it for AT&T in the U.S. or we can solve it for PLDT in the Philippines. Or we can do it all over the world, but we are familiar and we are aware of these new challenges.

Some of them is something that we can replicate that you can take to market globally, we need to package it, we need to productize it, and then we can grow with this solution and sell it globally. So we are looking right now to incubate some of those ideas. And out of them, we believe that it's enough that 2 or 3 are going to get a lot of good tractions globally, and we start to sell it. And then we're going to have another growth engine for the company.

So one growth engine is aOS on steroids for telecommunications. The second one in terms of growth, new markets, new customers, trying to replicate what we do well in telecommunication, and that's the new vertical approach. And the third one, new ideas and new needs that we know how to solve that can generate growth for the company. 1, 2 and 3 should hopefully bring us over time to the accelerated growth that we would like to achieve.

And when you think about the new verticals pillar, how do you think about driving customer adoption in an industry where you are the new entrant? Obviously, when we look at telco, you have tons of referenceability in the space. Customers know you have long-term established customer relationships. But when you're breaking into a new vertical, obviously, that is all nonexisting at the time. So how do you think about going from customer 1 to 50?

Yes. So first, when we get to a new industry, we'll have to get some incumbency. Well probably, it's going to include some type of an M&A because we need to get customer base. We need to get some basic knowledge, good technology to begin with.

And then we want to try to bring to this industry something new that they haven't experienced so far with the current providers that they have today or the current vendors that they are working with them today. It's a unique business model of Amdocs. It's something that's quite unique, combining product and services, which is something that we don't see happening in many other industries.

We're going to try to bring aOS, the agentic operating system, and show them that things can be done differently. And the accountability model in which we are basically committing to outcomes, not time and material like other SIs and so on. We are going to come with the accountability model. We're going to commit to migrations, to time lines, to budget and try to deploy the same business model that we did very successfully in telecommunications.

And this is going to be something new. But this new vertical does not -- they do not experience it today because this is not the way they operate right now. So we believe it's going to be something refreshing that will create demand and excitement in the new vertical.

Okay. And I also want to talk about Pillar 4, which is becoming an agentic organization through internal transformation. Can you tell us a little bit more about that and why that is important for the future success of the business?

Yes. So we are on this journey for quite some time. It's more than a year that we are implementing internally in the company. We are accelerating everything that we have done so far.

I mentioned the agentic SDLC, so we want to change fundamentally the way we run our development processes. We're implementing agentic operating capabilities to transform the way we run our operations for our customers, changing the structure of the team, the way of working. We need to show our customers that everything that we are suggesting to do for them with aOS and all the new ideas that we have about the agentic transformation, we lead by example.

So we do it first and foremost internally within Amdocs. They get a lot of confidence. So I think it's very hard. It doesn't make sense that you can come and suggest to your customers to do things that you don't do internally within the company. So we want to lead. We want to be the first one to show them how it can be done, and we're going to do it internally within the company, within our company.

And then I think customers will get more confident and secured to go in this journey that will help them also do it for themselves. So it goes together, the internal transformation and the growth opportunities that we have goes in our view, hand to hand, and we have to lead by example.

So why, in your view, is Amdocs better positioned to lead an end-to-end transformation in the telco industry over a systems integrator, a hyperscaler or even the customer itself?

Yes. The transformation that we are leading for our customers is in the domain that we are the #1 expert in the world. This is our area. This is the area of expertise, the businesses -- and the BSS and OSS domain. This area is something that we have cumulative knowledge from 40 years of running mission-critical systems in this domain.

We're not trying to tell our customers we're going to lead you in the agentic era with your ERP system. We are not saying we're going to do it for you on your HR systems. We're not saying we're going to do it for you in the network. These parts, other people can help them, and other people are better than Amdocs to support them and to help them transform.

We are focusing on the domain that we are the market leader. There's no one better than Amdocs that knows the domain of BSS and OSS, has the context, has the data, has the knowledge, has the expertise and can leverage the technology in order to help them accelerate this journey. So in the area that we are the experts in the world, we think there's no one better than us to help them lead the way and get the benefits from that.

So as foundation models become more capable and less expensive, something we've heard a lot about already early on in the conference, which part of the aOS advantage becomes more valuable, and which part becomes easier to replicate, in your view?

Over time, it's becoming obvious that the models will get better and better. But the key for success is the context, the knowledge, the know-how. Without it, those models will not generate any credible mission-critical system and will not be able to help our customers to transform.

So the key differentiator of Amdocs is this know-how, the product, the data, the context, combined with the improved capabilities of the models can give you the best outcome. Therefore, our moat and our differentiator is becoming more and more obvious as people start to realize that it's all about the knowledge, it's all about the context, it's all about the people that can actually transform mission-critical systems.

Otherwise, it's extremely complicated for someone from the outside to come and pretend that they can transform and replace mission-critical systems that are running at the heart of the telecommunication. Without the 40 years of experience and knowledge in this domain, we think it's a stretch. It's something that we believe that has a very small likelihood of happening.

So as engagements become more outcome-based, what determines how much of the value created accrues at Amdocs versus accruing at the customer, especially as the customers become more efficient?

Yes. Again, I think we touched it before. Everyone realized today that it has to go together. The best outcome is not about each one of us optimizing his own portion. So the customer is optimizing his own portion, we're optimizing this. And there's so many people that needs to optimize. It's not enough.

The real breakthrough will happen in the end-to-end flows. When you look at the entire business in OSS and you're trying to transform the entire domain and replace it with a new aOS, a new operating system, this will give the big revolution that we are trying to bring to our customers. Otherwise, everyone will continue to optimize its own domain. It's not going to give the benefit that our customers are looking for.

All right. Great. So as we come up on time here, I'd like to finish with a high-level question. In your view, what is the hardest part of the Amdocs investment case for you to explain to investors today? Or said another way, what in your view about the Amdocs investment case is most underappreciated?

First, we get a very good feedback on the strategy. The four-pillar strategies resonate very well with investors, with analysts. We get a very good feedback. So everyone agree on the concept, everyone agree that we came up with the right strategy.

What is difficult these days is that all the software company and all the IT services company, doesn't matter what you do and what you are, everyone was brushed in the same color. And everyone has a big question mark. Are you going to be successful going forward? Is AI going to disrupt you? Are you going to come up and emerge as a winner? Are you going to be a loser? But right now, it's very hard to compete and to confront this general notion that everyone was brushed, and it doesn't matter what you do.

And so it takes time to explain to investors the moat that we have, the fact that we are dealing with mission-critical systems, the fact that we're entrenched with our customers, the fact that we always had outcome-based company, the fact that we have long-term agreements with customers with good visibility, deep knowledge that only us can leverage right now. And we have a huge opportunity right now to help our customers leverage the agentic technology.

It's a process. It's going to take time to invest -- to explain to investors. And the best way to do it is the proof is in the pudding. So we need to start to show results, and we need to start to come up with more wins like Liberty Latin America and more aOS adoption of customers. And I think that over time, investors will start to realize that it's not just a good strategy on paper that we have good progress, and we are executing well based on this strategy.

Great. We are at time. Shimie, thank you so much for joining me on stage today.

Thank you very much. Thank you for having me. Thank you.

Good morning, everybody. Tim Horan, the communications, digital infrastructure and satellite analyst now here at Oppenheimer. My pleasure to be hosting Amdocs again, I think, for maybe the fifth year. And I've hosted probably Anthony, the Group President of Amdocs, much, much more often than that actually. Anthony, I will always mess up your last name, but we're good with Anthony for now. Yes. And Matt Smith, Head of IR is here also.

It's just really, I think fascinating times in technology and networks and compute. And clearly, in the economy, we just think we're on the precipice of incredible changes to the economy with this [Technical Difficulty]

[Audio Gap] which is really focusing on telecommunications, our BSS, OSS really coming to the market with the next-generation Agentic platform, keep doubling down on that. We have a North Star or we believe that eventually, it is really going to be business to machines, right? Meaning this kind of massive layer of doing a lot of IT and doing a lot of change requests and things like that is kind of going to disappear as software starts to kind of auto heal and evolve and be more Agentic and be able to give you all of these capabilities. And we're starting to push some of those boundaries. And that is really pillar 1, just taking our customers to the next evolution of software, which is natively, Agentically built.

The second pillar is we believe that we have this DNA of going deep vertically, right? We are not a company that serves 17 horizontally inch deep mile wide. And we have some DNA in that, right? We build mission-critical software that needs to run 24/7. We work and build software that works in a highly regulatory industry. We are super, super focused on things like PII and privacy. And obviously, with quantum just around the corner with security, we're already working on that stuff.

So there are some DNA and characteristics of Amdocs going very deep in these complex verticals that we think can be replicated to another vertical. And so even though we haven't shared specific information on that in terms of the vertical, we think that our next play is to go to another vertical that has similar characteristics and bring to bear kind of this core competency from the Agentic side of telco to another vertical.

And the third pillar is really something that I'm super, super excited about. And I think there are a lot of very interesting emerging markets, not geographically, but emerging markets from a kind of landscape perspective where there are a lot of things that we're building that could be viable for. So just we were talking just before this, right?

I spent the day over here at NVIDIA, and we spent a lot of time talking about the edge and talking about edge, mesh grid and how that can work and how workloads can balance tokenization, how do you kind of measure that, balancing all of that together because that could be the next frontier as we start to go to all sorts of -- by the way, it's not just that you need lower latency and better capabilities on the edge, and there's a great opportunity for telcos to create this mesh grid on the edge.

But there is also available compute power, right? Like if you look at the need for the next 3 to 5 years, although there is this massive data center build-out being done, they're still behind the curve in terms of the need for many of the enterprises. And here, you have fully air conditioned, power supplied, fiber running, all of these edge points close to enterprises and consumers that can be utilized. But that also comes with a burden of how do you manage the workloads, how do you monetize it? How do you treat it differently? How do you treat security on it? How do you partition it? How do you virtualize it? So there's a very interesting stack of software complexities, and that's kind of some of the big items we've been sitting here talking with NVIDIA in the last day or 2.

So that third pillar is very, very interesting and exciting for us. And we're building some of this stuff for us, right? Like you take something like quantum security, like we have already been working on this for the last 6 months for our enterprise applications, right? They need to be PQC compliant and things like that. And then you just wake up and you go hang on a second, like we're doing this, and it's so valid for so many others. So this third pillar is really to look at like are there any of these opportunities. Now we're not going to wake up tomorrow and say, like we're going to go into pharmaceuticals or anything like that. But are there some of these opportunities like on the adjacencies that could be very viable to take to market as well. That's the kind of the third pillar.

And the fourth, I would say, the horizontal layer is really a focus on real internal transformation. And I think Shimie has taken over the CEO role, this is something he really embraced soup to nuts and said, "Hey, like we need to be customer zero here. How do we transform completely internally to be fully Agentic, right? And we've seen the tweets and things like that of companies like Uber just waking up and going, "Oh, my gosh, like -- so we are -- and that's another good example of something that we've built internally, right, like having these dashboards per employee, what are they using, routing to cheaper LLMs. All of these is internal infrastructure we've built. We're like, hang on a second. This is like super valid outside, right?

So back to that kind of how all of these pillars connect, that's back to pillar #3. So that -- in a nutshell, that's our strategy. Absolutely Pillar 1, we're doubling down on that. We think there's an amazing opportunity. Amazing opportunity like this LLA deal that we signed or announced last quarter. It's an Agentic transformation journey. And we are starting to see, and I know you and I have had a lot of conversations about the many POCs we're doing.

We're starting to see these like our customers go, okay, it's not about can I launch an agent to production because, yes, you can launch an agent to production. How do I transform my company? How do I have [indiscernible] W.ho are the 2 to 3 partners that I want to partner with that will take me down this journey. And this is where we think there's a sweet spot for Amdocs to really play and make an impact and really set the stage for the next 5 years.

Anthony, I mean, the opportunity is obviously huge, right? The telcos are still very, very, very inefficient in many ways. I mean AI seems like made to order to massively improve the quality of service, customer care, right? And frankly, their own cost structure. I mean they can automate and agentize their entire business over time. And you guys are in an incredibly strong position to do so. I guess the multibillion-dollar question is, are you going to -- can you execute? Or are you going to lose these customers to new competitors, right? That's -- I think that's a really, really important point. Like why do you retain the customers? And what gives you confidence that you can execute?

Yes. Without being flippant, I would say like we are the adult in the room in a way, okay? And what I mean by that is you have a mission-critical in some cases, with our big customers, $100-plus billion business, and you are not going to wake up tomorrow and someone that great and amazing to see these amazing valuations. The company [indiscernible] getting $1 billion valuation, I also want that, right? But on the other hand, like do you trust your entire business here to something like that, right?

And so if you can get both, meaning if you can get the responsible adult in the room who knows how to build mission-critical software, right? I'll give you just a very, very simple anecdote just to illustrate something like this, right? So you have, let's say, you pick this great platform that has a great agent and he's amazing and there's all the fantastic things and fantastic, I'm going to get it. For whatever reason, let's say, Claude is not available or OpenAI is not available or Ozone is going down. Like I mean, are you going to tell your customers, oh, like come back in 3 days. What happened if a model gets taken offline? What happened if you start to scale it and sudden, you realize that every one of your inbound calls are using 20,000 tokens for each call.

I mean there are a lot of complexities that needs to be managed in a complex organization. And we are thinking through every element of it because we understand the business. And that, combined with knowing the workflows and the business processes and how you take a product from, a, all the way to provisioning on the network, right? It's one thing to say, hey, like I can answer a customer care and do an upsell. It's another thing to know if you can provision it on the network and make sure it gets delivered in 24 hours. And so when we come to the table, we're taking all of this into account. We're taking your entire gamut of security into account. We're taking your regulatory concerns into account.

So I think when we come to the table, it's not like, hey, like look at this nice shiny little thing here, like do you want to use AI? It's really deeply thinking through your business. And one thing we found, by the way, in this kind of new strategy that we're rolling out is we don't have 10,000 customers in telco. There are like 50, 70 customers that carry 75% of the revenue globally. And many of these customers need a very contextualized path versus here's a box, take it, make sure it fits into your ecosystem.

So I think all of those with kind of the deep understanding of where our customers are at puts us in a very, very good position. Also, like the relationship we have with NVIDIA and AWS, it's not like we're just saying, hey, like Amdocs can do everything. We're bringing the strategic partners to the table. We're working very, very deeply with them. It wasn't just me here at NVIDIA. It was our R&D teams that flew in here. Today, it's actually an R&D Day. They're sitting together with the R&D teams. We are giving feedback on what works, what doesn't work on some of the Nemotron models, right? So it's like a to and fro. And so I think bringing all of these to the table -- it's tough to find someone out there that does all of this for telecommunications.

I completely agree. It was just partially -- we get asked by investors, why should you guys win in this, right? I mean, obviously, you got to execute. You need a lot of AI skill sets that are very, very new. But it's like your game to lose at this point, right, as long as you can execute. And I guess on that, I was just interviewing -- I just had a fireside chat with Verizon's Head of Business unit right before this, Kyle Malady. And he basically said a bunch of the same things you're saying what they need to develop. They need like an AI platform that will help customers manage their token utilization, token costs, model utilization, which models to use, integrated with data and everything you're talking about, right?

And they would love to have, for lack of a better word, like an AI platform in a box. And it would seem like you have obviously 1,000 customers around the world. They're not all going to develop this on their own. You seem like perfectly well positioned to develop exactly this product that they want. And I guess at that point, do you have a product like that?

Yes. And so one is the product, and we are continuing to push the boundaries on our kind of our BSS/OSS stack around AOS and making it fully Agentic. The second is also the harness. Think about the harness, right? Like -- and this becomes, in a way, it's even like a bigger focus today. So you just spoke about all of the different models, right? I guarantee you, if you're a company like Verizon or Amdocs or whoever and you allow your employees all the tools to do dev and stuff like that, everyone is going to default to fable. You don't need to, okay? So how do you manage this?

So now you have an LLM router that analyzes tasks and says, here are the tasks that can go to Sonnet or something like that or maybe even an open source model, right? And then balance it across the organization. And we haven't even gotten to -- we're working on a bunch of kind of open weight models, right? Because this is -- by the way, this is the next big issue that's going to hit us, right? When you're an enterprise -- and people mix the words open source and open weight and the...

Yes, I use open source just because I'm lazy, I guess, yes.

Yes, yes. But it's 2 -- by the way, 2 very, very important paradigms, right? But they're not necessarily exactly the same, right? You can have an open source model that's not open weight, right? And you can have a proprietary model that's open weight, meaning -- let's talk about open weights for a second, right? If you are using a model and you are an enterprise and you have all these nondeterministic software that's driving your business, you want to know where it's driving, how it's driving, you need the transparency, you need the observability. You are a regulated industry here, right? And so that's why open weights really, really matter in decision criteria.

The open source element is much more driven, I would say, by the cost factor of tokenization or token economics, if you like, as you start to scale and our industry is -- I mean, the volumes -- I mean, you know this, Tim, the volumes in our industry is like second to none. And this is only increasing, right? And now you need to deal with not just employees coming in, but agents coming in, right?

So if you thought you had 50 customers, tomorrow, you may have 140 customers because 70 of them or 80 of them or 90 of them will be an agent coming in, trying to negotiate a deal and connect to your e-commerce server, right, and connecting via MCP and buying something and looking around. So like who is thinking about that? We are, right? Like we are building stuff to have agent negotiations on the front end because this is just around the corner. It's already happening today. And so you really...

And Anthony, my question was, I know you kind of -- you built like this AI platform internally to kind of manage all the AI assets, right? And you're going to -- and the telcos need to do that internally, but the telcos also want something for their enterprise customers, right? Because the enterprise customers are getting -- and they think based on everything you're saying, you got to tie together networking clearly, right, with the AI compute, data centers, the actual GPUs, the models, the applications, the agents, it's all incredibly complicated, right?

And then most importantly, you need privacy, security, data on and on. And it seems like you guys -- you're developing it internally and you know how to deal with the telcos. I mean, do you think you can develop a product that the telcos can go to enterprises with and say, look, this will help manage all your AI assets.

Yes. This is where I think kind of connecting a little bit to Pillar 3, I think there is a great opportunity because what we're building is kind of agnostic in a way, right? I mean you can easily white label, sell it to enterprises, and there is no issue with some of these because the enterprise are grappling with exactly the same problem. Talking about that model router, for example, right, talking about security, talking about harness, governance, all of these things, enterprises. So I think it's a great opportunity that our customers can take some of these components, white label it and just expose it to their customers.

And that's in kind of Pillar 1, that's another, I would say, now it requires 2 to tango, right, meaning it requires a customer to think bigger than just connectivity. right? So like you're going to see future customers start to have bundles of -- we already have customers talking to us about this, right? Bundles of like here's my phone, here's my iPad and your -- you can have 10,000 tokens you can use a month, for example, right? It could be across frontier models. It could be their own hosted open source model. You can get like your own AI, personal AI agents. So here's kind of where the industry, I believe, is going to morph to on the consumer and even on the enterprise side. That niche of SMB to mid-market, I think, is one of the biggest opportunities that telecommunications providers have right now.

And I hadn't heard of that until just now bundling tokens in and it makes a lot of sense, right, Anthony, and you can bundle in many other products. But the telcos had this -- they were in a good position 15 years ago in cloud, right? They could have been the cloud providers for enterprise customers, and they just didn't execute. I mean, I guess the question is, can they execute on this AI? Is there something different about AI that unlike cloud where they can actually potentially execute a bit better?

Yes. And that's the -- like the pessimistic view is they were first to cloud, right? They were -- the whole OTT kind of thing that happened where the monetization really didn't flow as much under the telco side and things like that. But at the end of the day, I think the most important thing to understand is none of those technologies could have come to bear without the pipes, without the connectivity. So I think at least that element is there, and that's not going to go away anytime soon.

I think it is going to require some bravery from C-level within our customers, within CEOs, just going, hey, like here's where I want to go, right? Not just kind of stay with the status quo and say, "Hey, I'm going to sell the next iPhone. Yes, you should sell the next iPhone. But like what does that look like?

And going back to the initial point where we started from, this is where I'm also excited about the opportunity around the mesh grid around the edge because you think of the number of POPs that telcos have, right, we're not talking hundreds, we're talking tens of thousands in a city. And it's not just about the proximity to the enterprises or the consumers. It's just about the fact that you have all these kilowatts of power sitting in these things that are unused, that are AC, that are powered, that already has the space secured...

Yes. No, Anthony, that's exactly what Verizon was talking about. I mean everything you and I are talking about, we just had this entire conversation. And they were also talking about maybe selling or leasing GPUs as a service. Maybe they own it, maybe the enterprise owns it. But with cloud, the -- one of the reasons I think enterprises outsource compute to cloud was the utilization internally of CPUs is fairly relatively low. I mean if you're looking at AI, and you would know better than me because you're spending a ton of money on AI yourself, but you're running those things 24/7, I think, almost, right? Because -- and so why would you share that compute with somebody else when you -- there's no economic rationale behind that.

So -- and also enterprises, they want to control their data, right? They want to control their intellectual property. Privacy and security is absolutely paramount to everything we're doing here. So I mean, I think there is a whole lot of reasons why the telcos can be very successful here and why you guys can enable them to be successful. But to your point, though, you need some brave leadership, right? And they got to really step up to the plate [ to me ]. Verizon now has a CEO that came from Silicon Valley, right? So -- and he's already had his career in many ways. So in a lot of ways, he's doing a lot of brave things because it's -- he doesn't have a lot of personal downside.

It's an opportunity. Look, yes, it's definitely an opportunity. The only thing I would say just to the initial comment you made was I think there is a bigger play than selling GPU as a service, right? GPU as a service at the end of the day is going to be a -- I don't want to say commodity because we're not there yet. But some type of commodity play, it's a cost-plus exercise. But now if you can start to go northbound and start to provide services, inferencing services, all sorts of things above it, that's really where the margin play and the opportunity is. It's not just saying, hey, I have a GPU, do you want to buy it?

No, you need the whole platform for everything we're talking about. The whole service is one piece.

Yes, it's one piece. So that's why I think if you look at all the SMBs and the mid-market companies around the plate, these guys don't have a seat at the table with the NVIDIA, right? I mean they are the ones that are needing to -- there is absolutely no doubt that every company out there in some shape or form is either embracing AI or wants to know how to do it. And so I think as a telco, you are the first to the table, right? When a business opens, right, think of the order, if I'm an SMB, I go and start a business tomorrow, think of the order of what I would do, right? I would register my LLC, I would find a physical premise, I would connect the electricity and I will get connectivity. Like that's literally the order of what I would do. And then every -- all the other 10,000 things I need to do, okay?

So I think you're the first at the table. So when you are the first at the table, you have the most amazing opportunity to go, hey, like have you thought about this? Like we have the harness, very secured privacy and you're coming to the table with the most amazing name in the industry because people may say everything about telcos and write bad comments on social media or whatever, but they trust the telco at the end of the day. They're like, I know you're not going to wake up in the morning and decide to screw me, right? Like this is not the brand that telcos have necessarily, right?

That's a great, great point. And then Anthony, just maybe you can switch gears a little bit. Great deal with Liberty Latin America. They gave a number out, and I don't follow the company of savings. But can you put -- not just focused on them, but if I was to entirely adopt AI, what kind of cost savings should a typical telco be able to see? Do you think -- I mean, all in, if I just went completely Agentic, and I'm not holding it to this number, but I mean...

Yes. Look, I think there are 2 streams you need to look at in parallel. The first stream is if I was going to wake up tomorrow and create a completely new telco, I would do it AI native from the ground up. And in a way, that's easier to do because you don't have a legacy of systems and things that you need to bring along the journey, right? But most of our customers on Track 2, meaning they are an existing company, they have an existing business, all of that stuff.

So the ones that can push the needle in terms of savings are coming horizontally and going, look, let me completely reimagine how I'm going to do care. Let me completely reimagine how I'm going to do service in terms of truck rollouts. And those layers or even if you look at the network layers horizontally, if you start to kind of slice those out and you -- we are going from the perspective of selling -- if I go even 3, 4 years and I look at the customer discussions, they were like, hey, we need like this functionality, this feature, we need charging to do this, things like that.

The discussions we're having with customers now is let's look at your business workflow end-to-end versus bits and bytes and feature functionality. Let's look at your -- let's map out your customer workflow end-to-end. How do you now change this customer workflow. We have one customer, I'm not sure if we released the name, but we had one customer that came to us with a problem on the network side. And like we were able to save -- in that particular space, we were able to save like 60% of their annual cost. right? And this is something that they did and they have to do on a daily basis, right? And this was taken straight out of their annual operational costs.

I believe it. And you guys had a big push 2 years ago like trying to automate the contact centers a little bit more. Have you had much progress there? Are the telcos seeing results there?

Yes. I think the -- so I think the contact center space, I think, is jumping in leaps, right? So I think, yes, you will have potentially a contact center and things like that. But I think what we are starting to see now is the customer care agent and most of the inquiries coming in, which is like 40-odd percent billing related, right? I mean you can take not a haircut like, you can completely slice this by a magnitude because most of these agentically, very contextually driving high NPS can be solved purely in an Agentic manner.

And so you've implemented that and had a lot of success, it sounds like?

Yes. We're starting to see -- now customers are doing it by -- so they're taking -- instead of going, hey, we're doing all of care. They're like, hey, like let's do it on a -- like we have one customer that started on a WhatsApp channel. So on the WhatsApp channel, all of the inbounds, and this is a customer in Europe, all of the inbounds coming in the WhatsApp channel, and you know in Europe, they use WhatsApp a lot. So that's a very important channel for them. There were only 3% that needed human intervention. So 97% were being solved without any intervention or escalation. And that's, to me -- like I was -- I went back to my team and like, hey, just double check this, like is this right?

We've been clear about that, sorry. So said another way, they were able to cut like 97% of their live human handling of problems.

Yes. And having it solved by just people chatting to an agent in the back end connected to WhatsApp, connected back to the system.

And were those humans running those chats or agents running those chats?

So it was a combination. It was a hybrid. So there was like originally on WhatsApp, they had like a standard chatbot that were doing it. But when the chatbot was doing it, like 60%, 70% of the calls were like, I need to talk to a person, like give me a human, like this is not the answer that I wanted versus now you're getting 96%, 97% of those completely handled and people happy and moving on.

But it's a hybrid agent and live person.

Yes. Yes. So the -- no, but the live person is only 3% of all inbound.

Okay. Got it. Got it. So what you said is the agent has improved dramatically with these chats.

Yes. So 97% are being handled completely by an agent versus 3% are like, oh, I still need to talk to a person versus before 60%...

And what was the big change? Is it just AI has gotten so much better?

Yes. It's just inferencing, training, knowing kind of the path. I mean, this is just completely -- like think of the original WhatsApp launch that they had done was just like a standard AI, not even Gen AI, I think it was just a standard chatbot. And that was fielding 30% to 40%, something like that, was still decent metrics. And now you've just accelerated that to fielding 97% using an Agentic agent.

So Anthony, I've gone through about 4 of the 30 questions I wanted to ask you. So maybe we can just be brief on this. I mean, are you seeing the hyperscalers as competitors? Or are they getting more aggressive? Have you lost any customers to them or any business to them?

No. They still continue to be partners of ours. Obviously, the big 3, we still work very, very closely. I was just in Seattle 3 weeks ago with AWS, had a great session with them. So I mean, we don't really see them as a direct competitor. It's just because we go so deep, right?

Yes. And how about the systems integrators, the Accentures of the world or maybe even like the ServiceNow Salesforces, do you see them as competitors? Or are they getting more aggressive?

No, I wouldn't say so. I would say the kind of the competitive moat, I would say, is more around the internal IT space going, "Hey, we have this tool set, maybe we can build it. And they may try that path internally. And then they'll go, oh, maybe -- and we've had several customers try to do stuff and they go, "Oh, maybe we can accelerate even faster if we bring Amdocs with us, and we will still build some stuff. But -- so I would say...

Well, that was my next question. And yes, I mean, for them to build this in-house would be a total disaster, right? So that was just my words, it makes like perfect sense.

It doesn't stop them trying, right?

Yes, they're going to try. But -- and I guess even in that regard, I mean, how do you get your own AI people and skill set? How do you keep those people to be able to build the tools that you kind of need right now, right? I mean they're in demand.

Yes. It's a tough one. We have a very strategic geographically kind of spread company, right? So the U.S., Israel, Cyprus, Philippines, India. So we are not always coming to like one market, and it's not the same market. And I think that really helps us a lot. And people come along the mission, right? You join Amdocs. You're on a mission to save the world. I mean you're signing up for that. So I think there's a lot of different factors that kind of play into this. There's no magic at the end of the day, right? I mean it's a tough skill set, tough market out there.

And by the way, the training that you get, the experience that you get is bar none in Amdocs, right? Like with default, you're coming in, you're not working with AI, you're not working at all, right? From marketing to legal, to HR -- I tell you one funny thing. I just got an e-mail this morning from one of the HR leads going, "Hey, we've built this amazing system that does all of this stuff in HR. Do you think that there's a marketing -- can we like take this to market? Like that's the mentality in the company. We have nothing to do with building HR systems, right? But every unit within the company, like this is the focus, and this is the mind. And this is really -- Shimie as the new CEO, this is really what is driving through the entire organization.

No, that's really -- it's really, really exciting stuff. Well, I guess in that regard, I mean, do you think yourselves, it's a major productivity improvement? I mean, is it something that can move the needle on margins? Yes.

Yes, yes. I think -- definitely, I think on the dev side, I think the one thing we are cautious to do is we need to have complete transparency in what we build, what it does because when it goes out to the field, it goes into mission-critical systems. So this is not just a vibe coding Angry Birds and put it on the app store, right? Like -- so every step that we do, we are making sure there's human in the loop in terms of the quality, the code checks, but definitely, this pace is accelerating fast.

We think -- here's the exciting part, right? We think productivity-wise, what we could have done, don't just think of it from, hey, like you can do A and now you're going to have much more margins. Maybe we can deliver A, B, C and D to the customers. So look out for new areas we might go into expanding kind of our addressable market, giving them more value because our customers also have access to these tools, right? So they are expecting more. They are expecting more productivity. It's not like Amdocs is the only one that has this.

Yes. No, that's for sure. And can you talk about your -- just on the compute side, I'm kind of asking everybody, it seems like there's a mad dash to get more GPU compute, prices are going up. And it's very, very hard for companies like yourself to control your token costs, right? Can you get the GPUs that you need to run your business? And can you talk a little bit about -- has it hurt margins? Has it hurt expenses?

Yes. Look, I mean, we have great relationships directly with NVIDIA with every level from the top all the way down. So I think we are good from that space. We were just -- we were actually talking about looking at going much more hybrid in terms of frontier versus on-prem and reutilizing some of the NVIDIA GPUs and things like that. So we haven't hit that bottleneck from scarcity that we don't have access to the GPUs yet.

But I think from the cost perspective, we need to keep an eye out on our employee base, obviously, because it's very, very easy for Anthony to turn up and suddenly consume 7 different AI apps and just drive the cost number. So we are putting obviously controls in place, metrics in place. We can now monitor every employee and their usage. Actually saw a dashboard yesterday, I wonder what this person is doing. So you can probably got a call from Shimie and got a call from me going, "Hey, what are you working on?

It better be good.

Yes, yes. You want to drive AI. On the other hand, you also want to make sure there's an ROI to whatever they're doing, and they're not building Angry Birds.

Well, I know I asked you a lot of questions that Matt didn't appreciate, but you did very good answering them all. And -- but we're out of time, Anthony. And you know I can talk to you for another hour, and...

You know where to find me.

Yes, I'd love to go see you in Texas in person. Yes.

Love to. We could do a podcast on all things AI.

We can. Matt, thank you for lending Anthony to me. And thanks, everybody. Have a good day.

Thanks a lot, Tim.

Thank you, guys.

Thank you for standing by, and welcome to the Amdocs Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Matthew Smith, Head of Investor Relations. Please go ahead, sir.

Thanks, Jonathan. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 of the presentation. It notes that some of our comments today may be forward-looking statements and are subject to risks, uncertainties and other important factors. Another important factor is 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 Shimie Hortig, President and Chief Executive Officer of Amdocs Management Limited; and Tal Rozenfeld, Chief Financial 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 also be posted immediately following the conclusion of this call.

On today's agenda, some Shimie will recap our financial achievements for the third fiscal quarter 2026 and full year outlook, after which he'll present the future strategy for Amdocs in the Agentic era. Tal will then provide additional details on our third quarter financial performance and guidance for the full fiscal year 2026.

So with that, I'll turn it over to Shimie.

Yes. Thank you, Matt. Good afternoon to everyone joining Amdocs Fiscal Third Quarter 2026 Earnings Call. I'm pleased to join you today from Amdocs New Jersey offices and provide an update on the significant progress we have made on our strategy as well as the meaningful commercial wins from the past few months.

Today, I would like to focus most of my remarks on Amdocs strategy and provide you with more color and insight on our long-term direction. Before that, let me briefly review our solid financial and operating performance for the third fiscal quarter. As shown on Slide 7, Q3 revenue of $1.175 billion and non-GAAP diluted earnings per share of $1.84 were consistent with the midpoint of guidance. Non-GAAP operating margin improved by 20 basis points from a year ago as we balance our growth investments with intentional strategic efforts to reshape our cost structure and drive efficiency. Managed Services delivered a record quarter, accounting for 67% of total revenue, and we closed the quarter with 12-month backlog of $4.26 billion, up 2.7% from a year ago.

With these results, I'm happy to say that we are reiterating the midpoint of our full fiscal 2026 financial outlook, including revenue growth of 3% in constant currency and non-GAAP diluted EPS growth of 6%.

Additionally, we are on track to generate free cash flow of roughly $720 million before restructuring payments in fiscal 2026, consistent with the midpoint of our target range.

Building on our strong financial performance, I'm proud to share an important moment in our Agentic journey. We signed a new large-scale multiyear partnership with Liberty Latin America to manage and transform their entire end-to-end IT ecosystem. This is a true flagship engagement and a major proof point of our Agentic transformation strategy, which I will cover in more detail shortly.

Additionally, we continue to see good sales momentum across our core products and services with wins at many of the world's leading providers, including Lumen, TELUS in Canada, Swiss Scandinavia, Telefonica Vivo in Brazil, PLDT and Optage in Japan.

At the same time, we remain focused on delivering consistent operational execution in Q3, successfully achieving a high number of milestones in support of project activities for customers such as AT&T, T-Mobile, Optimum, TELUS, Bell, A1 Austria, Globe Telecom and Telkom South Africa.

To elaborate on a few of them. At T-Mobile, we have made significant progress with the large U.S. cellular integration project, and we are on schedule to complete it. For A1 Austria, we completed a billing, charging and catalog transformation deployment following a multiyear transformation. At Globe in the Philippines, we completed a major modernization of their network policy to support cloud-native 5G.

Now let me provide an update on Amdocs strategy. So over the last few months, we have continued to advance our strategy, and I would like to share more details about the plans to lead Amdocs forward. Last quarter, I shared my excitement about the Agentic era and the long-term opportunity this presents to help out industry and customers fundamentally transform their IT and network domains. Our vision is to be the primary partner of choice to accelerate this Agentic transformation and unlock its value for our customers.

Today, I want to introduce our new 4-pillar growth strategy, as shown on Slide 12. Pillar 1 and the core of our strategy is aOS, the Agentic Telco Operating System, designed to fundamentally transform the way our customers operate their business. Pillar 2 is new vertical expansion where we plan to leverage our deep engineering pedigree, combined with our transformational expertise to accelerate Agentic modernization in another industry. Pillar 3 is emerging growth providers, where we intend to capture and solve emerging needs driven by the Gen AI revolution in our customer base and beyond. And Pillar 4, relates to the internal transformation of Amdocs to become an Agentic first organization as a key enabler to support our future growth.

Let me take some time to discuss each of these pillars in more detail. Starting with Pillar 1. AOS, the Amdocs Agentic Telco Operating System. In this pillar, our mission is to accelerate the transformation of each and every 1 of our customers to the Agentic era in a risk-mitigated and cost-conscious manner. In doing so, we will enable our customers to unlock the value of the Agentic era by simplifying complexity, reimagining end-to-end workflows, accelerating the launch of new offers from months to hours and significantly reducing their cost structures.

To that end, we are bringing to market aOS Amdocs Agentic Telco Operating System, which we have designed to be the leading technological framework for enabling our customers to be successful in their Agentic journey. This framework includes all the components and capabilities needed for our customers to identify their business and IT operations. We plan to continuously enhance this framework and its capabilities to lead our customers to a fully Agentic and autonomous future. We firmly believe that now is the time for our customers to embark on this journey.

We also understand that each customer has a different starting point and our role as the market leader is to design a tailored road map for each 1 of them. Giving our deep industry expertise, engineering heritage, transformational capabilities and outcome-based model, we believe our customers will trust us in the -- as their primary partner on this journey.

Along these lines, let me share more details about the significant large-scale engagement that we signed with Liberty Latin America. In this 10-year strategic engagement, Liberty Latin America is trusting Amdocs to manage and transform its entire end-to-end IT ecosystem, leveraging aOS, Amdocs Agentic Telco Operating System. These engagements moves beyond traditional IT operation into an AI-driven model designed to accelerate time to market, increase product innovation, enhanced customer and employee experience and deliver significant cost savings. This deal is also a meaningful expansion of Amdocs footprint in CALA region, and it's a major demonstration of our ability to handle high complex mission-critical operations across multiple markets.

Beyond this flagship agreement with Liberty Latin America, aOS is gaining encouraging market traction. As highlighted last quarter, AT&T Cricket, Lumen, EchoStar, Bell and PLDT were among the first to adopt aOS which is already in production and delivering value for several of them. More recently, Verizon, TELUS, Sunrise Switzerland, Swiss Scandinavia and a Tier 1 provider in Asia Pacific have signed initial aOS deals.

To provide some color, TELUS in Canada has seen encouraging early results of a customer digital twin engagement, demonstrating the power of aOS to deliver personalized experiences across customer service and sales interactions. As another example, Amdocs is partnering with Verizon on an Agentic AI initiative to automate RF design workflows with a program in active development. This reflects the broader industry shift towards AI-driven network operations and showcases Verizon's continued investment in AI and network quality. We believe that these initial engagements are a great indication of the aOS capabilities we are bringing to market, and we expect that will evolve into a larger and more meaningful journeys on which Amdocs will become the primary partner of our customers for their Agentic transformation.

Turning to Pillar 2. We believe that our proven track record of successfully executing major core system transformation. Coupled with our Agentic offering, are especially relevant in other high-volume mission critical and strictly regulated industries, where complexity presents a major challenge for core system transformation. We are, therefore, evaluating the potential to expand our addressable market by targeting additional vertical, positioning ourselves as a new market entrant with a disruptive Agentic approach.

Moving to Pillar 3 of our strategy, the emerging growth horizons. As we work closely with our telco customer, it is apparent that the Gen AI revolution is creating a clear demand to solve technological gaps and needs that did not exist before. We therefore see the potential to be the first to market with disruptive technologies designed to address these issues and expand our offering. As we scale through these potential opportunities, we plan to incubate and scale the ones with the greatest potential to become future new growth drivers for Amdocs.

Finishing up with Pillar 4, we are accelerating our internal transformation to make Amdocs an Agentic-first company with the right foundation to support our future growth.

To that end, we are implementing agent capabilities across software development, service delivery and operations. We already see the maturing with high levels of employee adoption.

What makes our story unique is that we are transforming internally with the same technology we deliver to our customers. We are our own customer zero and believe that running our operation on Agentic AI, while delivering it commercially at scale will provide the essential foundation to being an Agentic-first organization.

To bring it all together, the Agentic revolution presents an exciting opportunity for Amdocs, and I believe we have the right strategy to seize the moment with our Agentic Operating System, aOS. Our flagship deal with Liberty Latin America is an important proof point to show that we can tailor specific Agentic journeys for telco customers, lead large-scale Agentic transformation and expand our addressable market. Our system transformation expertise, coupled with Amdocs Agentic offering present a potential opportunity to expand beyond telco to other vertical and grabs the opportunity of emerging horizons. Although we understand we are dealing with constantly evolving landscape that could present uncertainty, we believe we have the right leadership, talent and skills necessary to quickly adapt and drive us forward.

With that, let me hand it over to Tal for his financial review. Go ahead, Tal.

Thank you, Shimie, and good afternoon, everyone. Thank you for joining us. To Echo Shimie remarks, we are pleased with our solid financial performance for the third fiscal quarter. Q2 revenue was approximately $1.175 billion, up 2.7% year-over-year as reported and in line with the midpoint of our guidance with a negligible impact from foreign currency movement versus our guidance assumptions. In constant currency, revenue was up 2.2% from a year ago.

Moving down the income statement. Non-GAAP operating margin was 21.6%, up 20 basis points year-over-year and 10 basis points sequentially as we continue to balance our Agentic growth investments with internal cost and efficiency gains.

As a reminder, our non-GAAP operating margin may fluctuate slightly on a quarter-to-quarter basis.

Interest and other expenses amounted to roughly $14 million in Q3 and consistent with our prior quarter.

On the bottom line, our GAAP diluted EPS of $1.84 was in line with the guidance midpoint. Diluted GAAP EPS of $0.59 was below the guidance range of $1.39 to $1.47. This was due to a restructuring charge of roughly $0.91 per share, resulting from the acceleration of our internal transformation and our strategy to become an Agentic-first organization, as Shimie discussed a moment ago. Adjusting for this charge, GAAP diluted EPS would have been above the guidance range.

I'd also like to highlight that we generated free cash flow of $193 million before restructuring payments in Q3. This was driven by a healthy earnings to cash conversion in the period demonstrating that the core business is performing well as we continue to consistently execute for our customers.

As we measure our visibility and business resilience, Managed Services delivered record revenue of $791 million in Q3, up 2.5% from the prior year. Managed Services accounted for roughly 67% of our total revenue in Q3 and renewal rates remain consistently high as we continue to expand our engagement under the multiyear agreement.

In the U.S., a premier provider of digital television entertainment has signed an agreement with Amdocs to execute its strategic building migration program by leveraging Amdocs Agentic Operating System and AI-driven migration capabilities. The provider is modernizing its billing environment to streamline operations, improve efficiency and support long-term business growth while further strengthening its strategic relationship with Amdocs.

In Brazil, Telefonica Vivo expanded its collaboration with Amdocs by extending expanded services agreement to support its customer growth and OSS modernization with Amdocs customer experience fleet.

Additionally, we signed a multiyear Managed Services agreement with a leading South American provider, which will leverage Amdocs full OSS stack supported by AI-driven application management, operation services and software factory expertise.

Moving to the balance sheet and cash flow highlights, DSO of 78 days increased by 2 days from a year ago and 5 days sequentially. And this receivable net of deferred revenue increased by $98 million versus a year ago and by $68 million sequentially in Q3, aggregating the short-term and long-term balances.

As a reminder, the net difference between unbilled receivables and deferred revenue fluctuate from quarter-to-quarter, in line with normal business activities as well as our progress on multiyear engagement.

As mentioned, free cash flow before restructuring payment was $193 million in Q3, highlighting strong free cash flow for the year so far, we've already achieved nearly 75% of our fiscal 2026 target. Including restructuring payments of $21 million, reported free cash flow was $172 million in the quarter.

Overall, we ended Q3 with a healthy cash balance of approximately $206 million, an aggregate borrowing of roughly $930 million, including our $650 million senior note maturing in June 2030 and short-term financing arrangement of $280 million.

As of June 30, 2026, there was a $200 million outstanding notes under the commercial paper program and $520 million remains available on the revolving credit facility.

Overall, we have ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth.

Switching to capital allocation, this quarter we repurchased $143 million of our shares, leaving us with $560 million of remainder repurchase authority as of June 30, 2026. We paid cash dividend of $60 million in the third fiscal quarter.

Looking to fiscal 2026. We are on track to generate free cash flow of between $710 million to $730 million, not including payments we expect to make under our current restructuring program. Our free cash flow equates to a conversion rate of roughly 90% relative to expected non-GAAP net income.

Regarding our capital allocation for this year, we expect to return the majority of our free cash flow to shareholders.

Moving on, 12 months backlog was $4.26 billion at the end of Q3, up 2.7% from a year ago, but down $20 million sequentially. We continue to believe 12 months backlog remains a good leading indicator of our business and forward visibility.

Now turning to our revenue outlook. We are continuing to closely monitor the preventing level of macroeconomic, geopolitical business and operational uncertainty, including our customer spending behavior in the current business environment. The fourth quarter of fiscal year 2026 financial guidance reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenarios. For the full fiscal year 2026, we expect revenue growth within a tighter range of between 3.2% and 4% as reported, the midpoint of which is unchanged as compared with our prior outlook of 2.6% to 4.6%. Our guidance assumes foreign currency tailwinds of roughly 0.6%, consistent with our previous assumption.

Consistent with our prior guidance, we expect that roughly half of the expected books in fiscal 2026 will be inorganic in nature.

On a constant currency basis, we expect revenue growth within a tighter range of between 2.6% and 3.4% for the full fiscal year, the 3% midpoint of which is also unchanged as compared with our previous guidance.

As to the fourth fiscal quarter, we expect revenue of between $1.175 billion to $1.215 billion.

Moving down the income statement. We are on track to deliver non-GAAP operating margin within our target range of 21.3% to 21.9% in fiscal 2026. The midpoint of which is roughly 20 basis points higher than the prior year of 21.4%.

As we discussed last quarter, our profitability outlook reflects a decision to accelerate our investment in Gen AI and our Agentic Operating System, aOS, including R&D, sales and marketing, balanced by our internal transformation initiatives to become an Agentic-first organization. We continue to expect our non-GAAP effective tax rate to be within an annual target range of 16% to 19% for the full fiscal year 2026.

Tying everything together, we now expect non-GAAP diluted earnings per share growth within a tightened range 5.5% to 6.5% in fiscal year 2026, the 6% midpoint of which is unchanged.

With that, back to you, Shimie.

Yes. Thank you, Tal. And I think with that, we are ready to take your questions. Operator?

[Operator Instructions] Our first question for today comes from the line of Timothy Horan from Oppenheimer. .

Congratulations. I guess the elephant in the room really is Agentic AI, how you deploy both internally to improve your productivity and service offerings and your customers. Can you give us -- it seems like it could be really, really impactful for both internal and for your customers. Could you give us a rough sense of the next few years, what type of productivity improvements or service quality improvements -- you can do both internally and what can you do for your customers? Do you think you can improve productivity 10%, 30%, just a high-level sense of what you're seeing now?

Yes. Thank you, Tim. So as I explained, when I described the strategy, the 4-pillar strategy, the main growth pillar that we see going forward for Amdocs is around the Agentic transformation that we are planning to partner with our customers and to lead them in this journey over the next several years. We see that there is a huge opportunity to unlock the potential of, as you mentioned, the Agentic capabilities and fundamentally change the way they run and operate their IT. And for example, we just announced the Liberty Latin America strategic engagement. In this engagement, liberty LatAm is basically giving Amdocs the entire IT operations and partnering with us so we can transform their entire IT leveraging our aOS and to deliver major business benefits and significant cost savings for our customers throughout this year. So definitely, to your question, we believe that we can bring a significant reduction in cost for our customers throughout this transformation. And the main -- the key to do that is mainly by expanding the scope of responsibility that Amdocs will have, because the main benefits are coming from an end-to-end processes, end-to-end Agentic processes, end-to-end operational process with exactly what we're going to do with Liberty LatAm. So I believe there's definitely a potential to improve the cost structure of our customers.

The same goes for us internally, and that's the fourth pillar of the strategy. We believe that this Agentic transformation by implementing internally everything that we're also partnering with our customers, the Agentic as you see, the Agentic corporation, changing the way of working and so on, will also provide us with efficiencies within the company.

At this stage, we are balancing between the efficiencies that we know that we can gain internally with the investment that we are doing in order to build the airways and the future Agentic offering of the company. We're also monitoring very carefully the cost of the technology and the cost of the token, which is somehow unknown right now for the future. So somehow between the 3 forces, we believe that over time, we will definitely see Amdocs much more profitable going forward in the next several years.

So you think this will be very, very impactful to your customers like transformational like -- yes, we're trying to get a sense of how transformational you think this can be for your customers and for yourself. I mean can you reduce expenses internally substantially and automate your own internal operations? And where are you in your own process?

Yes. So internally, yes, we're making good progress. Again, we are using some of these efficiencies right now to invest in the future and to support the strategy. But long term, we believe it's going to bring us more efficiency.

In terms of our customers, it all depends on the appetite of the customers. But yes, customers that will be willing to go all in and to partner with us and to help them to transform their entire IT operations, for example, Liberty LatAm, Latin America, that went all the way, they will definitely see significant service. Other customers will partner with us in a smaller scale because they are not ready at this point to take a broader move. But we believe that over time, you will find us partnering with 200 customers all over the world. And for each and every 1 of them, we're going to tailor a specific transformational program, and we'll take them ahead them to leverage the potential of Gen AI, for sure.

Yes, that's really encouraging. And for Liberty, are they going to be spending a lot more with you than they were previously? And do you have a sense on the return on invested capital that will be seen for this?

Yes. It's again, without going into specific details about specific customers, but it's a major expansion of what we did before with Liberty LatAm. We had a very small footprint. This is a significant expansion of our partnership with Liberty LatAm.

That's really helpful. And just lastly, on the other 2 pillars. Can you just maybe -- are there any new industries you're thinking of entering? And secondly, I know the -- you highlighted new growth opportunities within the existing industry. Could you just elaborate on that a little bit more examples for both?

Yes, sure. So as I mentioned before, we believe that what we do right now in telecommunication and this deep understanding on how to transform to do Agentic transformation of [ Michigan Data Systems ] is something that we can help also additional verticals to support them. We gained a lot of experience transforming the industry, and I think it's going to be very relevant. If you combine it with the new offering that we are coming right now, aOS and tell it could definitely help accelerate this transformation in other verticals. So this is where I had is right now and this is part of our strategy for the future.

The other thing that we see that there are many -- and Gen AI is generating completely new needs and challenges that were never there before. And we see it when we talk to our customers about their journey and we see it when we do it internally and implementing the same tools internally with Amdocs, there are new challenges and new opportunities that we have the capability to solve. And what we plan to do is some of them that we are serving right now for our customers to incubate and scale them and it could be potential growth engines for the company going forward, which we didn't have these opportunities before. So there are some specific ideas and specific challenges that we are solving right now for customers that we believe that over time has the potential to become growth engines for the company.

[Operator Instructions] Our next question comes from the line of Devin Au from KeyBanc Capital Markets.

Kind of a multipart question to start. It's great to see the new aOS wins that you have secured in the quarter. maybe for the customers that are still hesitant on moving to aOS today or customers that are still in pilot, what are the top reasons or constraints that are preventing them from adopting aOS? And if you could also touch on your internal sales efforts, how are you enabling your sales team to convert more customers from pilots into commercial agreements?

Yes, thank you for the question. First of all, very happy with the progress that we have seen. Remember, we launched aOS in the beginning of March, we are in August. 5 months after that, we already -- we have 10 engagements with customers. Some of them is small, of course, but 10 engagement already with customers, which is a great, great momentum. And on top of it, I think the best proof point right now and the biggest, obviously, achievement of aOS right now is this partnership with Liberty Latin America. We could have not taken this challenge to transform the entire IT of Liberty Latin America without the aOS capabilities. So I think, first and foremost, we are very happy with the progress so far.

I think it's just a matter of time. To your question, what is slowing us right now, the customers of what is -- it's just a matter of time. Everyone is experimenting, once they see the technology, they see what we can bring them. They're getting excited. We're getting into production. They see the impact. And then the discussion is evolving to something more significant than the initial engagement that we had. And I can tell you that we're having some other meaningful discussions with customers as we speak. So we believe that the small engagement that started a few months ago will soon and over time, evolve to something more meaningful in just a matter of time.

Okay. Got it. No, that's helpful. And then maybe just a quick follow-up. Could you provide maybe more context on the sequential downtick in backlog? And does the backlog figure include some of the new aOS deals you have announced and also the big win at Liberty Latin in the quarter?

Yes. So overall, the backlog is a snapshot at a certain point of time. So some fluctuation always happen. The large deal with Liberty Latin America is partially included in these numbers already. But overall, we see a good, healthy pipeline right now, especially around the aOS so far.

Just to add, Shimie, the backlog grew year-over-year by 2.7%. So we are still growing our backlog year-over-year. Yes.

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

Thanks, Jon, and thanks very much for everyone joining the call. If you do have any other questions, please reach out to us here in the IR team. And with that, have a great evening.

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

Thank you for standing by and welcome to the Amdocs Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Matt 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 2 of the presentation. It notes that some of our comments today may be forward-looking statements and are subject to risks, uncertainties and other important factors, 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 Shimie Hortig, 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 also be posted immediately following the conclusion of this call. On today's agenda, Shimie will recap our business and financial achievements for the second fiscal quarter 2026 and he'll also present his vision as Amdocs' new CEO for the agentic era. Shimie will finish by addressing our financial and business outlook, after which Tamar will provide additional details on our second quarter financial performance and guidance for the full fiscal year 2026.

So with that, I'll turn it over to Shimie.

Thank you, Matt and good afternoon to everyone joining us today for Amdocs Fiscal Second Quarter 2026 Earnings Call.

I'm pleased to join you today live from our Amdocs' New Jersey offices. When I spoke to you in February, I talked about my excitement to lead Amdocs in its next chapter. Several weeks into the CEO role and after spending more time with our customers, partners and global teams, I'm even more excited and convinced about the opportunity ahead of us. As laid out on Slide 6, today, I will divide my comments into 2 parts. First, I will begin by laying out some initial thoughts on the future vision for Amdocs where we plan to become the primary partner of choice to our customers in their agentic journey, leveraging our unique domain expertise and deep industry knowledge.

From there, I will highlight the company's solid second quarter performance, including new deals we have won and the operational milestones achieved for our customers that reflect the strength and discipline of our global teams. To begin on Slide 8, I want to spend a few minutes sharing my initial view on how I'm thinking about Amdocs in the agentic era. What is changing in our industry? What I believe Amdocs is uniquely positioned to do and my vision on how we plan to turn this opportunity into meaningful outcomes for our customers. The agentic era is an exciting opportunity for our industry and for our customers. For communication service providers globally, the agentic revolution is a unique moment in time to fundamentally transform their IT and network ecosystems in a nonlinear fashion, simplifying complexity, rethinking critical workflows end-to-end and unlocking the ability to accelerate the launch of new offerings.

I strongly believe that Amdocs is in the best position to lead our customers and turn this agentic opportunity into reality. Let me break down the reasons why. First, we have in Amdocs decades of deep industry knowledge and domain expertise. We have an industry context based on our telco taxonomy, ontology and the core business workflows that will power the Argentic era. This is our native language. Second, Amdocs has strong engineering pedigree, a commitment to innovation and a long history of leading our customers through major technological shifts. Third, we understand what it takes to design, build, deliver and operate mission-critical systems. And we are, therefore, best placed to lead our customers through the complex agentic transformation. Fourth, we have always been and will continue to be an outcome-based company. Amdocs has long supported customers under long-term engagement committed to predefined KPIs and this remains highly relevant as our customers look for measurable GenAI-driven outcomes.

To support this vision, our focus will be on the following areas highlighted on Slide 9. We will evolve our product portfolio to be agentic and automated. Our portfolio is already moving in this direction with Amdocs aOS, our agentic operating system for telco. We will partner with each customer to design a tailored agentic road map. We recognize that every service provider has a unique baseline and we will guide each to a fully agentic operation that unlocks meaningful value. We will also continue to work closely with leading AI and cloud partners to accelerate this vision, taking a strategic ecosystems approach in support of our customers' agentic journey. And we will accelerate our internal transformation to become a GenAI-native organization. We are leading by example and deploying agentic technologies and capabilities across our own engineering, delivery and operations. We will adjust our way of working and become a more agile organization.

This vision sets the foundation for a stronger future at Amdocs in the agentic era, one defined by a sharper technology focus and greater agility. It positions Amdocs to expand our addressable market in telco. It also presents a potential opportunity to extend our reach into a new industry. With that said, we are still in the process of refining our strategy and we'll continue to update you as things progress over the next couple of quarters. I also realize that this is going to be a journey. But in this context, I'm glad to report that we have already made initial progress. I will explain more on Slide 10. At Mobile World Congress last quarter, we officially launched aOS, Amdocs agentic operating system purpose-built for telco. So far, we have received excellent feedback from the market and I'm happy to share that we already have several initial commercial agreements with customers to launch and to implement aOS.

This includes the following customers: Cricket, Lumen, Bell Canada, EchoStar and PLDT. In PLDT, we can already report early signs of business success where more than 90% of customer requests are now resolved through the aOS platform, enabling faster handling times and higher productivity in the retail stores.

Now let me turn to Part 2 and address the key financial highlights, significant deals and operational milestones we achieved for the second fiscal quarter. Starting with Slide 12. Our second quarter results were solid with revenue of $1.17 billion and non-GAAP diluted earnings per share of $1.78, both above the midpoint of our guidance. Our results included year-over-year revenue growth in North America as well as record revenue in Europe and a strong revenue performance in rest of the world. Non-GAAP operating margin improved by 20 basis points from a year ago as we continue to balance our investments for growth with a focus on operational excellence. Overall, we closed the quarter with 12 months backlog of $4.28 billion, up $30 million sequentially and 2.6% from a year ago. Beyond the already mentioned aOS wins this quarter, we secured several significant deals, which demonstrate wide-ranging demand for our products and services and the confidence customers have in Amdocs.

Slide 13 highlights many of these deal wins but here are a few examples. In AT&T Cricket Wireless, we signed an expanded multiyear extension of our managed services agreement, including dealer onboarding modernization to enhance partner experience and drive faster market expansion. In Vodafone Spain, we secured a 5-year agreement covering CRM and OSS modernization alongside long-term support and enhancement services. And in South Korea, KT has extended its multiyear agreement with Amdocs to upgrade, modernize and operate its charging system, empowering faster service rollout and advanced 5G monetization. Our cloud-based platform solution also generated significant customers momentum in Q2. ConnectX added multiple new names, including Vanta Wireless, which will launched a unique mobile service with AT&T using AI-driven connectivity. Que tal Movil, a U.S.-based MVNO servicing Hispanic communities; and in Singapore, a leading operator went live with the platform to accelerate digital modernization.

Additionally, Amdocs eSIM was chosen by Cielo in Brazil to support payment terminal connectivity and by Mobifone in Vietnam for seamless zero-touch customer activation. Amdocs project execution was another highlight for the company in Q2. We achieved a high number of project milestones across different programs for flagship customers such as AT&T, Optimum, Vodafone Germany, Elisa and PLDT. To highlight a few of them. In AT&T, Amdocs is now servicing significant part of AT&T's 5G SA subscribers in our next-gen charging platform and we played a key role in the recent launch of AT&T new OneConnect plan. In Vodafone Germany, we marked a pivotal milestone in our journey as we reached commercial launch. At Elisa in Finland, we delivered a key milestone in support of its mainframe to Google Cloud migration. I'm also pleased to share that Brightspeed, a U.S.-based fiber broadband and telecommunication provider has gone live with Amdocs Resource Manager. This smooth deployment enables Brightspeed to strengthen its network inventory management and streamline operational processes.

Now moving back to the outlook on Slide 15. We are reiterating the midpoint of our revenue growth guidance of 3% in constant currency for the full year fiscal 2026, which is within tightened range of 2% to 4%. Likewise, we are reiterating the midpoint of our guidance for non-GAAP diluted earnings per share growth of roughly 6% in fiscal 2026. which is within a tightened range of 5% to 7%. That said, we are, of course, closely monitoring customer demand and spending behavior within the current global macroeconomic climate. To wrap it up, we believe Amdocs is best positioned to turn agentic vision into reality for our customers. We are shaping our strategy direction based on the vision and direction I discussed with you today and we will continue to share more over the next couple of quarters.

We know this is going to be a journey for us and for our customers. But in this context, we already have initial commercial engagement on aOS. We are building our strategy on strong business foundations, demonstrated by our solid Q2 results and we are on track to hit our full financial targets while monitoring our customer spending behavior within the current macroeconomic climate.

Before we move to the financial overview, I would like to spend a few minutes talking about the CFO transition. First and foremost, I would like to thank Tamar for her remarkable contribution to Amdocs over the last 19 years as CFO, including the past 8 years serving as both CFO and COO and 22 years overall with the company. I have known her for a long time and I can say that she has been an exceptional business partner and a personal friend. Tamar played an instrumental role in the evolution of Amdocs and I know she will be missed by the entire Amdocs family. On behalf of all of us, Tamar, please accept our sincere appreciation for your endless dedication and service to Amdocs through the years and we wish you nothing but the best on your well-deserved retirement.

I'm excited to introduce to you to Tal Rosenfeld and welcome him as Amdocs next CFO. Tal has played a major part of Amdocs finance organization over his impressive 20 years career with us, during which he has acquired extensive experience across senior and management roles in accounting and finance. Tal is also a proven business performer. He has served as a division business leader for APAC and is currently General Manager, Head of Finance, where he has responsibility for managing the entire finance organization, reporting directly to Tamar. I have known Tal for his entire career in Amdocs and having worked closely with him on many occasions, I'm well aware of his great leadership qualities. I strongly believe he is the best fit for this role. Congratulations, Tal and welcome to my leadership team. I look forward to working together to take Amdocs to the next chapter.

Tal will say a few words in a moment but first, let me hand the floor to Tamar.

Thank you, Shimie, for your kind words and hello to everybody on the call today. Amdocs indeed has been a family to me but as Shimie said, I've decided to retire and finally take some time for myself.

As you can appreciate, making this decision was neither quick nor easy. But after almost 20 years as CFO, I felt that now was the appropriate time for me to retire. My decision was made easier by how seamlessly Shimie has transitioned into the CEO position over the past few months and by the strong team he has built around him. This includes Tal, of whom I could not be prouder. I personally recruited Tal to Amdocs finance 20 years ago and I've been preparing him for CFO as part of an internal succession plan for some time. I believe he's undoubtedly the best person for this role. Congratulations on your appointment, Tal.

Shimie and Tamar, thank you both for your kind words. Tamar, I want to thank you personally for your mentorship, guidance and partnership over the years. Your leadership and friendship have meant a great deal to me and I wish you only the best. Shimie, I'm very excited by the opportunity to step into the CFO role. I'm looking forward to building on Amdocs' strong foundation and supporting you and the leadership team as we lead the company forward.

Thank you, Tal. Now let's get back to business. Tamar, would you like to take us through the quarterly financial summary, please?

Yes, of course. Thanks, Shimie. Q2 revenue of approximately $1.172 billion was up 3.9% year-over-year as reported. Revenue was above the midpoint of our guidance, including a positive impact from foreign currency movements of approximately $2 million compared to our guidance assumptions. In constant currency, our revenue was up 2.2% from 1 year ago. On a regional basis, North America revenue of $754 million was up more than 2% from 1 year ago but was slightly lower on a sequential basis due to normal fluctuations in customer activity. Outside North America, our international growth continued. Europe delivered record quarter revenue of $192 million, up more than 6% year-over-year on a mix of organic growth and the impact of MATRIXX acquisition. Rest of the World revenue grew by 8% year-over-year to $226 million, the highest since fiscal Q3 2024. Rest of the World remains on track to grow in fiscal 2026, driven by the strong sales momentum of recent quarters.

As a reminder, quarterly trends in both Europe and Rest of the World may fluctuate given project orientation of our customer activities in these regions. Shifting down the income statement. Non-GAAP operating margin of 21.5% was up by 20 basis points from 1 year ago, reflecting internal cost and efficiency gains resulting from focus on operational excellence, automation and the deployment of AI-based tools, balanced against long-term growth investments, including the development and go-to-market costs of our next-generation aOS platform. On a sequential basis, non-GAAP operating margin declined by 10 basis points. As a reminder, our non-GAAP operating margin may fluctuate slightly on a quarter-to-quarter basis. Interest and other expenses amounted to roughly $14 million in Q2, which included a few million dollars for the accounting of net losses of equity-related investment activities in the quarter.

On the bottom line, non-GAAP diluted EPS of $1.78 was $0.02 above the guidance midpoint, primarily due to items below the operating line and a lower share count. Diluted GAAP EPS of $1.28 exceeded the guidance midpoint, also due to items below operating line and lower share count. Diluted GAAP EPS included a restructuring charge of nearly $0.10 per share, which was not included in our guidance for the quarter and the positive impact of realized and unrealized gains from equity investments, among other. Turning to Slide 20. Managed services revenue of $759 million was up 1.6% from the prior year in the second fiscal quarter. As a share of total revenue, managed services accounted for roughly 65%, consistent with the last several quarters. Renewal rates remained typically high during Q2, underpinning our business resiliency as we signed expanded multiyear engagements with multiple customers.

In North America, for instance, we expanded and extended our managed services contract with Cricket Wireless for BSS and OSS services, including aOS capabilities, driving faster time to market and improved customer experience. Moving to the balance sheet and cash flow highlights on Slide 21. DSO of 73 days decreased by 4 days from 1 year ago and 3 days sequentially. Unbilled receivables, net of deferred revenue decreased by $42 million versus 1 year ago and by $2 million sequentially in Q2, aggregating the short- and the long-term balances. As a reminder, the net difference between unbilled receivables and deferred revenue fluctuates from quarter-to-quarter in line with normal business activities as well as our progress on multiyear engagements.

Free cash flow before restructuring payments was $97 million in Q2. This includes the seasonal timing of bonus payments for the prior fiscal year, which typically occurs in the second fiscal quarter. Highlighting strong free cash flow for the year so far, we've already achieved nearly 50% of our fiscal 2026 target. Including the restructuring payments of $17 million, reported free cash flow was $80 million in the quarter. As a further update, in fiscal Q2, we established a U.S. commercial paper program of up to $800 million to further enhance our financial flexibility and optimize Amdocs short-term funding mix. Proceeds from issuance under the program will be used for general corporate purposes.

We also upsized our revolving credit facility from $500 million to $800 million, which supports the commercial paper program and further enhances our overall funding flexibility. Overall, we ended Q2 with a healthy cash balance of approximately $214 million and aggregate borrowings of roughly $900 million, including our $650 million senior notes maturing in June 2030 and short-term financing arrangements of $250 million. As of March 31, 2026, there was no outstanding borrowing amount under the commercial paper program and $630 million remains available on the revolving credit facility. Overall, we have ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth.

Switching to capital allocation on Slide 22. This quarter, we repurchased $138 million of our shares, leaving us with up to $702 million of remaining repurchase authority as of March 31, 2026. We paid cash dividends of $57 million in the second fiscal quarter. In the last week of fiscal Q2, we acquired the business of Connect44, a European-based provider of end-to-end network planning, building and management solutions for approximately $21 million net in cash at closing plus future potential contingent consideration. Looking to fiscal 2026, we are on track to generate free cash flow of between $710 million to $730 million, not including payments we expect to make under our current restructuring program. Our free cash flow outlook equates to conversion rate of roughly 90% relative to expected non-GAAP net income and translates to a healthy free cash flow yield of roughly 10% relative to Amdocs' current market capitalization. Regarding our capital allocations for the coming year, we expect to return the majority of our free cash flow to shareholders.

Moving to Slide 23. 12-month backlog was $4.28 billion at the end of Q2, up $30 million sequentially and 2.6% from 1 year ago. We believe 12-month backlog remains a good leading indicator of our business and forward visibility. Now turning to our revenue outlook on Slide 24. We are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business and operational uncertainty, including our customer spending behavior in the current business environment. The third quarter and full fiscal year 2026 financial guidance reflects what we consider to be the most likely outcomes based on the information we have today but we cannot predict all possible scenarios. For the full fiscal year 2026, we have tightened our revenue growth outlook to between 2.6% and 4.6% as reported, the midpoint of which is 10 basis points better than our prior outlook of 1.5% to 5.5%, due to foreign currency tailwinds, which are now expected to benefit by roughly 0.6% this year as compared to 0.5% previously.

Consistent with our prior guidance, we expect that roughly half of the expected growth in fiscal 2026 will be inorganic in nature. On a consistent currency basis, we are reiterating the 3% midpoint of our revenue growth outlook, which we have tightened to a new range of between 2% to 4% for the full fiscal year as compared to prior outlook of 1% to 5%. As for the third fiscal quarter, we expect revenue of between $1.155 billion to $1.195 billion. Moving down the income statement. As we anticipated in the beginning of the fiscal year, we are now on track to deliver non-GAAP operating margins within our target range of 21.3% to 21.9% in the fiscal 2026, the midpoint of which is roughly 20 basis points higher than prior fiscal year of 21.4%.

Our profitability outlook reflects an intentional decision to accelerate our investment in GenAI and our next-generation agentic operating system, including R&D, sales and marketing, while balancing this with our focus on operational excellence and initiatives to drive efficiencies. Below the operating line, we expect non-GAAP net interest and other expenses to be impacted by higher financing costs this year, resulting from a reduced cash balance and short-term borrowing to fund working capital. As anticipated in the beginning of the year, we expect our non-GAAP effective tax rate to be within an annual target range of 16% to 19% for the full fiscal year 2026. As summarized on Slide 26, we are reiterating the midpoint of our guidance for non-GAAP diluted earnings per share growth of roughly 6% in fiscal 2026 which is within a tightened range of 5% to 7% as compared to 4% to 8% previously.

With that, back to you, Shimie.

Thank you, Tamar. Thank you for everything. And again, best of luck in your future retirement. With that, we are happy to take your questions. Operator?

And our first question for today comes from the line of Tal Liani from Bank of America.

I want to ask you a few things. First, when I collectively look at your space without the details of where you're playing and et cetera but collectively look at our -- at your space, there is tremendous investment in data centers and companies are even buying -- customers are even buying more now because they're buying ahead of demand because of supply constraints. So Cisco just reported 19% order growth outside of AI. And the environment is not that good. Some of it has to be some forward ordering. And the question is, when I look at your revenues, I see some acceleration of growth, a little bit of acceleration of growth. But the question is, do you have a way to participate in this massive growth we're seeing, whether it's through neo clouds or cloud or whether it's through service providers, your traditional customers, who are also taking some of this traffic and they also have to build data centers. So can you talk about your ability to play and benefit from the current cycle?

Maybe we'll start with that. I have another question but I'll take it one by one.

All right. It's Shimie and thank you for the question. Maybe to try to explain what I was trying to paint in the vision that I described at the beginning of the call, we see the agentic revolution that is happening right now as an amazing opportunity for Amdocs. We believe that we are the right partner for our customers to help them transform from where they are today to the future agentic and leveraging all the great capabilities that this technology can bring. And as you know, as of today, there's a major gap between the technology and the potential and the actual adoption that we see among our customers in general, in enterprise software and customers around the world. So we believe that Amdocs with our deep knowledge on this industry, with our capability to transform organization to move through technological shift, position us as the best partner that can take them to this future. So definitely a major opportunity for us going forward.

Got it. So what changes -- Shimie, what changes are you bringing to the company? You've been there less than 100 days. How do you -- what are your focus areas in terms of growth acceleration and addressing new opportunities and things, how long do you think also it will take you to show an impact on growth?

Yes. So -- and again, as I mentioned, I think we are trying to accelerate everything that we do in the company in order to help our customers transform in this amazing technological transformation that is happening right now all over the world. So the thing that I want to focus is the following. First, we want to evolve, as I mentioned, our portfolio to be agentic and automated. This is an effort that we started already and we'll continue to focus on that as we provide our customers with the right solutions. The other thing is engagement with customers. We want to tailor to each one of them with specific road map, how we take them from where they are today to this future agentic end state where they can enjoy all the benefits of this technology.

The third thing that we want to do is to partner strategically with the ecosystem, leading AI and cloud partners that will help us and our customers to transform in this industry. And last but not least, I mentioned the internal transformation. We want to accelerate the internal transformation and to make sure that Amdocs is a GenAI-native organization, which means we are changing the way we operate, we implement agentic SDLC within the company. We changed the structure of the teams and we want to become a much more agile organization and to lead by example, this journey.

Got it. Last question. Tamar is leaving the CFO position for some company, I think, pretty well. The CFO position is extremely important just because of timing of recognition of revenues, timing of recognition of expenses, managing operating margins, et cetera. Can you give us a little bit of details on the succession plan? I know you've nominated someone with a great first name to be the successor of Tamar. So can you give us some -- you have a good taste, I have to say.

[indiscernible] the first name being Tal, which is a great name. So first of all, I fully agree with you. And I think that the fact Tal experience is very deep in terms of not only the professional, he is a CPA, was an expert in revenue recognition in his early days in the career in Amdocs. He did the SEC filing. Like he got all the core basic things you would expect from a strong finance professional. He's also done different roles that included field support, the business support and including several years in my management team, leading all of the finance of the business, being the very strong bridge between, let's call it, the professional finance domain and driving the business of the company and structuring the deals in the right way, recognizing the revenue in the right way, et cetera.

Plus as a leader and someone who has definitely built strong teams around him and have been able to build not just, it's not -- as a leader, it's not about you, it's about how you really bring the right talent, develop the right talent, create a sense of purpose, like I've seen him again and again doing that in an amazing way. And in some years that, I call it, I loaned Tal to the business side to lead the APAC division, I mean I've been talking about the APAC growth for some time now. Now you know who is the person behind it. Tal did an amazing job of leading the business there. And then when he came back to finance to lead finance under me, definitely, that's been a big part of the succession planning. So I feel -- while I'm sorry, Tal, that I need to say goodbye as I'm retiring and of course, we can stay in touch beyond the Amdocs capacity, I feel very comfortable that we have the best person for the job and it has been a very thorough succession process overall. You're in good hands.

And our next question comes from the line of Timothy Horan from Oppenheimer.

Would like to focus on the agentic business a little bit more. Can you give us any color on the deals and what the pipeline is looking like? Also, maybe where is kind of the low-hanging fruit for customers to adopt aOS? And when do you think it starts to move the needle on revenue growth?

Yes. Look, as we started to see, we're quite happy with the initial reaction from the market on our aOS launch. We just launched it in Mobile World Congress. And since then, we have quite a lot of engagement with customers. Some of them already translate into concrete opportunities or concrete deals that we are actually implementing right now with our customer base. Those opportunities are starting small but we know that over time, they will grow. So if you ask if we embedded anything right now in this fiscal year, not yet. It's not so meaningful right now but it's definitely going to grow over time.

And as I mentioned before, we are starting to have detailed discussion with each and every one of our customers on their journey, how we take them from where they are today into the future. And here, we're evolving with a lot of interesting discussions based on aOS++. Now some of our customers would like to collaborate with us and to do things together and to implement our tools. Some of them are even discussing with us broader responsibility to move to Amdocs and to help them to transform the organization and to deliver the business benefits and the savings that they are looking for -- forward. So I hope that in the next few quarters, we can share more about those discussions but we are having some meaningful discussions with customers these days.

I mean, so the U.S. telcos seem to be -- or at least they're talking about adopting AI much, much more rapidly than what you're describing. And I think they're talking about slashing expenses, improving services. Are they doing this in-house? Are they using other AI companies? Are they using other competitors of yours? Or are they using you? But the commentary that they're laying out is that they're adopting AI now and they're slashing expenses as a result of it.

Yes. It is true that they are implementing AI. I think in our domain, in the area that you need to deal with mission-critical systems and to transform them into the future to become agentic and autonomous and everything that we want to achieve together with them, we are the best partner to do them. They're not using it with competitors. They're having those discussions with us. Our claim for fame was always to help our customer to transform them. In the past, it was the cloud that we moved them and we're still moving them from on-prem to cloud. Now obviously, the opportunity around agentic is front and center. But they understand that in order to do it in mission-critical systems and the complexity of what we do for them, they want to partner with us. And these are exactly the discussions that we are having right now.

[Operator Instructions] our next question comes from the line of George Notter from Wolfe Research.

This is Taran Katta on for George Notter. Congrats Tamar on the retirement. I just wanted to ask if you could talk a little more about how you expect to progress on implementing AI internally to get efficiencies going forward. Are there any incremental new areas where you're finding use cases? And then as a follow-up, can you give more detail in terms of how customer conversations are progressing as you drive those gains internally?

Yes. So internally, again, it's a process. We've been in this process for quite some time. My goal right now and the team is mainly to accelerate. We are accelerating everything. We are done with the pilot, experimenting, trying it here and there. I'm moving to full-blown implementation across the entire company. It includes, as I mentioned, changing the way we operate, implementing agentic SDLC, changing the way we operate our systems, leveraging the agentic tools. And we're going all the way to try to accelerate this internal transformation and become a more agile organization going forward. Now the discussions that we are having with the customers are exactly along the same lines of how we can help them do the same for their organization in our domain. And some of the discussions, everyone understands that we -- the best way to help them is if we look at the flows end-to-end.

So if you look at the end-to-end business flows around these areas from the business requirements all the way down to the provisioning, the best way to get the best outcome of implementing those agentic is when you have an end-to-end workflow. So they're engaging us right now in discussions in which we are basically expanding the footprint of what we do today, going into areas that are not done today by Amdocs but everyone realized right now that in order to get those benefits, it's better that we'll get involved and help them in the end-to-end processes. So those discussions along with this end-to-end responsibility to transform things for our customers are evolving. And as I mentioned before, I hope we can share some more updates over the next couple of quarters.

Just want to add on that, to remind you, we've been a company pushing for an outcome-based business model forever. Likely, that was a way of showing confidence to our customers that we believe that we can bring them the right innovative engineering solutions as well as a commitment to deliver on certain KPIs and outcomes. So we want to take conceptually the same idea and build based on what Shimie mentioned, this end-to-end ability to take business processes and push it forward with the customers to show accountability, to bring the results that they need to see. practically, what is it that they consider success and how do we design it into the deals we are going to sign.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Smith for any further remarks.

All right, John, thanks very much and thanks, everyone, for joining the call tonight. If you do have any other questions, please give us a call here in the IR group. And with that, have a great evening.

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

Hi, everybody, and thank you all for joining. I'm Matt Smith, Head of IR for Amdocs, and welcome to today's webinar. So today's plan is to take you on a deep dive to show you just how Amdocs is working to help Telcos accelerate their adoption of generative AI using Amdocs aOS, which is the new Agentic Operating System that we've just launched at Mobile World Congress that's purpose-built for the telco industry.

The main part of today's session will include a formal presentation, including some interactive demos to help things bring to life a little bit. After that, the lines will be open for a Q&A session with our sell-side analysts. And for the broader audience, if you'd like to ask a question, you can do so via with the chat feature in your browser.

Before we get going, please note that today's session is designed to be educational and insightful. We won't be focusing on the financials or the guidance. That said, some of our comments today may be forward-looking and could include certain estimates and assumptions, which are subject to risks and uncertainties as described in our filings with the SEC.

And if you need more information on that, you can find it on the Amdocs Investor Relations website. So to kick things off, let me introduce a familiar face for many of you, Anthony Goonetilleke, Group President, Technology and Head of Strategy for Amdocs.

Thank you, Matt. Great to have everyone online. I just wanted to introduce the group over here. We have Pilar sitting right next to me here, who heads our Global Consulting, who will be sharing her insight around our services space and how generative AI really impacts it.

And on the other side, we have Liliana, who heads all of our strategic partnerships for me. And she will share how we work with our different partners to really drive the outcomes that really help our customers accelerate.

So with that, let me begin. As Matt mentioned, we will take you on a little bit of a journey through aOS. I think I've probably spoken to many of you over the last couple of months. We did have a major launch at Mobile World Congress in Barcelona that was taken really well by all of our customers with many, many follow-ups scheduled after it.

We'll talk a little bit about our outcomes because at the end of the day, this is something we're very focused on. Amdocs historically has really been an outcome-driven company. If you think about what we do, it's been about production milestones. It's been about business outcomes, and it's really been about delivering the end business result as opposed to just another technology project. And so we'll share a little bit about the business results that we're starting to see trickle through some of these projects, and it's very exciting.

And when it comes to me and kind of my purview, I always tell our teams like at the end of the day, this is really what we should be focused on because really, this is what will move the needle. Then as I mentioned, we'll talk about our strategic partners.

Now Amdocs as a company has many partners. We partner with all over the ecosystem. These are companies we use internally within our software companies we partner with to provide different parts of the system. But there are several partners that really double down strategically. So these are partners we work with all the way from thought leadership and thinking through initial strategic ideas with their R&D teams, all the way to go-to-market to all the way to actually launching out.

And we had several of these partners at Mobile World Congress. We even presented at some of their booths at Mobile World Congress. So there's really a good synergy between these strategic partners and us in terms of driving results. And finally, Matt and I will kind of host a Q&A. So keep all your questions for us, and we will set some time at the end of it to take any questions you have.

Sounds good, Matt.

Sounds very good.

All right. So this -- for anyone that's new to the company, I'd just like to highlight this is just Amdocs by the numbers. We're a $4.5 billion company with a very, very strong backlog and recurring revenue. As you can see, we have a very, very high renewal rate on our managed services contracts. This really gets down to the point of our commitment to our customers.

At the end of the day, this industry is not one that has 10,000 or 50,000 customers. And so we are very, very loyal to our customers. And at the end of the day, that loyalty is returned. And so we're very focused on this. And we have a very, very high success rate in terms of customer transformations.

If you look at kind of what we do on a day-to-day basis, this is also very critical. A reminder to all of thousands of people that are developing software all around the world for Amdocs within my teams. And I always remind them, at the end of the day, we are a company that is responsible for developing, creating mission-critical strategic software.

If we fail, basically, I don't want to kind of sound glorious, but if we fail at the end of the day, society fails, right? So if your phone doesn't work or you cannot -- data cannot be transferred and you cannot access an application or your enterprise cannot access an application, and this is a fundamental failure. And so this is not taken lightly.

And if I look at some of the statistics here in terms of what we're delivering, we are touching around just under 2 billion customer journeys daily from an Amdocs perspective around the globe. If you look at our events that we're processing through our operations and managed services teams, this is over 450 billion monthly usage events. And not to mention around monetization. This is, by the way, the 170 billion are daily rating events. So these are data charging, rating, billing that go through the Amdocs systems. And these are not going away, right?

So if these -- if you look at these events, if anything, they are only getting larger and more complex. I think I've mentioned to several of you, if you go back 10, 15 years and you look at my relationship with the service provider, I had one phone, and this is how I connected, one phone, one eSIM and I connected. Today, I have an Apple Watch, I have a phone, I have an iPad, I have a laptop that's connected. And now I have a little travel router that goes with me with a 5G eSIM. And so now suddenly, you have 5 -- essentially 5 eSIMs connected to my service provider.

So these events and these usage events and these billing events and customer journeys, we only see this trajectory go up. There is no sign of any of these coming down. And we feel that our job in Amdocs at the end of the day, many people go, okay, so what is your 30-second pitch about what Amdocs does? And we believe our job is really to take the friction out and to make sure that the customer experience we deliver to our customers is frictionless and seamless.

And we know there's a lot of complexity in the back end. There's a lot of hybrid networks. There are a lot of systems. There are a bunch of legacy systems that need to integrate. There are so many integration points. But our customers at the end of the day, don't care about this. So our job is really to abstract all of this.

So with that, let's jump straight into it. When we think of the Gen AI opportunity around the globe, I think I'm not sharing anything that would be new to you. This is mandatory. We are at a fundamental place. I've been in technology for a couple of decades now. And I think -- I always try to compare like what were the 2 biggest events that really tectonically shifted technology.

And I would think the introduction of the Internet and IP and really being embraced or generative AI. And I would say, if I look at generative AI, the pace of adoption far outweighs the pace of the adoption of the Internet, right? If you look at the launch of the Internet and how browsers like Netscape came in and e-commerce came in, you're talking about 10 or 15 years before it became a household name.

When it comes to generative AI, we are talking about a matter of a couple of years, and there isn't a person on the planet really that doesn't have access and using it. So I think the enterprise adoption is mandatory. I don't think this is any surprise to anyone. I would say that the major shift really that we're seeing is a focus in terms of outcomes and ROI in terms of what's being invested. So you cannot continue to invest very highly in infrastructure, knowing that you have to do this, but you have to start showing outcomes. And a lot of our customers are shifting their mindset into focusing on very clear outcomes to be delivered to the business.

Another thing that's very important to our C-level technology suite is really having the right architecture. Now this doesn't mean that you will not use several different companies and large language models and ecosystem vendors and things like that. But it's very, very important to know what your North Star is and know how you govern this. And last but not least, one of the most important things is really around governance and organizational readiness.

We are seeing now that technology is no longer the long pole in the tent anymore. Organizational readiness privacy, when it comes to data and governance are becoming really, really critical milestones. And Pilar is sitting next to me. And although we are not talking about it today, I know you guys are spending a lot of work helping our customers kind of drive this organizational readiness and especially around data privacy and preparing the data. And maybe that might be another session we need to talk about one of these days, Matt.

So on to the next slide. And so as we kind of think of this evolution, this is not like Amdocs woke up one day and said, "Oh, we're going to be a Gen AI native company." This has really been an evolution. We have been very much focused on data and automation. And if you look at our strategic pillars at Amdocs, this kind of predates the Gen AI era. And we even partnered with several companies back in 2016, '17 when we saw these models, these language models evolving and really thought about how we incorporate it in our systems.

So this is really, I would say, a step function for us, but it's an evolvement in terms of where we're focused on because we were very much focused on the data. Today, you will hear a very common word that 5 years ago, people didn't know what the definition was. But today, people kind of drop it every 30 seconds. It's called ontology in the generative AI space.

And Amdocs introduced something called the Amdocs Logical Data model, which was really one of the first frameworks of telecommunications ontology before anyone else did it, really connected all of the database entities, all of the business entities, your pricing, your policy, your customer entities to really give you a logical business view of how your business operates.

And we've taken this and really evolved it to superpower, I would say, what we now call aOS. And so just to kind of finish off on the history a little bit, we launched amAIz back in, I think, the middle of '23. And this is really an evolution to that as we kind of formed our -- internally, we restructured ourselves as an organization because one of the things we realized was it's not just about meddling with things around the edges. You really had to reimagine what your organization looks like.

So we kind of took everything we knew and we said, okay, like let's start with the blank sheet of paper and completely restructured the company, form an organization that really focused on this, and it's a combination of product and services team that have been brought together. And here's where we kind of ended up launching in March of this year, which was our aOS footprint.

Now this was kind of received very well from a market perspective. Our customers kind of like what we've introduced and kind of one of my favorite pictures is down the bottom left-hand side there, you see Satya and Jensen on stage. Talking about some companies that are doing some stuff.

And then the bottom right-hand corner is the logo of Amdocs. So this is a very humble but proud moment, I think, for many of our employees to kind of see our logo on stage with these 2 great visionaries of our industry. And even as you look at aOS and you look at what some of our analysts are saying, they are saying some kind of amazing things.

If we just kind of jump to the next slide, Mike, Gartner kind of, I would say, summarized it in a very clear way in terms of what we were trying to do. We were really not trying to fiddle around with it at the edges. We decided in the same way that when we built CES around 2016, 2017, we said we need to draw a line in the sand and build a cloud-native suite that is ready for the cloud on day 1. This is really what we're doing in the generative AI space. So launching aOS is our first step in going towards a Gen AI native suite that can deliver those outcomes.

And I think I've kind of covered most of these, I think. So let's jump to the next slide here. So I want to spend a little bit of time talking about the framework of aOS and what it really encompasses. So at the bottom, you kind of have our BSS and our OSS suite. These are still really our systems of record. These hold most of our customers' data around the world. These hold the relationship, the policies, the procedures, the customer journeys, the business flows, how you do business. And every one of our customers around the world, believe it or not, does business differently, right?

They may use our same systems, but they operate and go to market very, very differently. And I'll come to the middle layer because this is kind of at the heart of it in a second. But at the top is really an opportunity that we didn't play in, but we believe that when it comes to the way the business operates and where the business functions, there is really an opportunity to use Agentic capabilities in terms of our business and networkflows.

And also, we will talk about our Agentic services, which is on the right-hand side here. This is, at the end of the day, really how we superpower our services to be delivered under the Agentic Services banner to really give you outcomes faster.

The last part that I want to talk a little bit about here before we jump to the next slide is one of the things we allow our customers to do is, look, we are not coming to the market or not coming to the customers and telling our customers, you know, dear ma'am or sir, you need to take everything from us. It's a one-stop shop.

We understand at the end of the day that this is going to be an Agentic mesh framework. And there are going to be different companies, different large language models that our customers are going to work with. And so we are allowing our customers to build on top of our ecosystem to really use our components to supercharge and superpower what they're doing. So think about a car being put together. They don't have to reinvent the wheel. They don't have to go and reinvent the engine, right? They can take these key components and put it together.

One of my favorite analogies that you guys know is I always talk about the LEGO store, right, where you go into the LEGO store and you pick a bunch of blocks. And at the end of the day, no one's asking a kid to go and build a LEGO block. We are the people delivering those LEGO blocks. But the imagination of our customers and the ingenuity of our customers are putting to these together in the different shapes and forms.

So let's kind of double-click on a couple of these layers now. So the cognitive core, which really is at the heart of everything we do, this is the new layer that we've introduced. And this starts from a few different things. So it brings all of the telco context. So you think of Amdocs, think of it as we go from 0 to 100 in terms of super verticalized telco context.

It's 40 years of delivering to customers, understanding the context, not just from -- we're not a company that just does a customer management system or just does a workflow. We're a company that takes an order, captures the order, handles the order, puts it in your billing system, sends it out to the warehouse so it can be provisioned. And oh, by the way, provision it on the network and don't forget to bill and charge and rate for it, and you may have to also go through a collections process.

So in terms of when you come to the verticalized knowledge of what we do, we have this deep understanding and that is now all taken in and put into our cognitive core. So when we're asking it a task, it understands all of this.

I like sharing a small example just to highlight some of these. You take something like proration, for example, which sounds like a very simple thing, right? You need to prorate a customer's charge. But you take proration within a complex ecosystem, there are over 250 different database entities that has an impact on proration. And if you don't know this, you are highly likely to provide information that's not accurate.

And so this is really key part of the differentiation. I spoke a little bit ago about the -- let's stay on that slide for a second, Mike. I spoke a little bit about the telco ontology. This is really where I think Amdocs shines. We have been working on the ontology before it was called ontology before people threw it around like hot cakes.

And this is really the Amdocs logical data model. This is really how we know how a business operates to all the technical bits and bites on the hundreds -- there are some companies, where we integrate to over 250 systems to provision an order and interfaces to provision an order. And you need to understand this. You need to know how it connects in order to provide accurate results.

There are some people going, "Oh, like what is the problem? Like let's just take a bill and feed it into a large language model, and we can get it to explain it." But not what we do. We take context engineering to the next level. So we take all of this information and the information we provide into kind of the nondeterministic angles of the system is next level.

And so we believe the level of accuracy we get, the level of low latency we can provide because remember, at the end of the day, we are still working with telecommunications companies. So latency is a super, super critical element that maybe can be tolerated in other industries that cannot be tolerated in our industry. So these are super important things.

And then we took all of kind of the eTOM models and we looked at what are all the roles across the entire telecommunications space, and we broke it into agents and subagents and tasks. So we went right down to the granular atomic level to be able to make sure that whatever comes out tomorrow, we will have the components to be able to deliver it.

And then as I go up the stack, we communicate in very different ways, right? And by the way, this is also evolving. So whether it's MCP today or agent-to-agent capabilities or whether it's more traditional SDK API connectivity, we are also all over this, meaning we do it today and we provide today as the market evolves. But as we look at open core capabilities and some of our customers looking at how to use this, we integrate these back in.

So you have these native connectors that we will be able to connect to our cognitive core. And this is really where I feel like we accelerate and differentiate because we're just not trying to like put a finger and stop the water from leaking. We are kind of reimagining what the telco experience could look like. And this is really why we thought aOS is the right name for it because we're really imagining how our customers could operate in the new world.

So I spoke about this. So aOS is really just the next version, I would say, of evolution of the amAIz, whereas amAIz really focused on specific customer care agents, things like that. aOS is really reimagining natively what your experience should be.

So now with all of that talking, I'm going to take a break and show you a demo here of how we operate. And I'll step in here just to interrupt and highlight some things. But what we are going to see is really a demonstration of what that end consumer experience could look like. And so what you will see is a customer coming in and having a question or query, I would say, about their bill, and you will see how the agent responds.

Now I will tell you that if you -- we had this discussion 12 months ago, many of our customers were looking at having a human in the middle in terms of interacting with this output coming in. But our customers are getting very comfortable of providing this input directly from an agent to the consumer. We are getting a very, very high level of 90-plus percent accuracy, which most of our customers are very happy with. So with that, let's kind of kick off the demonstration, and I'll step in here and explain a few things.

[Presentation]

So what you see on the left-hand side is really an extract of what is happening behind the scenes...

[Presentation]

You can just pause it there for a second. So if you notice what happened here, you have an incoming call of a customer that's probably a little bit high rate, got a bill shock and we give a very succinct, clear empathetic response in terms of what occurred. But we also use that opportunity for a potential upsell.

Now we are able to do this at the speed of light because we're also looking at its entire history, its entire customer journey. We understand that the person is traveling. We understand that this could be a -- it's the right, I would say, the magic moment to interact with the customer journey.

[Presentation]

If I can just explain for a few minutes. So here, a few very interesting things happen in the back end. You are looking at the company's policies and procedures. You're looking at a digital twin, and we're just zooming into the back-end systems here. You're looking at a digital twin persona of the customer to look at the propensity of the likelihood for them to accept something or not accept something and you're basically offering them a discount or a voucher based on the policies and procedures of the company, of the mobile plan and of the customer.

[Presentation]

So this is the automatic orchestration of it.

[Presentation]

And so none of this is guesswork, right? All of this is going down to the system of records, going down to your SOP, Standard Operating Procedures, looking at it, there's a governance structure in place and the cognitive core provides all of these capabilities essentially back to the user. So I think you kind of get the flow and how that works. And maybe let's go back in the essence of time, go back to the presentation.

And so I think summarizing this, if you look at the time to value and you look at how quickly this can be done, this would generally be just to get the first response from someone you're speaking to on the phone, it's essentially a 12- to 14-minute call calling a call center. We can deliver these results within 45 seconds. It's very specific. It's a context of one to the customer. And our customers can integrate to the cognitive core at any level that they want, for example.

So I've spoken about CES. We continue, obviously, to invest in CES because this is super important in terms of delivering -- running your business at the end of the day, right? This is the engine that continues to run your business. So that is not going away. Now the lines may change in terms of what is deterministic, what is nondeterministic. But in terms of making sure that you have a catalog with your offerings, making sure that your sales process runs the way it's meant to run, making sure that your customer care journeys are defined. Monetization, and you can probably just go to the next slide, Mike.

Making sure that these key fundamental functions are delivered, delivered within the policies and parameters and making sure that your business can launch new offers and new products and taking the friction out and how that's delivered is still a core part of CES. So still, this becomes a cornerstone of what your generative AI capabilities are going to deliver at the end of the day.

So now we're going to jump -- actually, one more before we jump into services. The Agentic business and network flows is an interesting area for us. This is not an area we've traditionally played in. So this is really an opportunity for us, and we can just go to the next slide, Mike. So these are areas that our customers have where they run operations. And there's a huge labor kind of arbitrage there, right? There are a lot of companies that there's tens of thousands of people that do these functions.

We believe that the technology available and some of our Agentic capabilities that we essentially provide directly to consumers can really apply in expediting this, accelerating the outcomes and even providing better outcomes in areas such as order to activation, billing operations. So this is really, I would say, a new opportunity for the company.

And in the same vein, if we do one more click and look at kind of some of these network workflows, many of our customers are talking about how do you go towards a dark knock. So we are very focused on -- although we're not talking a lot about it today, we'll show you a demo at the end of some of this. But think about service assurance. Think about having a closed-loop system, where a fault is being found, it's being addressed automatically and a customer is being notified.

This is really the future of tomorrow that generative AI can deliver. And again, really taking a lot of this labor arbitrage out of the equation. And so next, we are going -- I'm going to hand it over to Pilar to talk about our Agentic services and really how this is being superpowered by aOS.

Thank you, Anthony. So I'll take some time to ground us in what we mean by Agentic services. And basically, there are service domains that span across IT operations, data and AI, cloud, experience design and quality engineering. And these are activities that are transformed into intelligent, automated and orchestrated workflows that go down to the very, very level of the system of record, which is the unique thing, I think, here.

Each domain represents a concrete set of capabilities that we -- where we move from traditional manually effort-driven work towards government enterprise-grade workflows. And what we can see, and if we can move to the next one, I'll take you to how they operate in practice.

So here, first off, this is a significant paradigm change for the industry. This is an evolution of what we have done. Amdocs has always been very outcome-based, and we've seen that. This is us taking the services that we have done all along, and we are codifying that in a services and software paradigm, which is IP-based and defensible. We look at these domains and basically, we see how the core components of the complex services. And we do a lot of that. We make it seem simple.

Like do you expect infrastructure to work, do you expect your phone to work? And when it's not there, it's disappointing, you don't want to see the complexity. This is taking it to the next level. So what was one's implicit expertise that lives in people's heads with 20, 40 years of experience serving our customers are now being codified in the agents and become orchestrated intelligence.

Now that unlocks real value for the customers. Why? Because if you talk to almost every enterprise customer nowadays, legacy modernization is a key thing. They know they are keen to take advantage of Gen AI, but they know in order to get there, legacy modernization is part of what needs to happen. And that's why I think Agentic Services are so exciting because they live in the lane where velocity happens with Agentic adoption.

We have structured processes. We have structured data. We know that is where you get ROI. And this is, for us, part of where our differentiation lies. We get to strategic outcomes faster because we have invested over the years, even before AI in building the lanes that will get us there. And we're very committed to doing that in a way that's delivered at the pace of our customer readiness.

Anthony mentioned customers are increasingly comfortable putting agent, care agents talking directly to customers without human in the loop. That's not necessarily the case in some of the other services, and we are committed to doing this at the pace of their readiness. Ultimately, what we have seen with Gen AI is that as people get their organizations ready for it, they need to do it at a pace that makes sense for them. And that will be varied according to different customers, different appetites, different regimes.

We're a global company. There will be very different data regimes, very different regulatory regimes. And we want to make sure that customers understand that we are there to basically give them as much or as little human in the loop as they need based on their current situation and their confidence and trust in the technology, and they will start putting workloads that they feel comfortable with and move on with that.

So if we go to the next slide, you'll see exactly how this works in the demo. But given how important legacy modernization is, I thought I would take you to intelligent app modernization as an example. And these slides basically takes you through the 6 phases that every customer going through intelligent app modernization would go to.

What you see, I think, and what we have seen over the years in this type of services, they're heavily constrained by the number of things. Typically and especially in some areas like mainframe, heavily constrained by the talent pool. So very often, as a program leader when I was doing...

And an aging workforce.

Yes. And an agent work for -- aging workforce, and that's aging. And that's been the case, I think, since I've been in technology. So like we had COBOL developers in our back list many years ago. I know, and I'm not the only program director that has done this, I have shaped mainframe modernizations based or migrations based on the available talent.

That was my key constraint. And now this is changing, and it's changing in very exciting ways because it's opening up it's opening up opportunities that we didn't have before. So what I'm going to take you through is, I think if we go through the journey, what you're going to see in the next slide, please, is how the collaboration between humans and agents can happen.

So what we show here, and I'm going to use the example of workload discovery because I think it's the best one. We have systems of agents. This is unique in 2 senses. The first one is that these are not generic bots. They are not accelerators that are put forward by a platform. They are agents that benefit from both our collaboration in R&D with our partners, which is very deep, and the expertise, the human expertise that has all of that implicit knowledge and all of that explicit data knowledge and structure at the system of record level. And that's all baked in and encoded into our agents, which actually operate as a system and in an integrated fashion, going from task to subagent to agent in a coordinated way.

What this allows us to do? Is do what I think is the ideal situation, the best of both worlds. Agents are able to do volume at industrial scale. They can do that consistently, like no human can read like lines of code the way agents can do, and they can do that in parallel. Humans are able to do what we do really well, which is understand the changing context, the parameters of the organization, the risk appetite. We live in very interesting geopolitical times.

So your modernization planning might make sense based on the readings of the past, but that's where the human comes in and goes, well, actually, this has just happened. Therefore, we need to refactor the modernization recommendation and that allows you to spend time doing scenario planning, for instance, which was costly and expensive to do before.

I always tell people that workload discovery is where migrations slow down. You start and very quickly, you find that you're not going to go to the level of depth that you would like to do if you do it manually. This is actually derisking that for our clients, and it will allow us to focus on where the energy is. So I'll take you to the demo quickly. I'm going to save myself some words.

I'll take Anthony's example. What I want you to focus on here is 3 things, I think, that are super important for the Agentic services. The first one is that -- and I'm taking you to the example of intelligent app modernization because I want you to see the depth and the thoroughness of the agents.

We're going to focus on 3 areas here. The first one is the business outcomes part of it. This is preconfigurable. And for this type of services, it matters a lot because each of our customers is different. If your app modernization target is to do a data center exit, that's time, time is going to be more important to you than maybe other considerations.

In this example, it's going to be time to market, but it could be any of the business considerations that our customers have, and that's how intent gets transformed into outcomes, and it's very important for us to track. Then I'm going to call attention to the left-hand side, where you have the level of depth of the agents and how they navigate all the way down to the system of record, which is very important.

And finally, this is the difference from what Anthony showed you before. Anthony was showing us the outcome as it as the end consumer sees that. This is very different. This is the end user experience is the enterprise user view. So that pain there is where humans and agents collaborate, where you will have -- or you can see how we will get you get reports, you get artifacts from the agent. but then the human will evaluate, stress, assess and then decide, okay, yes, go for it.

Let's have a look at it.

[Presentation]

Okay. So let's stop here because this is the important moment. This is the human in the loop moment and that's where the appetite of clients is going to vary. You would spend time here interrogating the output that you get and having the organizational conversation. And I expect that there's going to be a range of how much or how little our clients need there, and we're seeing that already in engagement, and we're happy to accommodate their pace and their comfort because ultimately, outcomes are built on trust. And in this type of work, trust is built with the human. So if we can move on, I think you're going to see...

[Presentation]

Mike, if we can stop there because I think we have seen the gist of it. What I find is incredibly exciting is how tightly integrated all of the different agents are and that they are very specific to the industry. They really understand situations.

If you're doing a migration when a user is trying to buy an iPhone, well, revise that. And this ties back to the policy code. We were talking about earlier, which I think really matters to get to outcomes fast in the industry. And I'll give that back to you.

Okay. Thank you very much. It's exciting. So we're going to very quickly -- we're going to rush through some of these slides just given the timing, but we want to talk a little bit about the outcome here.

Let's go to the next slide, Mike. So we always -- everyone knows about the traditional bots, then we had kind of the, I would say, the AI-enhanced era. And now we are really at the Agentic era where really it's a context of one, where you're having a digital twin that knows the propensity that someone will take an offer or not take an offer or how they will react.

You intuitively look at the internation on how they communicate and you react your response or change your response based on that. And that is really where the area that we're in. And with that, I want to share some of the outcomes in terms of what we're seeing.

So you see things like this is one of our customers that deployed it via WhatsApp channel, 135% NPS improvement. The CSAT increase, something we didn't think faster payments. Why faster payments? Because they understand the issue better. They don't have any complaints, so they pay it and move on with their life, right? 40% reduced waste times. And these are really some of the outcome metrics that we love to look at and love to track.

If we jump to the next slide, this is one of our Tier 1 North American providers. When you look at call centers, at the end of the day, there are 3 primary metrics everyone always measures, AHT, SCR, NNPS, average handling time, first call resolution and was the customer happy.

And to see all of these 3 things increase with the customer is being in the industry for so long, this is something that's pretty cool. But I also don't want to forget that last point at the end here. From the time we started to the time we end, we ended up with 60% less tokens as we tune it. We understand that it can't just be cost rising just to get a good result. We also have to work on the overall cost structure of what we're delivering.

Let's jump to the next slide. And so we've spoken to many of you guys about different POCs, but we have many customers now using our data and kind of AI capabilities in different shapes or forms. And we think we're delivering something that either our customers are looking at or already trying to build or needing to build desperately.

So really, it's a place where we feel that we're meeting them. So now I want to introduce Liliana here to talk about our strategic partners, which really is a core part of our strategy because we believe these 4 partners really accelerate everything we're doing, and we work with them very deeply. So Liliana.

So thank you, Anthony. So I'm very excited to be here to talk about those 4 strategic partners. Amdocs has a wide variety, as Anthony mentioned earlier, of ecosystem of partners. But right now, we're going to focus on those big 4, AWS, Microsoft, Google and NVIDIA.

So what is so special about this partnership, the strategic partnership that Amdocs is having with them? First, we are sharing vision. So combining Amdocs deep telco expertise and offering that actually we are managing it for, what, 4 decades right now, combine it with the fastest technology that those amazing companies provide us -- we want to lead the telecom industry into -- together into the Agentic era by offering the different unique cross-domain solutions that were presented throughout aOS and the different components of aOS.

And why those strategic importance are coming to us with those partners. So as we said, it's the deep knowledge, but our partnership is very intimate and very multidimensional. So with those 4 partners, we're going deep as R&D to R&D. We're developing engineering to engineering solutions. We have a shared go-to-market. We have a shared sales campaign, share offering. And that actually opens up the market share that we have together.

We co-innovate more and better together with all the different amazing things that Anthony presented here today as well as we are using them internally. So even Amdocs is transforming and becoming more agenting using some of those AI transformation with our products and our services. And which are the domains we're focusing.

So obviously, those companies are broad. And we are trying to focus on domains that might be relevant for the telecommunication industry. So when we're looking at the different domains that when this 1 plus 1, 1 plus 4 here becomes 11 is how we are extending this aOS suite into more Agentic power customer experience into Agentic like we discussed right now, the services, right?

We are running together into modernization, different levels of modernization, second and so on and so forth. So now let's see how we're translating those partnerships into live examples of where they're embedded within aOS value proposition. So I'll just share a few examples.

So one of them, and we've seen a demo just before, is how we're embedding our cognitive core within the telco contact center that right now, we see a lot of dominant solutions such as Gemini Enterprise for CX for customer experience as well as AWS, the contact center. It's all integrating with Amdocs telco-specific knowledge that provides, as Anthony described before, way more accurate and trustful results, right, using the amazing tools that we are providing with our partners.

If we're looking into another example, maybe it's a flagship of an example that shows how deep we are going in our partnership. And this one goes with what we call customer engagement platform. It's a product-to-product integration between Microsoft Dynamics 365 that has Agentic solution for the entire customer experience from marketing to sales to customer care, to CRM, to case management, all of that is actually pre-integrated with Amdocs BSS suite, mainly around the care and commerce as well as CPQ.

And those solutions provide end-to-end new customer experience with the agent, and Agentic solution inside to provide new customer experience through B2B and B2C offerings. If I -- we talked a lot about the Agentic services. Maybe just to point out, obviously, what we have heard today is strongly embedded within additional tools that we use, like, for example, the Amazon Transform, right, we use it and embedded when we are actually creating our own tools. Same goes with Microsoft with Fabric IQ and so many more of the latest tools embedding within our different services.

I'll touch quickly on 2 more examples of that, and then we can actually see this demo later on around autonomous network, right? As Anthony mentioned, we are partnering here with NVIDIA doing digital twin of the network. We're actually mapping that through the RAN network and trying to predict some faults and actually to prevent them. We can simulate that. We can test that -- we can deploy it ahead of time before it goes into production.

So all this preventive care and service assurance and network assurance can be done with our partners here. And the last point here on the shared offering is around Sovereign AI. We are partnering obviously with AWS. They have a very robust Sovereign AI. We are the service arm and sometimes the monetization arm for them as well.

As well as AI factory, we see that as one of the most important use cases right now is how we are actually servicing our telco customers with their potential enterprise customer, who wants to use the AI infrastructure. So that's where we are bringing all the stories together.

Now I'll finish this one by one sentence here. Amdocs is doing it internally as well. So we are transforming -- Amdocs itself is transforming to become more a frontier firm. And we're doing that hand-in-hand with a very strong collaboration with Microsoft. So Microsoft has this vision of very advanced companies that can transform themselves through the Agentic phases and Amdocs going through this phase with Microsoft, and we are looking and embedding more AI and automation through copilots, through different tools we have out there through our different business units within Amdocs, like sales, like finance, IT and so on and so forth.

So now I'll just give a glance of a few real examples coming from our customers. So one case study we see here is Vodafone. So Anthony mentioned how deeply we understand the data and data structure this in the telecommunication industry. So combining Vodafone request to actually migrate a very complex enterprise data warehouse into Google Cloud, Amdocs is the one who actually performed this work and moved everything into the Google BigQuery and that resulted in much faster time to see insight.

It allows them to have AI native data foundation that can drive way more use cases. And obviously, it reduced some of the cost of running those data platforms. I'll give another example, and it's similar to some of the examples Anthony shared before, and it's an APAC Tier 1 customer that we implemented with CP that I presented before. It's the customer engagement platform that, as I said, it's Dynamics 365 of Microsoft and Amdocs Commerce and Care combined together.

Here in this case, we modernized the customer service and unified all the customer channels into one platform. And it's amazing to see like what we've seen with Anthony presenting some results with another customer and this customer we are improving drastically one of the, I think, a highly ROI outcome is the customer experience. And here, in this case, the case management was improved as well as the NPS that we've seen with the other customers and first call resolution.

And overall, those agents, over 4,000 agents could provide services to their large customer base. And then there is another example. Anthony, you want to share with us?

Yes, sure. I think we're actually going to show a demonstration here in terms of -- and Matt, we might actually not show the entire demonstration. I might actually just talk about it given the time because I want to leave it.

Absolutely. We can put this on the website as well, so.

But the demonstration we were going to show was actually our partnership with NVIDIA and Omniverse and how we basically created an entire digital twin of the network and allow autonomous healing, problem detection by using a digital twin.

And in the same way, we think this capability is relevant not just to create a digital twin of a customer, but to create a digital twin of towers, to create a digital twin of the network. And really, it's very pervasive in terms of how we can use it. But with that, Matt, maybe we'll just kind of pause for a second and open it up for any questions that people have.

Absolutely. Jill, do you have any analysts on the line?

[Operator Instructions] Our first question comes from Tal Liani with Bank of America.

You actually have Tomer Zilberman on for Tal. Anthony, maybe 2 for you. I wanted to ask, first, you talked about amAIz to amAIz platform earlier. Is this aOS, is it an extension of the amAIz platform? Or is it a replacement of the amAIz platform?

And the follow-up to that is, can you give us any commentary around what the traction was or is for amAIz and how aOS changes the adoption rate in terms of Agentic because you had some earlier commentary around customer readiness for Agentic. So does that change the migration path? Does that speed things up? Does that slow it down given where your customers are in terms of being ready for Agentic?

Yes, that's a great question. So think of amAIz as kind of our version 1 entree into this. And what it provided was really Agentic capabilities. Think of aOS and the cognitive core as a complete reimagination. Yes, it incorporated every single thing we learned from amAIz into it. But it basically allows us -- to the second part of your question, it allows us to meet our customers wherever they are at.

So if amAIz kind of provided a certain functionality to a certain set of customers, aOS now allows us to help our customers build out their Agentic fabric to help accelerate their transformation, to help in a mainframe modernization. So it gives us, as a company, a lot of different, I would say, handshake points or insertion points with our customers to be able to provide solutions at different places. This is one element.

The second element is really just bringing it all together rather than having bits and pieces, so our customers can pick and choose how they integrate with us. So we feel that we've been thinking about it, obviously, for probably, I would say, the last 18 months or so. And aOS was a framework to allow our customers to run faster to integrate at wherever they are in terms of their customer journey and their build-out of generative AI architecture.

And the third thing was really to focus on business outcomes. I mean we doubled down on this like we probably never had before as a company and said, you're not building something unless you're going to really deliver a business outcome at the end of the day.

Got it. Maybe as a follow-up, just to that last point, are you thinking about any changes in your pricing model for amAIz versus AOS?

Yes, it's a great question. Look, we are testing the waters. We're thinking about it. As you can imagine, I don't think anyone in the industry has reached any level of equilibrium in terms of what monetization looks like.

I think everyone is going, well, how do we charge for it? Is it tokenized? Is it not? But I'll tell you one part about it, some of the savings that these things can be delivered are pretty big. So definitely, we're thinking about what are the different monetization models that can be out there that can basically help us. But we're in the middle of that process at the moment.

[Operator Instructions] Our next question comes from Timothy Horan with Oppenheimer.

So Anthony, obviously, the AI adoption by the carriers can massively improve productivity and quality. Where do you think -- and I would assume they're under a lot of pressure to do so or will be competitively. When do you think adoption really starts to accelerate? And what's kind of the main barrier to adoption?

Yes. Tim, it's a great question. Look, I think in terms of adoption as a technology, everyone is there, right? Like I don't think -- I've met hundreds of customers at Mobile World Congress from around the globe. I don't think there is one customer that isn't doing anything with it or trying to accelerate their customer journey.

I think where we are right now is really saying, okay, so we've got this in place. How do we focus on the outcome that can be delivered. That's really, I would say, where the focus is right now. And the second part, I would say, is trying to figure out what that blueprint looks like because you need some resemblance of a blueprint. If not, it just becomes a Wild, Wild West, right?

Because everyone is like, yes, I'm doing AI, I'm doing AI. And so you can't add 1,000 different vendors doing 7,000 different things into the equation. So it's about determining who your domain partners are that you want to partner and ones that would really commit to delivering an outcome on this, I would say.

You want to add anything on that...

No.

And just on the digital twin, I think you're implying that we're going to have digital twins for every piece of their business, not just the network, which would seem to be a game changer to have a digital twin for the network, but also for the entire IT stack and maybe even customer databases and on and on. I mean, so where are you with implementing digital twins and where are the first places which you see it?

Yes. So I'm a huge fan of the NVIDIA, Omniverse framework and architecture because I think really that unlocks so many different things. We are focusing on a few different spaces where we are starting to get a lot of traction with customers. So definitely in the network space on specific segments.

So when it comes to network rollout, when it comes to service assurance in terms of problem solving, where you can kind of do spectrum optimization, where you can do rerouting of networks. I think digital twins can play a very, very big part there. In terms of problem resolution. The second part, which I think like probably got more interest than I thought it would have gotten was when we presented our view of the digital twin persona of a customer.

So we trained -- basically, we take all of this customer information and data and propensity to do XYZ and put it into a certain persona. So when you're dealing with a customer, you don't have to guess. You're already going into it going, hey, like I have this marketing offer. There's a 75% propensity that a customer with this persona will actually lead to a conversion in a sale, right?

So that part is very, very interesting. And as you can imagine our telcos sit on a lot of proprietary data, and they can use it internally, however they want to sell their own products, right? So there's no privacy issue or anything there. But I think building those personas and using those personas, I think, is a little bit of a game changer versus, "hey, here's a technology, let me hope that this technology delivers the business outcome that I want." So we're pretty excited about this, and we're really starting to incorporate it in many areas of the business.

Our next question comes from Shlomo Rosenbaum with Stifel.

Would you say that the aOS is geared more towards small and midsized clients, larger clients, who is most likely to be adopting this? Would it be the ones that need more help getting usage and implementing Gen AI? Or is it going to be the larger customers that are already more sophisticated over there?

Thank you, Shlomo. I love the question because that's something I forgot to mention. So one of the fundamental principles of aOS is that we have different customers at different stages. So if you take our Tier 0 or Tier 1 customers, they are already way down the journey, right? So they have an ecosystem, either they're building it internally or not.

And so with aOS, like we had a meeting this morning with a very -- one of our large strategic customers, and I was in the meeting. And one of the discussion points we had was where they can integrate. So they wanted to integrate at a couple of levels down to compare to what maybe a Tier 3 or Tier 4 customer would discuss with us, right?

So we had some smaller customers going, "Hey, that's fantastic. Let's take your entire agent, put the entire aOS infrastructure in and run with it, whereas some of the bigger ones may want to integrate at different points. But at the end of the day, we want to like kind of like that no customer left behind comment, right? Like we want to make sure that aOS can integrate at different places. And that's why by design, we also made it very open.

So if you think of the different layers that it comes with, it comes with the fully fledged agents. It goes to the super agents. It goes to the subagents, it goes to the tasks, it goes to MCP integration, agent-to-agent integration. And all of these are very, very different integration points that different tiers of customers will come in, and they are, by the way, we see it even right now.

By the way, one of the challenges that we try to overcome with this is that no 2 customers have the same journey or the same experience or even the same destination that they want to get with, with generative AI. So it's not like there's a cookie-cutter shape, and this is really what aOS is also trying to address. So thank you for the question, by the way.

And then so do you envision this pulling along modernization ahead of clients going ahead and implementing aOS? In other words, when I think about the impact on the company, are you going to go ahead and say, "Hey, we've dangled this in front of you, and therefore, we have to do XYZ amount of work for the next 2 years, and therefore, you're going to have this?" Or is this something where you're going to start out earlier on with the clients? Just maybe give us a little bit of color on that.

Yes, sure. So at a macro level, you can think of software really broken into 2 parts, right? So Part A is what we call nondeterministic. This is essentially 100% the generative AI space, right? And there's the deterministics, which are the system of record, which is the standard operating procedures, the catalogs, the policies, the pricing, the billing, things like that.

That -- the deterministic part, no matter what anyone says, is not going away tomorrow. Now the lines may change, the lines may be blurred. But at the end of the day, you still need to collect an order, deliver an order, provision an order, operate, bill, collections, do all of those fundamental core mission-critical pieces, while delivering on all of these nondeterministic promises.

So yes, we believe that some components will be pulled in, right? So I'll give you an example with one of our customers where they're taking AOS and they're like, well, in order to get the maximum out of generative AI, we also need a modern enterprise catalog, right? So they will go down the journey of modernizing the enterprise catalog because what they have now, for example, it's an older version of a catalog, which takes 3 days to update a product, right?

And so you can't really do some of the capabilities like digital twins and propensity to buy, sell, which are all real-time events. You cannot necessarily do that with legacy systems. So you have this ongoing argument, right? I mean, when we look at a macro perspective, do enterprise systems stay? Do they get replaced, things like that. And we believe that there is a world where, yes, there will be deterministic components and nondeterministic. And in our world, we have to balance these 2. And yes, I believe one will also pull the other.

I just had one last question, and I'll hand it off to someone else. Just in terms of the example that was brought with the customer service that was being shown earlier, the Bill Explainer came out a while ago. And maybe you could talk about the adoption on that and whether that would be a good indication as to the adoption on aOS? Or is that not something that I should be looking at in terms of how one is indicative of clients' propensity to adopt?

Yes. So the Bill Explainer and the customer care was really the, I would say, the cornerstone use case that came out of amAIz, right? Now obviously, that's expanded, and we are now cross-selling and upselling and doing all sorts of things.

But you're right. I mean that's essentially where it started from. And we've gotten very, very good kind of customer traction and adoption and where customers even want to integrate at different levels of the tasks or subagents to help them.

So for example, they might say -- actually, we do have a care Gen AI agent, but we really like the level of accuracy you guys give in A, B, C, D domain, can you incorporate it and integrate it. So that is happening at the moment. When we look at aOS, that then expands it to, #1, different domains; #2, different insertion points and integration points. And #3, kind of what you mentioned before, it kind of pulls in some of the capabilities of the underlying system.

So it also creates an opportunity for modernization on some of those components. Like billing, right? I mean, think of monetization -- we have some launches that happened lately about very, very different monetization mechanisms, even as kind of 5G stand-alone and 5G advanced starts to evolve, people are looking at very, very different ways to monetize it.

Now these capabilities still need to be built into the enterprise systems in order to be exposed. So yes, that's kind of, I would say, the evolution from amAIz to aOS. aOS just kind of expands that and gives you more depth.

I'm not showing any further questions on the phone line.

Okay. I think we're well over time. This has been a fascinating discussion. I want to thank our presenters for today, did a wonderful job, Anthony, Pilar and Liliana. Awesome. And if you have any questions for us, and we didn't get a chance to address your question on today's call, by all means call out to us here in the Investor Relations department. We'll be pleased to get back to you.

And with that, thank you for your time and your interest, and we'll wrap it up.

Thank you very much.

Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Thank you for standing by, and welcome to the Amdocs First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Matt Smith, Head of Investor Relations. Please go ahead, sir.

Yes. Thank you, operator. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 of the presentation. I note that some of our comments today may be forward-looking statements and are subject to risks and uncertainties, including as described in Amdocs's 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 also be posted immediately following the conclusion of this call.

On today's agenda, Shuky will recap our business and financial achievements for the first fiscal quarter 2026, including our strategic progress in generative AI and data services. Shuky will finish by addressing our financial and business outlook, after which Tamar will provide additional details on our first quarter financial performance and guidance for the full fiscal year '26. And with that, I'll turn it over to Shuky.

Thank you, Matt, and everyone joining us on the call today. Beginning on Slide 6, I am pleased to report a solid start to fiscal 2026 as we continue to focus on our primary goal of accelerating Amdoc's long-term growth and position of ourselves as a market leader for the GenAI era. First quarter financial results were consistent with our expectations. Revenue of $1.16 billion was slightly above the midpoint of guidance, rising 4.1% from a year ago and 3.5% in constant currency. .

Profitability improved by 40 basis points from a year ago and was unchanged on a sequential basis, reflecting our commitment to balance internal efficiency gains with accelerated investments to support long-term growth. Non-GAAP diluted earnings per share was $1.81 above the guidance range, primarily due to a lower-than-expected tax rate for the quarter. And we finished Q1 with 12-month backlog of $4.25 billion, up $60 million sequentially and 2.7% from a year ago.

Turning to Slide 7. I'd like to thank our people around the world for their part in delivering best-in-class mission-critical operations support over the holiday period, and for achieving a high number of milestone deliveries under the many outcome-based projects and managed service engagements we are supporting for our customers. Q1 included several important developments which strengthened our underlying basis business, accelerated our global growth potential and advance our generative AI strategy.

First, I am proud to announce that we signed a new multiyear agreement with T-Mobile that includes managed services, software development and AI innovation. Under the new agreement, T-Mobile and Amdocs will collaborate to support T-Mobile growth strategy and business objectives. Amdocs will continue to support T-Mobile's consumer business domain, including implementation of GenAI technology where applicable.

As part of this agreement, Amdocs will also support integration activities related to common systems. Additionally, we are supporting T-Mobile in the integration of USCellular. As a reminder, integration activities by nature are nonrecurring and are ramping down by design once the integration is completed. Overall, this important agreement extends our long-standing strategic collaboration with T-Mobile.

Having said that, as mentioned last quarter, we expect a revenue decline with this customer in fiscal 2026 due to a lower level of spending. Second, we expanded Amdocs global customer footprint and progressed our international diversification strategy this quarter through a combination of organic and inorganic moves. We signed an expanded multiyear engagement at Vodafone Germany, the largest of Vodafone operating companies and won significant transformation awards with 2 new logos in Western Europe.

Additionally, I'm excited to report as we close the acquisition of Matrixx Software for $197 million cash at the end of Q1. Based in California, Matrixx is a strategic consolidation move, which complements and extends our leading market position around the [ controlling heel ] of billing, monetization and charging solutions. As such, we believe there is an amazing potential to bring our full suite of product and managed services in support of Matrixx impressive customer base. These customers include major Tier 1 service providers such as Verizon, TELUS, Telefonica, Swisscom, Three, Virgin Media O2 and Telstra as well as a growing list of many smaller peers operators and MVNOs.

Third, I'm encouraged by the highly positive recognition Amdocs is receiving as a market leader in data and generative AI from customers and industry analysts like Gartner. In my opinion, such recognition directly reflects Amdocs very deep domain expertise which is unmatched in the telco vertical. During Q1, our commercial momentum continued with additional GenAI GI-related wins at TELUS and other customers. Our next generation AI platform development is also progressing to plan with today announcement of aOS, an agenting operation system purpose built for telecommunication, which we plan to showcase at Mobile World Congress in early March.

Now turning to Slide 8. I'd like to provide some additional color with respect to our growth strategy, which is designed to deliver the tech-led products and services our customer needs to maximize the value of generative AI data across our customer footprint, accelerate the journey to the cloud, digitalize customer experience in consumer and B2B, monetize next-generation network investments and streamline and automate complex network ecosystems.

Starting with data and generative AI on Slide 9. We are busy executing the recent Gene related commercial awards as we won with Optimum, Consumer cellular, e&, Telefonica Germany and other first-mover adopters of Amdocs amAIz, our generative AI platform that leverage NVIDIA's AI capabilities. These early awards provide proof point as to the important role of generative AI in telecom industry and transformation. As witnessed by the consistent pipeline expansion and growing commercial progress we are seeing. As an example, TELUS, Amdocs and NVIDIA recently teamed up to deliver advanced AI clouds quality engineering solution on the TELUS sovereign AI factory.

Specifically designed to meet Canadian data residency and compliance mandates, this strategic integration will enable secure autonomous testing, automation and validation for Canadian enterprises and government agencies, helping them to adopt generative AI securely and to roll out digital services faster. As to our long-term generative AI strategy, last quarter, we shared that we are accelerating our investment to fast track development of cognitive core. A next-generation AI platform built on the foundation of Amdocs amAIz which integrates prebuild telco-specific agent libraries and actionable insights.

I'm pleased to say that our development road map is progressing as planned with today exciting announcements of aOS, the world's first agentic operating system purpose-built for tele communication, which we plan to showcase at Mobile World Congress in Barcelona a few weeks from now. Designed to help service providers accelerate generative AI strategies and innovate at scale, aOS operates on top of any BSS/OSS stack. Embedded connective core and [ integrates ] into telecom operation to elevate customer and employee experiences, unlock new growth opportunities and drive measurable operational efficiency by executing complex end-to-end workflows across BSS OSS environment.

Overall, we are excited by the announcement of which aOS which believe can emerge as a long-term growth engine for Amdocs as telco realize the potential to simplify and accelerate their AI transformation journey.

Switching to cloud on Slide 11. Amdocs remains uniquely positioned as the preferred partner to lead the telco industry journey to the cloud, reflecting our proven ability to accelerate public, private and hybrid cloud migrations. We are continuing to grow our cloud migration collaboration with AT&T, supporting them as they move another key infrastructure stack to the cloud. This represents an important next phase in AT&T's cloud modernization journey.

By applying Amdocs AI-driven migration capabilities and deep telecom domain expertise, we are helping AT&T modernize core infrastructure faster, reduce transformation risk and improve operational efficiency while creating the foundation for future innovation. As discussed last quarter, our SaaS-based platform, including Amdocs ConnectX, Amdocs Market One and Amdocs eSIM are also contributing to growth with riding with rising customer of adoption. This quarter, Amdocs Market One, was selected by V, formerly VIDAA, a leading smart TV platform, powering over 50 million connected TVs globally.

Market One will drive V's the global OTT subscription and streaming bundles [indiscernible] equipped with smart TVs. Streamlined OTT partner onboarding, enabling innovation subscription bundling, and digital services expansion across the international footprint. Looking forward, cloud will remain primarily focus for Amdocs as we continue to support our global telco customer base, many of which are just getting started on their multiyear cloud journeys.

Turning to Slide 12. I'd like to spotlight some additional deals win across Amdocs other strategic domain this quarter. First, I'm delighted to announce that Vodafone Germany has extended its multiyear digital transformation engagement with Amdocs. As part of which, it will decommission multiple legacy technology stacks to simplify its IT infrastructure across its fragmented cable portfolio. The program will complete with a gradual migration following proven agile delivery running fully in public cloud and utilizing AI tools to increase delivery efficiency.

In Western Europe, we won significant digital transformation award with 2 new logos that further expand our strategic relationship with a large global telco service providers. In Italy, Swisscom subsidiary Fastweb will broaden its use of the OMS Amdocs platform as the unified orchestration layer to manage end-to-end order management across both wireline and wireless consumer domain in the new core resulting for the post-merger integration with Vodafone Italy. Within the BSS and OSS sphere, Swiss service provider Sunrise has extended the collaboration with Amdocs to support AI evolution in CRM, signing the foundation for further increase its Net Promoter Score and to offer customers the best service at any time.

We also signed a new 4-year agreement with Telefonica Germany to renew our Actix mobile network platform. Actix plays an important role in optimizing radio network performance. helping Telefonica Germany enhance coverage and network quality at scale. [indiscernible] reflects the ongoing value we deliver in mission-critical network operation and further strengthen our long-term standing collaboration with the customer.

Finally, we recently signed a proof of concept with leading operator in Japan, deploying Amdocs RevenueONE with billing capabilities to run real operation scenarios. This engagement reinforced the strength of our revenue management portfolio in supporting complex strategic customer environment and create a path for potential expansion.

Now to the current operating environment. We believe many growth opportunities exist across our several addressable market of roughly $60 billion by tapping new domains at our largest long-standing customers, capturing additional wallet share at existing customers and new logos, diversifying in new geographies such as Japan, Africa and Middle East, and bringing innovation in emerging strategic domain such as generative AI, fiber rollout, cloud migration and the rapidly evolving MNO segment.

With our deep telco domain expertise and unique tech-led customer-based business model, we will -- we are well positioned in the market and laser-focused to monetize the rich deal pipeline we see in front of us. That said, we are, of course, closely monitoring our customer demand and spending behavior within the prevailing global macroeconomic environment.

Bringing everything together on Slide 14. With our solid first quarter performance and our visibility for the remainder of the year, we are reiterating our guidance for revenue growth of between 1% and 5% in constant currency for fiscal 2026. Similarly, we are on track for non-GAAP diluted earnings per share growth of between 4% to 8% in fiscal 2026. The midpoint of which equates to an expected total shareholder return in the high single digits, including our dividend yield.

On a personal note, after many years serving Amdocs in a range of leadership roles, including more than 7 years as President and Chief Executive Officer, I've decided to retire from my role as President and Chief Executive Officer. It has been the greatest privilege of my professional life to lead this incredible organization and [indiscernible] people for the past 7 years. I'm immensely proud of what we've accomplished together. We didn't just navigate and achieved the cloud and the rise to GenAI, we transformed Amdocs into a truly catalyst for the digital age. I am pleased to announce Shimie Hortig, a longtime colleague and trusted partner who is here with me today, will succeed me as the President and Chief Executive Officer effective March 31, 2026, following a planned transition period.

I take this step with a deep confidence in Amdocs position, long-term strategy and leadership team. Having worked closely with Shimie over many years, I've seen his ability to lead the company superior to significant industry and technological change while maintaining a strong focus on customer and execution. This planned succession reflects the depth of strength of Amdocs management team and ensure continuity in our strategic direction.

I am confident of Shimie supported by an experienced and highly capable executive team on Amdoc's strong foundation and lead the company to new highs. I'm delighted to say that Shimie here with me in the room today. So let me hand things over to him to say a few words before moving to Tamar.

Thank you, Shuky, for the kind words and for our partnership over the years. I'm excited to lead the Amdocs to the next chapter. During my career at Amdocs across different leadership roles, I've come to appreciate what makes Amdocs a leader, our people and culture, our customer trust and our technology and innovation. As we look ahead, Amdocs is well positioned to combine emerging technologies with deep domain expertise to drive value to customers and shareholders. I'm looking forward to building on everything we have accomplished and taking Amdocs to the next level.

Thank you, Shimie. And with that, let me turn the call over to Tamar for her remarks.

Thank you, Shuky, and hello, everyone. Thank you for joining us and Shimie best of success. .

Thank you.

To begin, I'm pleased with our solid financial performance for the first fiscal quarter as summarized on Slide 17. We Q1 revenue of approximately $1.156 billion was up 3.5% year-over-year in constant currency. Revenue was slightly above the midpoint of our guidance even after unfavorable foreign currency movements of roughly $3 million compared to our guidance assumptions.

On a reported basis, revenue was up 4.1% from a year ago. Revenue from acquisition of Matrixx Software was immaterial in Q1 since the deal closed in the last week of the quarter. On a regional basis, North America was up nearly 4% from a year ago and was higher on a sequential basis for the fourth consecutive quarter.

Europe was up by 17% year-over-year and increased by 1% sequentially driven by organic growth initiatives and the December 2024 acquisition of Profinit, which made little contribution to the year ago quarter. Rest of the World was down from a year ago, but improved slightly as compared to the prior quarter. Consistent with our prior guidance, our strong sales momentum provides clear visibility to continued growth in Rest of the World this year, but we remind you that quarterly trends may fluctuate given the project orientation of our customer activities in this region.

Shifting down the income statement, non-GAAP operating margin of 21.6% improved by 40 basis points from a year ago and was stable on a sequential basis as we continue to balance the benefits of internal cost and efficiency initiatives to the investments designed to accelerate our long-term growth, including the development of our next-generation AI platform. Interest and other expenses amounted to roughly $10 million in Q1 with. On the bottom line, non-GAAP diluted EPS of $1.81 was above the guidance range, primarily due to a lower-than-expected non-GAAP effective tax rate in the quarter. Similarly, diluted GAAP EPS of $1.45 exceeded the guidance range, which was also primarily due to a lower-than-expected GAAP effective tax rate in the quarter.

Additionally, diluted GAAP EPS included a restructuring charge of roughly $0.09 per share which was not included in our guidance for the quarter. Turning to Slide 18. Managed Services revenue of $746 million was up 2.3% from the prior year in the first fiscal quarter. As a share of total revenue, managed services accounted for roughly 65%, consistently the last several quarters.

During Q1, we maintained a very high managed services renewal rates signing expanded multiyear engagements, which together strengthen our business resiliency. In addition to the new agreement with T-Mobile and the new agreement with Vodafone Germany, we signed an agreement with Telefonica Argentina, covering product maintenance services, application managed services in our software factory.

Moving to the balance sheet and cash flow highlights on Slide 19. DSO of 76 days decreased by 5 days from a year ago and was up by 2 days sequentially. And billed receivables net of deferred revenue was down by $32 million sequentially and by $66 million versus a year ago in Q1, aggregating the short-term and long-term balances.

As a reminder, the net difference between unbilled receivables and deferred revenue fluctuates from quarter to quarter, in line with normal business activities as well as our progress on multiyear engagements. Free cash flow before restructuring payments was $237 million in Q1, driven by a strong earnings to cash conversion to begin the year. In fact, Q1 free cash flow already equates to roughly 33% of our full year target, which is higher than usual after just 1 quarter, including restructuring payments of $49 million, reported free cash flow was $188 million in the quarter.

We ended Q1 with a healthy cash balance of approximately $248 million and aggregate borrowings of roughly $780 million, including a drawdown of $130 million on our $500 million revolving credit facility to fund the acquisition of Matrixx software and our $650 million senior notes, which mature in June 2030. Overall, we have ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth.

Switching to capital allocation on Slide 20. This quarter, we repurchased $146 million of our shares. We had up to $840 million of remaining repurchase authority as of December 31, 2025. We paid cash dividends of $57 million in the first fiscal quarter. Looking fiscal 2026. We are on track to generate free cash flow of between $710 million to $730 million, not including payments we expect to make under our current restructuring program. Our free cash flow outlook equates to a conversion rate of roughly 90% relative to expected non-GAAP net income and translates to a healthy free cash flow yield of roughly 8% and relative to Amdocs current market capitalization.

Regarding our capital allocations for the coming year, we expect to return the majority of our free cash flow to shareholders. Moving to Slide 21. 12-month backlog was $4.25 billion at the end of Q1, up $60 million sequentially and 2.7% from a year ago. Now turning to our revenue outlook on Slide 22. We are continuing to closely monitor the prevailing level of macroeconomic, geopolitical business and operational uncertainty in the current business environment. The second quarter and full fiscal year 2026 financial guidance reflects what we consider to be the most likely outcome based on the information we have today, but we cannot predict all possible scenarios.

For the full fiscal year 2026, we expect revenue growth of between 1.5% and 5.5% as reported, roughly half of which will be inorganic in nature. This includes the acquisition of Matrixx Software, which was already incorporated in our assumptions when we provided our fiscal 2026 guidance last quarter. This expected range compares with 1.7% to 5.7% previously with the change reflecting foreign currency movements, which are now assumed to provide the benefit of 5% for the full year as compared to 0.7% previously.

For the full fiscal year 2026, we are reiterating our outlook for revenue growth of between 1% and 5% in constant currency. As to the second fiscal quarter, we expect revenue between $1.15 billion to $1.19 billion. Moving down the income statement. We are on track to deliver non-GAAP operating margins within our target range of 21.3% to 21.9% in fiscal 2026, the midpoint of which is roughly 20 basis points higher than the prior year of 21.4%.

Our profitability outlook reflects an intentional decision to accelerate our R&D sales and marketing investments with respect to generative AI and our next-gen agentic operating system, while balancing this with ongoing cost and efficiency gains resulting from our continued focus on operational excellence automation and the internal deployment of generative AI based tools across our business.

As a reminder, our non-GAAP operating margin may fluctuate slightly on a quarter-to-quarter basis. Additionally, our margin outlook excludes additional restructuring charges we may take. Below the operating line, we expect non-GAAP net interest and other expenses to be impacted by higher finance costs this year resulting for a reduced cash balance and funding of our strategic long-term growth plans. As anticipated in the beginning of the year, we expect our non-GAAP effective tax rate to be within an annual target range of 16% to 19% for the full fiscal year 2026.

For your modeling purposes, in Q2 specifically, we expect our non-GAAP effective tax rate to be above the high end of this annual range. Bringing everything together on Slide 24, we are reiterating our outlook for non-GAAP diluted earnings per share growth of 4% to 8% in fiscal 2026. The midpoint of which positions us to deliver high single-digit expected total shareholders' return when including our dividend yield of around 2.7%. With that, back to you, Shuky.

Thank you, Tamar. I am pleased with our solid start for the fiscal year and the important progress we've made in respect to our long-term strategic partnerships, the expansion of our customer base globally in today's announcements for a new agent operation system aOS, which we believe can provide an additional engine of the long-term growth. With that, we are happy to take your questions.

[Operator Instructions] Our first question today comes from the line of Shlomo Rosenbaum from Stifel.

Shuki, Tamar, just the T-Mobile announcement, obviously, a significant positive. Everyone's kind of waiting for this renewal. I was wondering if you could give us just a little bit more color on that because it's just discussed as a multiyear agreement, doesn't say how long it is, how could we compare this to the prior agreement, I know you talked about revenue being down in '26. Is there a continued trajectory that way? Or should we assume there's a new baseline? And just is the scope of the same of what you were doing? I know there's -- T-Mobile in the third quarter announced a very sizable charge against its billing system, including what it seems like stuff that was still in development. And maybe you could just kind of put a -- just a finer point on what's going on over there since it is a very significant client. And then I have 1 follow-up.

Sure, Shlomo. So let me try and give some more color. We're talking about a 5-year agreement. This is quite typical for our long-term services engagement and additional long-term engagement with the top customers. We are covering in this agreement, as we indicated, managed services. We are covering development services, some AI-related activities, integration of common systems. So there's plenty of, I would say, breadth to the engagement that is covered there. .

We are also as indicated beyond this agreement that we are going to support in the integration of USCellular, which is, of course, a strategic move that T-Mobile announced already in the past. We feel that the relationship, of course, needs to take us to continue to support the T-Mobile and both and say feel is not the right word. We know it's going to support T-Mobile both on the consumer side of the business as well as the support of the business segment of T-Mobile. We continue to see -- specifically, we're guiding now for 2026. So we're talking about the fact that we want to be very transparent about the fact we still expect revenue to decline in 2026 as their spending appetite is lower, not just with that.

I think if you look into the commentary of T-Mobile, they are much more cautious. And the other point I will say is that specifically, again, it's specific to the contract is just to remind you that the kind of work we do for integration of systems, like the one we are doing withis USCellular that is typically not -- it's not recurring by nature, integration has a beginning and an end. I mean, hopefully, of course, it will be successful. And therefore, we wanted to make it clear. This is not a -- while we're talking about multiyear agreement and other activities with T-Mobile integration of cellular is not a 5-year thing, right? Usual integration is measured by quarters rather than years.

I think overall -- I agree with what Thomas said, I think it's -- we have relationship with T-Mobile, the previous version since 1999. So I think this is extend our partnership with T-Mobile -- for T-Mobile for the years to come.

Okay. And then just -- I want to dig in a little bit more on the Matrixx acquisition. Just you already bought a charging platform Openet like 5 years ago. And I wanted to ask just what strategically is this adding to what you had? And if you could put a finer point on to the revenue that you're expecting from it this year? Or is it -- if I take kind of the midpoint of your revenue guidance, assume half of it is coming from acquisitions and kind of split that over 3 quarters, it sounds like it's like around a $90 million run rate business. Is that the way to think about it?

I will start with the value of the products, and Tamar will answer more on the financial question. Look, we are dealing across the world with different sizes and different complication of customers. Some of the Tier 1 customer need different type of charging and capabilities comparing to what we call low tiers or mid-tiers. So I think the rationale of this acquisition was also -- it was consolidation of a competitor with very strong product.

So I think the rationale, a, it gives us additional charging engine that we can -- it's more like what we call Tier 2 level rather than -- this is one. It gives us a very nice set of customers, as we mentioned. And I think that between all our capabilities, I think it strengthens our position by far, the market leader in this critical domain of charging and monetization.

Yes. Maybe just to add, you mentioned the acquisition 5 years ago of Openet. Openet is an amazing solution that we've seen deployed in many leading customers and of course...

Openet is a significant Tier 1, yes,

continue to be our solution for the high scale. Back to your point about the revenue contribution coming from M&A. So we did incorporate in the original guidance of the year, about half of our growth coming from M&A. And Matrixx was definitely maturing the pipeline of M&As when we gave that guidance. So that's why I wanted to emphasize that it was planned and now is materializing. Now relative to the model of Amdocs, Matrixx is a product -- software product company, so less visibility into the model than our own regular model. We have taken that into consideration, of course, being the first year of integrating Matrixx being more cautious on the revenue view. So I think we are appropriately conservative there.

So yes, it's in the numbers. It's not necessarily the end of the M&A plans that we have for the year. We don't have any major build-up of expectations in terms of [indiscernible] I'm not talking about revenue. I'm just talking about the fact we do sales, so additional pipeline of good ideas on the M&A side as we may execute upon. But as I always say, M&A, is not something you can plan for in a linear way, we want to do the right deals for the right reasons with the right prices. So I think we are building it into a very prudent way into our guidance.

And our next question comes from the line of Dan McDermott from Oppenheimer.

It's Dan on for Tim Horan. Just 2 quick ones. Can you give us some more color on your new agentic operating system you announced today, why it's unique and how can serve as a new growth engine. And then second, Verizon has been very vocal about aggressively cutting expenses -- we're wondering if you're doing anything there to help them with their restructuring and their AI initiatives

So the -- what we call aOS, the agentic operating system. If you remember last quarter, we started to talk about this that we are developing a next-generation platform for GenAI. At the time, we talk about cognitive core, which is part of the overall aOS. And in a simple way, and I want to become an architectural discussion, it's a layer that can sit on top of any BSS/OSS infrastructure and actually can provide with obviously giving our knowledge of this very deep intimate knowledge of this industry, we are building an agenting platform that actually eventually you can operate all the activities through agents. .

We are going to showcase this in Barcelona, meet with many customers. And so today, we are announcing it and the full focus will be roughly a month from now. And we believe this will, in the future, will serve us as a new growth engine for Amdocs. We did not include any significant revenue for this in this current fiscal year, but we believe that from everything that we hear in the industry, this is going to be probably the most, I would say, permanent and strong foundation to leverage GenAI. We are very proud of what we are in the process of building. Regarding Verizon, I cannot comment more that you need to assume that we are engaging with Verizon. We'll see how we can help them in the future.

And our next question comes from the line of George Notter from Wolfe Research.

This is Karen on for George. Could you talk a little bit more about how the telcos are progressing in terms of looking to accelerate and simplify their AI journey? Specifically, can you talk about how the pipeline is progressing and any new opportunities that have popped for you?

I think, overall, and definitely, we talked about this before, we were very active in working with our customer, developing different use cases in the call center, in the retail store or any upsell or care type of scenarios. But this was more, I would say, a different solution to different needs, different use cases. The difference with the aOS is a complete holistic value proposition to address all what we believe the future telecom needs to leverage this technology.

All our customers are obviously are trying successfully in many cases, to leverage this but it's more, I would say, it's like moving from opportunistic to strategic. From different use cases and different capabilities that all our customers are already experiencing both in the IT and the network domain to a much more holistic value proposition that actually will translate converge in the future, the way our customers working to a full agentic way. So this is the difference what from what we've done so far to this [indiscernible] solution. But obviously, it's early days. I mean, most of our customers, as I said, are trying, we do a lot of POC. In many cases, also they are getting some value, but I think this is very, very, very early days in this domain.

[Operator Instructions] Our next question comes from the line of Tal Liani from Bank of America.

This is actually Thomas Zilberman on for Tal. Maybe 2 for me. You mentioned in the prepared remarks that you had a slight beat to your expectations this quarter on revenues and your 2Q guidance was also slightly above the street, but you were consistent in maintaining the fiscal year. Just wanted to ask if this is more about rightsizing when you expect the ramp down of T-Mobile revenues this year, if there's anything else to look there. And my follow-up is as we think about this new multiyear agreement with T-Mobile, can you give us a sense of the progression and the trajectory of the milestones you need to hit to really ramp the revenues there?

So on the first question, it's not anything specific in particular. It's not a customer that caused that. Actually, I'm happy about the fact that we were able to show now faster performance on the revenue to meet the numbers. We talked at the beginning of the year of a stronger half 2 than half 1. But even then, it wasn't like a big difference. So I would say it's a slight change and nothing in particular that I can point out that caused that.

On your second question, it's not a matter of meeting specific deliverable that is singular in nature. What we do for T-Mobile is including many activities. So we are doing the managed services that covers the ongoing IT operations. We are doing development work. Some of it is new project oriented. Some of it is helping them to enhance existing systems. We are going to embed new activities. We are doing the USCellular integration. We are going to work with other rationalization of common systems. So it's many, many things. It's not like a single project that I can point to a specific milestone. So it's mainly a matter of continuing to execute, bring value and push forward to the demand and the desires of T-Mobile.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Smith for any further remarks.

Okay. Thanks, operator, and thanks, everyone, for joining the call tonight. If you do have any additional questions, please give us a call in the IR group here. And with that, have a great evening.

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

[Audio Gap] I cover networking and cybersecurity here at Morgan Stanley. For any research disclosure, see morganstanley.com/researchdisclosures. We're delighted to have Amdocs here with us today. I have Shuky Sheffer, CEO of Amdocs.

Maybe just as an overview, for those of -- who don't know Amdocs, can you just kind of talk about the company, what does Amdocs do? And just kind of what is the role of Amdocs within the telco industry?

Okay. So as you mentioned, we are supporting the telco industry, the large telco companies of the world, our customer, AT&T, T-Mobile, Vodafone and others are 3 our customers. And I think that if you look about the telco environment, there are 2 areas. Obviously, there is the network domain, when you create all the network infrastructure. And there is the IT domain. Amdocs is in the IT domain mainly. And we support, I would say, all the monetization activities of our customers. So if you think about environment of a customer, you are familiar, there is the mobile application and the website in the retail store. And then the commerce engine, all the ordering engines, catalog, obviously, all the billing activities, general ledger, invoicing, AR and then all the touching of the network system from policy system to service fulfillment to rating charging. So we are doing the end-to-end activities that support all the infrastructure, what we call BSS, OSS system. All everything that our customer needs to monetize the network.

Amdocs is unique in, I think, in this domain, 2 different aspects. The first one is -- usually, there is a typical split between product companies like Salesforce, ServiceNow, and there is like the system integrators like Accenture, TCS. Amdocs is unique because we do develop the products. And we are ranked by far, the #1 -- is the #1 product in this industry to support our customer, and we do all the services too. So we are doing both product and services. We are what we call product-led services company. So we have all the products. We implement our products and we operate our products in managed services, which is very different. It create a very unique accountability model because usually, in this very complex environment or projects where something goes wrong, the product guy will say the system integrator doesn't know how to operate the product, the system integrator will say, the product doesn't work. So you can never have a real accountability. In our model, we do both the product on the services, you can get real accountability. So this is, I think, one big differentiator.

And the other one, we are the only one that have all the portfolio. As I mentioned, that there is a list of application that supports and we have end-to-end. Usually in a typical RFP, it will be Amdocs versus a system integrator that try to integrate several platforms to accommodate what -- and we are, I think, by far, the market leader in our domain. If you look at our blue-chip customer in the world, I mean, starting here in the U.K., so 3, Vodafone, British Telecom, everything everywhere, everyone is our customer. And also America, obviously, T-Mobile, AT&T, Bell Canada, Comcast Charter, Rogers, TELUS, in Latin America the large groups are Telefonica and America Movil. In Europe, definitely Vodafone is our largest customer, and we have many, many presence in APAC all over. So I think that we are, by far, the market leader in our domain.

Okay. So I mean in addition to kind of having a unique portfolio and value proposition, you guys have tech lead and kind of outcomes-based business model. Just talk about this and the way it kind of differentiates you versus the competition?

Definitely in the new world of Gen AI. So we -- the majority of our business is we don't have what we call rate card relationship. The vast majority of our business is outcome-based. Rate card relationship is -- if you want to do something, you come to Accenture or TCS or whatever and say, "I want to buy 100 people from you," and then you pay by role, by location. And definitely, in today's world of Gen AI, suddenly, you can do the tasks, not with 100 people for -- and it's a time and material based with 70 people, immediately, it's impact your margin and revenue, et cetera.

Amdocs is selling value proposition, which is outcome-based, meaning if we operate in environment by managed services, we are committed to service level and KPIs. And this is how we monetize. As long as we are meeting this -- so the idea is not, we are not selling people, we are selling value. And the monetization model is outcome-based. As long as meeting and we have a great reputation of meeting the service level, then the whole monetization model is based on outcome-based. And now we can see that mainly all the system integrators are starting to talk in this language of outcome-based, which has been our monetization model for probably from many, many years.

Everybody is coming around to you.

Yes.

All right. Can you just talk about maybe some of the transformation that has taken place in the business over the last year? You've been phasing out some of the lower margin noncore businesses and pivoting more towards AI and cloud and modernization focus initiatives?

So I think that they're definitely main trends that we follow and support in the last year. This phasing out of $600 million of noncore, low-margin business, this is we identify. We are doing some activities that we don't believe are strategic and very low margin and very low visibility. So it makes sense to phase them out. It's one time, and that's it.

But from the main trends that the company is supporting, I think the #1 that is, we are doing for several years, it's become a significant growth engine for us. It's roughly already 30% of the business. It's growing double digit is the journey to the cloud. We actually probably 6 years ago, we decided we want to take the industry to the cloud. And we created a platform for every Amdocs customer to move to the cloud. It doesn't matter if he's doing it in a way of rip-and-replace, pretty much like taking the legacy on-premise system and to do like a full migration to the latest and greatest cloud native system or taking an existing system and actually moving into the cloud version of this specific system.

So we created, obviously, journey for every customer this journey is still -- while we have many, many customers that are doing this journey, it's still early days. If you look at the industry as a whole, the mass majority of the industry is still on-premise. And these are a very complex project. It takes some time, huge migration, a lot of data. But I think that most of our customers already started the journey with us, with eventually move to the cloud or our customers. This is one thing that we created a foundation probably 4 or 5 years ago, and we are deploying it across the world.

The other one is definitely the Gen AI transformation. And here, we see what we call Horizon 1 and Horizon 2. Horizon 1 is we built a foundation called the amAIz. And in this foundation, actually, we help our customer to create what we call different use cases or different agencies or copilot. So -- and in this type of infrastructure, we are leveraging the fact that we are the system of record. We know the data and we understand the domain, in order to help our customers to insert and it could be in the call center, in the retail store, in many -- so to create these agents, agent could support care, agent could support upsell or agent assist or copilot. So this is something that we are doing for a while and quite successfully.

But when you look what we call Horizon 2, we are in the process of actually bringing to market what we call cognitive core. Cognitive Core is a Gen AI layer that we can put over every Amdocs platform. It doesn't matter if it was implemented a year ago or 10 years old. And actually, the whole dialogue with the core system will be done through the agents. This is something we are going to announce next year, first quarter, probably in Mobile Congress in Barcelona, but it's going to completely transform the way our customer is going to talk, operate, enhance their main core system, and this is something that probably we believe it will be another growth engine for Amdocs like the cloud.

Okay. Got it. You've talked about kind of a $60 billion TAM. Just how do you go about increasing your share of that opportunity with existing customers and penetrating new logos? You just listed off a list of very -- the largest customers there are. Talk about kind of recent strong sales momentum across your strategic domains and operating regions?

So I think that -- when we look at our -- obviously, the telecom market is the same market. I mean there are not going to be additional AT&Ts. So our strategy is to -- when we deliver value to customers, is we are constantly increasing our portfolio. So if you look at the portfolio of Amdocs, what used to be 10 years ago, what is today, we expand the portfolio. Some of it is in our current domain, like in what we call more the billing, BSS, monetization, some of them in the network domain. So if you can see, we are expanding and adding more and more products to our portfolio. Now this is one.

On the other hand, we're adding to our service portfolio, which is pretty big. I can give a couple of examples for each. So in the product portfolio, we added the platform around -- from fiber rollout, which is obviously happening all over to e-sim platform to marketplace platform. Today, it's very common that our customers are selling OTTs like Netflix and Amazon Prime and Disney+, et cetera. So we actually came with a platform that enables us to do it very simply. So we are adding platform all the time. So we expand with our customers by adding more and more products.

And the other one is a service portfolio. So for example, cloud migration. This is a competency that we've added, not just for Amdocs system but also for non-Amdocs system. For example, we signed a very large deal with AT&T a year ago. Actually, we are going to take all the mainframe application of AT&T and move them to the cloud over time in a complete managed service environment. So this is, for example, domain within AT&T that we have 0 presence before, and now we are expanding. So expanding in customers in both portfolio of product and services.

The other one is getting new logos. I mean we are getting several new logos every year in addition and also expand geographically in where we can. I mean, we don't operate in China, for example, but definitely in Europe, we are the market leader by far in APAC. And so getting new customers and expanding to new geographies. So between getting new -- expanding within existing customers by adding more portfolio of product and services, getting to new customer and new geographies, we had 0 presence in Japan. Now we are starting to develop presence in Japan. So this is how we expand within our addressable market.

Great. Gen AI, major focus of everybody, but also kind of the telco industry. Why are you well positioned to help here? And where is the momentum? You guys noted a success with kind of a UAE telco. Just how long did it take to implement a solution here? And how quickly were they able to see results?

I think that the differentiation of Amdocs in Gen AI will be based on things that I think help us before. We see -- and by the way, it's pretty common right now to see that if you take a multi-vertical platform, agent force, Salesforce or others. And you try to implement it in a very complex environment like telco, it's not successful because -- and when we build our platform, we understand the taxonomy. We are understanding the ontology. We are the system of record. We create an environment which we call 0 data copy. So we don't need to create additional data environment because we own or we understand the data. We are doing the orchestration. So when we build our solution, by the way, we don't pretend that you can take dissolution to other verticals. But if you take our solution, that I said, understand the ontology, the taxonomy, the orchestration, we understand the data. This solution can be very successful. So when we talk about, for example, our next-generation offering, that we're going to come to the market is what we call Cognitive Core.

What is Cognitive Core? It's a layer -- by the way, we're still looking for the name for this. But you are going to put this layer on top of every Amdocs platform. It doesn't matter if it's something that was implemented 5 years ago or 1 year ago. And the whole dialogue and interaction with the core system, with the system of record, we've done through agents.

Now you can say there are other platforms there that pretend to do the same, but in reality, it doesn't work. And the fact that the platform that we build and understand, as I said, understand the domain, understand how it works, all the connection, understand the data, you don't need to copy the data, help us to do this much more effectively and successfully. And we are going to announce in first quarter, as I mentioned, this new product, and actually, and the reason we believe is it's going to be successful because we understand the domain. So this differentiation, understanding the data on the orchestration help us a lot to do it in the right way. So the future is that everything will be done through agents on top of this Cognitive Core layer.

All the -- so if you want to -- I will give some tangible example, there's going to be a marketing agent. Today, when you want to come, for example, before Black Friday or iPhone launch and creating new offering to the market to certain population segment, you want to do something for students under 25 that are likely to do -- to upgrade their device and you want to plan device financing. So the marketing is dreaming about this offering and then we need to meet with the IT, and it takes a lot of time. You need to implement and to test it. You need to think that in the future, it's going to be an agent, it will talk to other agents that will say, okay, this is the new offering that we want to do. And the other agents, we implement this in the catalog and all the system to make it work. So this is the next generation of way that we believe we will operate. And I think that coming from really deep understanding of the domain, help us to do it successfully comparing to other options, which are more like general purpose type of engines that you find it very difficult to operate in the telco environment.

Okay. Cognitive Core in the terms of AI names, it's pretty good. There's some pretty bad ones out there. So all right. So we've often seen telcos as kind of laggards and technology adoption. You noted a lot are still on-premise. Many of them are still heavily reliant on internal IT. Just how are you seeing that change? And how do we see them start to catch up by relying more on partners like Amdocs?

I think that we have done a pretty good job in expanding. We do obviously, work with our IT partners. On the other hand, our partners. On the other hand, our biggest competitor is IT. I mean if you ask me what is the biggest competitor of Amdocs, it's not Salesforce, it's not Netcracker, it's not Oracle, it's the internal IT. But I think that there is a way of coexistence in a way that Amdocs is bringing all the -- and another way, we are spending hundreds of million dollar every year in technology. We are enjoying the fact that we see innovation from APAC and from Europe. So if you look our products actually represent all the trends that we see around the world.

And we continue to invest in R&D. So we are -- I think we are better positioned to come all the time with better tooling capabilities. And I think that in a way, the move to agent environment help us because then we can obviously collaborate with the IT in a way they say, okay, we are going to build this environment and the IT, you can build on top of it, any agent you would dream of to get the value from our core system. And so I think -- I mean it was always there. It was always tension between our partners and competitors. But I think that the more everything is based on IP and technology, I think this is what we do. I think it's positioning us better.

Okay. You've had a strong relationship over time with Microsoft and some of the other clouds. Just how are those relationships evolving? And how do you see those partnerships as tailwinds to the business?

For the most part, it's a partnership. It's not a competition. And obviously, we -- our platform are cloud native. So you can run any type of Azure on AWS, on GCP. I think that in Microsoft collaboration was a bit different because beyond the -- obviously, leveraging the cloud infrastructure. In Microsoft, we expanded it also to come with what we call the customer experience layer, that it's more using their platform beyond just the cloud infrastructure. And we are using their infrastructure, obviously, a very strong relationship with AWS, with Microsoft, deploying this across the world. All the -- we have a lot of activities of cloud migration. Even for non-Amdocs definitely, it includes partnership with these guys.

As I said, for the most part, it's partnership and not -- there are some areas there of overlap that we compete. For the most part, it's a great partnership. But we have an ecosystem. Our biggest partner today, by far in Gen AI is NVIDIA. I mean, we're working very closely with NVIDIA, when we develop our platform and they are our biggest partner in this domain. But there is an ecosystem of obviously, this part of what we do today of coming with the right solution to our customers.

Got it. You've always had this mix of project base versus kind of recurring managed services revenue. Just how do you see that mix evolving within the business? And just how does that change the visibility you have?

I mean if you look at the fundamentals of the company, and this is the fact that I think -- when we ask the Sky Amdocs, so I forgot to mention that we are dealing with mission-critical systems. Even if you look at stress tests, like I don't know, COVID or financial crisis in 2009, you cannot stop Amdocs, what we do. I mean this is the lifeline of the companies that -- of our customer.

So back to your question, I think that over time, the monetization model of Amdocs, if you look at 65% of our revenue is managed services, 75% of our revenue is recurring. We have 90% visibility within our 12 months backlog, which is pretty nice. I think that we'll see probably over time, more like more subscription-like models that will evolve over time. But the fundamentals of the company that the majority of the revenue of the company is recurring and very large full-managed services like [indiscernible] that are not going to change. I think we'll see more like a subscription model type of monetization model in the future.

Got it. You noted some pressure on the business heading into fiscal '26 with kind of headwinds from T-Mobile. Just what are some of the trends with your largest customers? And just how does macro tend to influence the business?

I think that we see the same macro impact like anyone else, I think, a little bit longer sales cycle. Everyone is -- now Gen AI is a little bit mixing everything. And I mean, we have a long-term relationship with all our biggest customers, very proud from AT&T to T-Mobile to Bell. To all the big, we have very long, I would say, relationship. We are supporting most of them or not all of them in full managed services, long-term agreements. I mean we have a cycle within customer. Customers have different priorities. It's not new. We used to have it in AT&T. Now we mentioned a little bit about T-Mobile. But over time, I think things are -- it's up and down. But I think we are strategic partners for all our big customers. We are supporting the core business for many years, and we enjoy a very strong relationship with all of them.

Got it. And then I'll end with some more CFO questions, I ask you to put your CFO hat on. You've seen improving margins over the last year. Just how has AI helped with that? And just how are you kind of sustaining some of that margin expansion potential while investing in Cognitive Core and -- yes.

At the end of the day, we are an engineering company. So when we look about Gen AI, there is the internal stuff and there is the external. So far, I talked mainly about the external. What will be our offering in the future that we are going to give our customer, Cognitive Core, different use cases, copilots, agent assist, all of this, I think the Cognitive Core is what we call the Horizon 2 of our offering. It's much bigger in scale and it can grow to be over time a growth engine to Amdocs like the cloud. But this is our -- what we offer our customer. Definitely, Amdocs is growing right now through internal transformation of Gen AI as we have engineering and R&D company. So we are implementing Gen AI in everything we do. It's everything around the software development life cycle in the way we do R&D, the way we test and the way we document. So we are leveraging across the board in marketing, in legal, in HR all over.

So today, we are implementing engine that doing the best risk allocation for employees based on location, skill, whatever. So this is definitely -- and it means eventually that we do more with less people. And over time, we believe that implementation of Gen AI, which is strategic for the company. Internally, it will help us to expand our margin. Now this year '26, we said that we are going to double down and invest more in AI capabilities, Cognitive Core. It's not just in R&D, in sales, marketing, everything, all the ecosystem that support it. But still, we are able to expand margin by 20 basis points because we are getting all the time and, I would say, a lot of value from doing things much faster and better and cheaper, using this technology, and we assume this will continue even maybe accelerate in the future. So we see a future that we continue to expand our margin over time. Obviously, we share with our customer. Some of it, but also, I think we can continue to expand our margin.

Great. Well, Shuky, it was great having you here today and telling us more about Amdocs.

Thank you.

All right. I think we're out set here. So I'm Richard Cohen. I'm the Wells Fargo software team. Today, I'm delighted to have with me, Anthony Goonetilleke.

Very good.

Practice. Group President, Technology and Head of Strategy at Amdocs. So thank you for coming here today. Appreciate you.

Thank you for having me.

Yes. And so I guess maybe a good place to start just in terms of level setting the conversation. Talk to me a little bit about Amdocs, the story, just kind of what does this company do? And what problems do they solve?

Yes. So we are a company very focused on customer experience and very focused on the vertical of telecommunications. So we've been there for quite a while. We provide a set of products and platforms that really sit at the core of telecommunications. And we don't do hardware. So it's purely software, all the way from soup to nuts. And we really focus on taking the complex and simplifying it, right?

So I always joke around and say, if you're Zappos, it's a cool job. You just have to pick a shoe, get the shoe size and get it delivered. If you're a phone company, it's like you need a phone number, you need to transfer your phone number to the device, you need a handset. You need to add it to a family plan. You need to make sure there's promotions, there's discounts that get applied. Is it a yearly contract? Is it -- there's so much complexity that goes into the back end. But we try and really abstract all of that and really provide a seamless customer experience to the user.

Great. And so I think a good pivot point from that is just in terms of the business model, I think Amdocs has a pretty unique business model in terms of the software and services combination. Can you tell me a little bit about that business model?

Yes, sure. Sure. So we have -- obviously, we have very strong recurring software revenue model. Our customers are Tier 1 customers, right? Like these are not companies that are in and out these -- I can mention any one of their names, and you would know them. They are the top-tier customers in any country. And so we build products and software, and we invest in R&D. And then we also take accountability to implement them.

So one of our philosophies is you get a product company, they throw the product over the fence and then you get a services company that gets it and they're trying to implement it and then there's a problem in the project and they're pointing fingers at each other. We like to take accountability to not just give you the products, but also implement it, make sure you hit your business outcomes and your KPIs.

And so we feel that, that accountability model is very unique, and that's something that our customers appreciate because at the end of the day, we're there for the long term. We have long-term contracts with our customers. We don't necessarily lose customers, right? And it's not like an industry of 50,000 customers. It's a fixed set of customers. And so we want to make sure we're delivering value, but they're not just buying software from us, they're buying value from us in terms of what are their business outcomes are.

That's great. And I guess with kind of that vertical focus, I'm curious, when you go out there and look at the telecommunications providers that aren't using Amdocs, what's the alternative?

Yes. The alternative is, I would say, a mixture of like 17 different things. So for example, some house maybe in-house, then you may get this company, that company, try and like stick it together with duct tape and glue and kind of hopefully that you will work. We spend a lot of money investing in research, investing in R&D, trying to bring like the best of what others do to the telecommunications industry, also understanding that at the end of the day, our industry is mission-critical, right?

I always make the joke that if -- obviously, we know about all of the Internet issues from today, right, with the Cloudflare stuff. But like your Gmail is down or WhatsApp is down, you'd be like, oh, WhatsApp is down. But if your phone service is down for 4 hours, I mean, people's lives are at stake, right? So when you're building software for the industry, you need to take like that responsibility is very, very high to provide a very high-level mission-critical carrier-grade level of software that delivers value.

So I think when we build software and when we think about it, all of these things kind of go into it, and that ties back to your initial question of the accountability model, why we think it's very important.

Yes. That's great. When we think about, I guess, if we were to bifurcate the business, there are 2 customers that make up a big chunk of the business. I think it's around 50% of the business. And then there's a lot of customers that make up the other half. When we think about, I guess, the growth drivers or the differences between those 2 types of customers, I guess, first, what are the differences in the growth drivers? And then second is, does that change over time? Do those smaller customers -- can they look a lot more similar to those larger customers?

Yes. And that's always the goal, right? Like when we come in, we might come in and a customer might choose to buy a single product or multiple products. And we always want to add value. And because we have a wide portfolio, we always have an opportunity to sell more and increase our footprint, right? So if you look at customers like we have PLDT in the Philippines, right, and we have Globe in the Philippines that just started off small and kind of started to grow as they got value from us and bought more from us.

So even though I would say, look, I mean, you talk about kind of this bifurcated couple of customers, but together, they're like revenue of $200 billion. So they're not small in a way, right? And we've been with them for the long term. We've had -- obviously, we've been loyal to them. They've been loyal to us and the business has grown over time. And we feel like also there are many other opportunities around the world. Just this last quarter, we announced some deals with PLDT, with BT.

These are customers that are very strong in their country, in their region. Brazil, for example, growing economy, growing customers. Japan, we had some announcements in the last couple of quarters. So we feel like definitely, like if you look at our top 12 customers, about 50% of them are coming from outside of North America, right? So that is obviously the goal, and we think that's an opportunity for us to expand and grow clearly.

Great. Okay. And so if we switch gears a little bit and talk about just the overall growth drivers of the business. One of them is cloud. I'm curious, cloud, I think it's 30% of the business, growing double digits. How should we think about how you guys define what a cloud customer is? And let's start there, and then I'll have a follow-up on that.

Yes. So if you think of telecommunications companies in general, they were the kings of data centers, right? Because they -- back to what I said before, they were running mission-critical stuff. No one else could run it for them. So they had their own data centers on-premise and they used to run software in them. Fast forward 2025, there is a bifurcated approach of moving some of these workloads to the cloud.

So we have very strategic partnerships with AWS, with Azure, with GCP, and we help our customers move these workloads to the cloud on a couple of different ways. One way is migrating to our new stack, which is cloud native, cloud-enabled, which runs on public cloud. So this is one way to do it. Another way is if you have legacy stuff, we think of -- we call it refactoring technologically, right, because maybe you don't want to put a huge investment in it, but you want to move it to the cloud.

So there's multiple different ways that you can take these workloads from on-prem and then migrate it to a public cloud. And so this is where kind of the growth and the revenue comes from. And we're still -- I would say, we're still maybe in the -- towards the end of the first quarter to use a football term in terms of the migration to the cloud. So I think that's still a multiyear journey.

And right now, the focus is on IT workloads, but we also have network workloads, which is an opportunity. So I think this is just a multiyear journey, which we've done some very interesting acquisitions like a company called Astadia, which helps migrate and modernize mainframe systems to the cloud. And so we think this will be a good growth pillar on an ongoing basis for the company, both from a product perspective and also our services perspective.

All right. You stole my second question. It was going to be what inning of cloud are we in? But that's great. And so I guess like kind of the second addendum to that is similar to cloud, your earlier stages on the curve with AI. So AI has been a big focus for the company lately. I guess let's start on the product side. Tell me a little bit about amAIz that's kind of live now, and you have some new things coming next year. So talk to me a little bit about the product side.

Yes. We kind of split it into Horizon 1, Horizon 2, Shuky, our CEO, very, very early on, I think it was like almost like a month after kind of OpenAI publicly launched a couple of years ago, we said, look, like we are doubling, tripling down, and we want to be the leaders in the telecommunications space. And we never look back. And some of that includes disrupting some of what we do internally ourselves, right? But it's better for us to do it than anyone else.

So it's clearly an opportunity for us. Some of the results we see, so we've been running more than a dozen POCs around the world. And I've been in technology for 20 years. I have never seen technological results like this. We created a partnership with NVIDIA. So we're working with the Agentic framework to include it in our amAIz platform.

And in Horizon 1, some of the results we saw, just give you a few examples. So if you take a call center, telecommunications providers have some of the biggest call centers in the world, right, probably next to financial services. And they generally measure 3 key KPIs. So the first one is called average handling time, meaning how long am I on the phone when I call, right? The second one is called first call resolution. Do I resolve your problem the first time you call me? And the third one is around what we call TNPS, or Transactional Net Promoter Score. Basically, it means are you happy with the service I provided you? Yes or no, would you recommend me to anyone else? All the KPIs boil down to kind of these 3.

Generally, a technological project or transformation gives you like maybe a 7% uplift on a good day, a 10% uplift. Like we are seeing 40%, 50% uplift on all 3 KPIs. And now we're starting to see in the last 2 quarters, customers going from proof of concept to go to production. So we think there is definitely something there. Obviously, we don't play in the BPO space or the labor arbitrage. So we are good with bringing technology that really adds value and moves the company forward. So this is really an opportunity for us.

And as we look towards Horizon 2, we believe there is an even bigger opportunity to help our customers kind of use their systems of record and then put what we call our cognitive core to modernize their transformation and go faster. So think about recognizing revenue faster, launching new products faster by using generative AI. And because we have this -- so we've built like a very deep taxonomy in the telecommunications space and in [ ontology. ] So these are things that are very verticalized in terms of generative AI.

So today, a lot of people talk about horizontal capabilities, which are good and nice. But when you're delivering results and value to an industry, you want to be very verticalized and understand what you do, right? So it's not just good enough for you to take an order, but you need to know that you can provision it, you can deliver it, that the number that you use is the number that you're going to get. So all of those things are being taken into account.

And so we are very bullish when it comes to generative AI. We think it's an opportunity for us. There's really no downside. And especially the strategic partnerships that we have with NVIDIA really kind of helps propel us in that space.

That's great. So when we think about -- kind of you mentioned some of the ROI that customers are seeing with some of these pilots. And so when we think about how that translates to your revenue, how should we think about the uplift from a customer that's now starting to use a lot of the AI technology that you're providing?

Yes. Look, I think as we go into 2026, this is the first time we're seeing some of these opportunities go from proof of concepts to production, right? So this is when we're just starting to see kind of some of the early Horizon 1 revenue start to hit. But we really think that customers are going to buy differently in the future, right? So it's not about saying, well, I used to buy this, I'm going to continue to buy that and then just buy a little sprinkled Gen AI on top, right?

No, the customers' behavior is going to change, right? I am going to have a workforce with several capabilities that are being delivered by agentic capabilities, not just my labor. So when they're buying from us, now they're thinking differently and buying differently. I was just talking to -- with a customer this morning around the network space. That's another big one for us. There's so much data there, right? Service assurance where you can be just proactive. And a lot of this work was done by labor, done by BPO and outsourced work and things like that.

And we think that should start to impact, obviously, our revenue starting '26. We're already starting to see some early signs of this revenue. But for us, it's all an upside, right? Because the core system business in terms of transformation will continue to be there. This is a system of record. It's not going to disappear. Generative AI is not going to replace the customer. The customer is the customer. But then you have these capabilities of being able to deliver things faster, better and also do that labor arbitrage for where you were using 10,000 people, maybe you only need 3,000, right? I know it's probably not a popular term these days, but it's happening, right? And people are going to be retooled and looking at different ways of doing things.

Yes. No, that brings up an interesting question, which is internally, I think a lot of the margin efficiency has been kind of utilizing AI internally. So what kind of things are you guys doing internally on the AI front? How have you seen that impact your own cost structure? And how does that kind of inform how you go to market with your own products?

Yes. I'll give you an example. We have a platform called connectX, which we launched in record time. We have about 15, 16 logos on it. It was kind of almost built Gen AI native, right? So it's smaller teams, it's faster to market. When it comes to our core bigger systems, we're delivering more value. There's a -- I don't want to get too technical, but there's a term called PIs, which essentially these are like project increments, which are releases we bring in and functionality we bring in, we're doing that faster, better.

And obviously, that has an impact in terms of how we can deliver stuff, right? So we are early, right? It's not about just dipping our toes in. I think about 70-odd percent of our employee base is trained in one shape or another, and that will only continue to increase. I think there will also be a bunch of people that won't make the cut, right? And we're starting to see that, and I know it's a tough message, but there will be the ones that do and the ones that don't.

But when it comes to software development, we are A to Z from all the way from design to build, to test, to delivery, to operations, we think generative AI is going to have an ongoing impact. We just saw Gemini launch today. The results are phenomenal, right? And we -- there's many great platforms out there like Cursor and things like that, that we embrace. But people do also forget that there is 2 types of software at the end of the day.

If I go like to a 40,000-foot macro view, there is what we call deterministic and nondeterministic, right? The deterministic software still has a place, like enterprise carrier-grade, mission-critical systems. When you call 911, you want to make sure that, that call is being made, right? You don't want to best effort. So there are still a place for deterministic software and nondeterministic software as well.

And how -- I guess, on that front, I'm curious, like I think there's been a lot of conversation around the limits of what the current state of generative AI can do in certain pieces. And so I'm curious like when you guys were thinking about productizing this, what did you find was working really well?

And you talked a little bit about the data advantage that you guys have. You guys have a lot of access to the telecommunications data that kind of runs through your own system. So I guess the combination of a couple of things, how does that data shape some of the products? And how does kind of the limitations you've seen so far, the things that it's really good at and things that it's not so good at inform also the product?

Yes. I'll start maybe from the end. Look, I think you can't have generative AI without data and vice versa, right? So I think the fact that we are the systems of record that we know -- for example, there's a term in telecommunications called ETF or early termination fees for different -- if you terminate a bundle or an offering or whatever, right? We know that there are 230 database entities that impact early termination fees, right?

So we can program this in and we can educate the system, right, tell our agent that any of these change, it will have an impact on proration. So you're smarter, you're focused, you're not guessing, right? So this is like a very simple way to kind of explain how the data connects to the logic of, at the end of the day, kind of what you deliver.

In terms of limits and what we found, look, I think the most amazing thing, and I don't think this is a surprise to anyone, is really the transition between kind of NLP, natural language processing, to technology, right? The fact that someone can go there and just type something in, in their own way, and it will translate. And by the way, we're doing it in -- we have agents running in Arabic. We have agents running in Spanish, and it translates across languages very, very well.

So we think that is kind of one of the massive, massive advantages. I wouldn't necessarily say, look, there's a limit. Things are changing every week and every month. I think obviously, we are living in the golden age of speed at the moment. I think every week, I pride myself that I wake up and try to read for an hour, 1.5 hours every day to catch up. And even that's not enough anymore, right? Like there's so much going on.

And so I think it would be unfair for me to say, hey, like here is the limit. I don't think anyone knows what that limit is. I think we're just going to get more and more value that's being extracted from it. And we will learn how to use it. We will learn how to have deterministic software, nondeterministic software. The models will mature more and more. I think we're in for a fun ride for the next 5 years. And I think if I think about what we believe we can do and how we can help our customers, it's really an opportunity for us. I mean there's no real downside.

Yes. That's helpful. So I'm curious, when we think about the underlying technology stack, you kind of messaged next year is a bit of an investment year on the AI front. And I'm curious like how do you balance like, oh, I'm going to use XYZ models off the shelf versus we're going to fine-tune a lot of these. And so how do you just kind of walk me through the under-the-hood technology stack?

Yes, yes. Look, I mean, we're still increasing our margins by 20 basis points, right? So we're not decreasing it, which kind of, without going into details, tells you that, yes, we're using some money for investments and stuff, but we still continue to return stuff, right? Last year, we also increased -- returned a big chunk from a margin perspective. So we -- as a company, we understand our investors also appreciate kind of the return of -- back to the shareholders, right? So we hold our margins from that perspective.

I think we also continue to invest. So we invest hundreds of millions of dollars in R&D every year, and we'll continue to invest it. Remember, we also can rearrange where we're investing in, right? So 5 years ago, if the biggest thing was around network automation, we'll go, okay, so now we'll take some of that spend and put it on this agentic models, so we will accelerate them because that can be a growth engine. So while those other engines are still functioning, maybe they don't need as much money.

And the second point to this is as kind of head of R&D and engineering, what I can get from $10 today is much more than I could have got from $10 3 years ago, right? So that's why I think that -- I think we have a good balance. And look, at the end of the day, I'm sure all our investors would love our top line to continue growing and us to have these growth engines for future years. But it's also something our customers require from us, right?

Our customers come to us, not -- we're not just a general FI that says, hey, tell me what to build and I'll go build it for you. Like we're coming to them going, hey, like, here's what we've done to this model. Here's how we're working with it. Here are several network agents you can use. So we are bringing technology and R&D to the table that they can incorporate into their ecosystem. And I think that's why customers choose us at the end of the day rather than just this a la carte menu and going, hey, sir, tell me what you want me to build and I'll go build it for you.

Yes. That's great. And you mentioned it a little bit earlier, but just kind of as it comes to the NVIDIA partnership, can you talk a little bit about the partnerships you have with some of the others in the technology...

Yes. Yes. Look, I think we have 4 key strategic partnerships, right? So it's NVIDIA, AWS, Microsoft and GCP. Of course, there are many others. But those are, I would say, the big, big 4. And really, they're valuable for multiple different aspects. Our customers are large customers. They're not small companies. And so yes, we may have a say on whether they go to AWS or whether they go to Azure. But -- also, they're very bifurcated sometimes in who they choose as a web scale provider. So they may say, hey, my core systems might be on AWS, my data might be on GCP. And you'll start to see more and more of that, I think, going into the future, right?

In the same way you see large language models, where else before we may have had OpenAI only on Azure, whatever. I think I read this morning about the Anthropic Azure announcement and stuff like that. So you're going to see this kind of coexistent bifurcation. But these strategic partnerships are just as important to the web scalers as they are to us because at the end of the day, telcos have huge workloads that need to be migrated to the public cloud.

So our systems run cloud natively on AWS. It's fantastic for AWS because they have an opportunity to take this compute workload and move it to the cloud. So in the same way that we want to have a partnership with them, they also want to have a partnership with us, and there's a very close relationship. We work very closely with them in both kind of migration projects, but also investment into kind of future road map items.

So with NVIDIA, we've worked since day 1 on what their NIMS infrastructure, kind of their microservices agentic infrastructure. And we couple ours very closely. Our R&D developers sit together, for example. And so when we come to the table, we can even help prioritize some of our customer requests to what they can deliver. I think the NVIDIA guys were telling me the stuff we've rolled out in one of our customers in the Middle East was one of the first time actual Agentic capabilities have been rolled out to customer care. And it's real, it's live and it's delivering real value in production.

And there's a lot of hand waving today, a lot of slides and PowerPoint saying you can do this, that. But when you actually see it and you go, wow, like your NPS just went up, it's pretty cool. It's very, very satisfying as a technologist to see this kind of -- the results come to life.

Yes. And ROI has been an interesting thing to measure with AI. And so it seems like you guys have a pretty defined I guess...

Come with [ to ] me, I could show you the ROI.

So do customers -- like are they -- you mentioned a little bit about the monetization element. But I also think one thing that's interesting is kind of the pricing model that you guys have. You guys have priced on outcomes, right? I feel like that's novel to a lot of other software players. So I'm curious, what informed that in the first place? And how do you think that helps you today?

Yes. I love that question because usually, I'm trying to educate someone asking the question about that. We've always worked on a kind of an outcome-based model from the perspective of we want to add value to our customers, right? So we're looking at business KPIs. We're looking at business milestones, making sure the software goes versus, hey, you have like 5,000 people, let me charge you 5,000 seats or you want 100 people, let me charge you. We don't have that type of model, right?

So our model is always we develop products and software. We are after a targeted outcome. We want to achieve your business KPIs and your business results. So when people start talking about outcome-based monetization models in Gen AI, we're like, okay, that's great. This is what we do. So again, it's not a huge disruption for us. And we're like, where do you sign up? Right? What I will tell you, though, as an industry as a whole, I think people are still trying to figure out what that monetization model is. It's not like anyone has come out and say, hey, this is the -- like first, we thought it was based on tokens, Microsoft has the PTU model. So everyone is trying to figure out exactly what that is, right?

And I think we still have a bit of where, but we're looking at it with a few different customers like how do you charge for an agent that adds value and reduces 40% of your workforce, right, versus buying a technology that does it versus having a managed services contract that does it. So the good thing is we have long-term service agreements and contracts. And so we have the ability to kind of test the waters and see.

But I think in the next 6 to 12 months, there'll be some equilibrium in terms of some monetization model coming out. But it will always be tied, I think, to some level of outcome because at the end of the day, every CFO out there is like, hey, it's great that you're buying 100 GPUs, like show me what the ROI is for this, right?

Yes. If you figure it out, let me know because that's one topic that has obviously debate across both software and services. I think you mentioned BPO and you're not them, right?

Definitely.

Now I guess from an economic standpoint, I could imagine that there's probably some friction on that type of model when we talk about outcome-based pricing versus billable hours, especially if I'm using AI internally to deliver some of these solutions, I can imagine the economics are good. So do you think it's the kind of thing where if we look 3 to 5 years out, it's going to benefit the margin profile much more than we could kind of really comprehend right now?

Yes. Look, I think definitely, when you kind of look at the longer term, right, and look at where things are going, on one hand, today, you may have 10,000 people running a call center and then you're paying for the 10,000 people, then you're buying 10,000 seats from another provider to pay for the software for the 10,000 people, right? This model is going to be disrupted, right? Because the moment you drop these 10,000 people to, let's say, 3,500, you're also reducing the seats. And that 6,500 that you're not spending for, maybe use 40% of that to buy the software that provides better value, better results and a seamless customer experience. So that model is definitely going to be disrupted.

And ideally, we would love to be the people that disrupt that model. And I think when you think from a longer-term perspective, when you're a technology provider, obviously, it should have more of a positive impact on your margin profile. Now whether you decide to invest it to grow top line and get faster growth and what you decide to do is a whole kind of another discussion. But definitely, you should see benefits from software development optimization, from software rollout optimization. And when you're a product company, definitely, you're in this space.

Yes. So we talked a lot about cloud, a lot about AI. Some of the other, I guess, product advancements, eSIM is one, big eSIM and AT&T deal last quarter. Talk to me a little bit about what's exciting about that and when you think about just kind of how that could evolve?

Yes. This is something I think we don't get enough credit for. Like we have a bunch of SaaS platforms in the company, our eSIM platform, our connectX platform, our MarketONE platform, really, that is doing really well. Now obviously, they're not massive material that it impacts the company from a huge way. But these have a ramp-up and they have an increase, right? And so you take eSIM where Apple is now starting to roll out in the U.S., you can't buy an iPhone with a physical SIM card. Internationally, you still can, right?

But as this started to change, we have over 30 customers on our eSIM platform today, right? So you start to see the network effects start to play. I mentioned connectX, which is a SaaS platform, we see a world where you have the Kardashians in L.A., you have [indiscernible], right? Think of influencers launching their own MVNO platform, right? Why not, right? Because if Taylor Swift launched her own mobile platform on Monday, I guarantee you she's going to have 6 million subs on Monday morning, right?

And so the connectX platform allows you to launch an MVNO literally in hours, right? We give you a login name and a password. You can go in there, fully Gen AI native. You can say, hey, I want to launch a brand that is Gen Z native, that targets these types of things, put in all of the information. It will create the app for you, it will create the framework for you and you'll be able to launch it. Obviously, you need a partnership with an AT&T or T-Mobile or Verizon or whoever you have the network connection, but will enable you to just launch it fast.

And so we feel like these are expansion areas for us potentially to get into spaces that are not necessarily core telecommunications revenue either, right? So you could have a celebrity that wants to launch. We're talking to many people at the moment that are really interested in launching it. And it's interesting talking to some of the celebrities and kind of influencers. They also want to curate their brand and curate their ecosystem, and they see connectivity as being a red thread maybe that glues these things together. So that's a very exciting opportunity for us together with eSIM.

And the MarketONE platform is another way for our service providers to sell digital products and services. We've gone from like everyone had one cable box to today, how many subscriptions do you have?

Too many.

Too many, right? And right -- so MarketOne is a place where -- it's like one place, you see all your subscriptions, you can buy it, remove it, add it and you kind of -- it's back to having a holistic view of the world. And this platform is going well. We have several million subscribers on the platform now. So these are small things we've invested on the side, but they have a good growth trajectory that we're very excited about for the future.

Awesome. Well, that's probably a good place to wrap it up. So Anthony, thank you for your time today...

Thank you for having me. Great to be here.

[indiscernible]

Thank you.

Alright.

Thank you for standing by, and welcome to the Amdocs Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Matt Smith, Head of Investor Relations. Please go ahead, sir.

Thanks, operator. Before we begin, I need to call your attention to our disclaimer statement on Slide 2 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's 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 you can find on the Investor Relations section of our website. And as always, a copy of today's prepared remarks will be posted immediately following the conclusion of this call.

On today's agenda, Shuky will recap our business and financial achievements for the fourth quarter and full fiscal year 2025, and we'll update you on our strategic progress, including our continued sales momentum in cloud and recent commercial developments in generative AI and data services. Shuky will finish by previewing our financial outlook for the full fiscal year 2026, after which Tamar will provide additional details on our Q4 financial performance and our forward guidance.

As we communicated previously, Shuky and Tamar will compare certain financial metrics on a pro forma basis, which adjusts prior fiscal year 2024 revenue by about $600 million to reflect the phaseout of certain low-margin noncore business activities, which was substantially already ceased in the first quarter of fiscal 2025.

And with that, I'll turn it over to Shuky.

Thank you, Matt, and everyone joining us on the call today. Starting on Slide 6. I want to express my sincere appreciation to our global team as we close out another year of important progress. Your dedication and commitment have driven solid financial results, consistent with our guidance, and you did it while executing our strategy to support our telco customers with cutting-edge cloud, digital and AI-based solutions.

To briefly recap fiscal 2025, revenue grew up by 3.1% in a pro forma constant currency, which adjusts for our decision a year ago to phase out certain low-margin noncore business activities to sharpen Amdocs' strategic focus while also resulting in a stronger business visibility.

Among the many highlights, we delivered double-digit growth in cloud, which contributes over 30% of total revenue this year. Share of revenue for long-term managed services reached a record 66%, further supporting Amdocs's already strong business resilience. Profitability improved by 300 basis points, including 60 basis points from ongoing business transformation and efficiency gains. And we maintain our commitment to technology, innovation and product leadership, tailoring our investments to serve our customer key business imperative.

These include B2B modernization, next-gen monetization, fiber networks and of course, generative AI, where this year, I'm proud to say we made a successful transition from proof-of-concept trials to winning actual generative AI-related deals. Overall, we delivered non-GAAP diluted earnings per share growth of 8.5% in fiscal 2025 and achieved our target to deliver double-digit expected total shareholder return, including our dividend yield.

Now let's take a close look at our fourth quarter performance, beginning with the financial on Slide 7. Revenue of $1.15 billion was above the midpoint of guidance and up 2.8% from a year ago in pro forma constant currency. Profitability improved by 20 basis points sequentially. Non-GAAP diluted earnings per share was $1.83, slightly above the guidance midpoint, and we finished the quarter with 12-month backlog of $4.19 billion, up $40 million sequentially and 3.2% from a year ago.

Growth in 12 months backlog was driven by strong sales momentum this quarter, contribute to our overall long-term book of business. As Slide 8 shows, pipeline to deal conversion was well balanced across our key operating regions and strategic domains, showcasing Amdocs' proven ability to scale our customer activities by continuously delivering fresh innovation over time.

In cloud, we signed a multiyear managed services SaaS agreement with AT&T to deliver entitlement server capabilities via our eSIM cloud platform, and we won new cloud modernization and migration awards at Lumen Technologies in the U.S. and TELUS in Canada. We expected our recent momentum in generative AI domain with -- we extended our recent momentum in generative AI domain with an exciting new award at Telefonica Germany, and we expanded our international footprint with new monetization and digital modernization awards at BT-EE in the U.K., Altice SFR in France, Telia in Finland, KT in South Korea and Claro Brazil.

Several deals this quarter were struck among under long-term managed services agreements, further deepening our customer relationship. This includes an exciting landmark multiyear strategic agreement with PLDT in the Philippines, which expands our long-term-standing managed service engagement to accelerate its IT modernization and streamline business processes through AI and generative AI capabilities. Rounding on operational highlights, Amdocs is engaged in the execution of complex mission-critical transformation projects, closely working with our customers as key partners.

Q4 was another quarter of consistent execution in which we achieved important project milestone at AT&T, Comcast, Bell Canada, BT Everything Everywhere, Vodafone and Vodafone 3, PLDT and e& UAE. I'm also proud to say that Amdocs ensured smooth customer operation during the high-volume launch on Apple's iPhone 17 in September.

Now turning to Slide 9. I would like to provide some additional color with respect to our growth strategy, which is designed to deliver the [indiscernible] product and services our customer needs to, accelerate the journey to the cloud, maximize the value of generative AI and data across our customer footprint, digitalize customer experiences for consumer and B2B, monetize next-generation network investments and streamline and automate complex network ecosystems.

Beginning with cloud on Slide 10. Demand for our cloud-native solution and proven ability to accelerate public, private and hybrid cloud migration remains strong as we continue our strategy of moving mission-critical system, workloads and applications that enable innovation, agility and cost savings for all our customers.

In the U.S., Lumen Technologies selected Amdocs to support its cloud transformation, moving mission-critical BSS application to Google Cloud to strengthen its digital foundation. TELUS in Canada expanded its multiyear managed service agreement with Amdocs to migrate on-premise wireless monetization operation to Google Cloud, enabling the faster launch of new consumer and enterprise offerings, improve customer experience and reliability and reduce operational costs. And Bell Canada, in collaboration with Amdocs is migrating existing system to the cloud to enhance scalability, resiliency and achieve operational efficiencies.

Our SaaS-based platforms, including Amdocs eSIM, Amdocs Market One and Amdocs ConnectX are also contributing to growth with rising customer adoption. To provide a few examples, we signed a multiyear managed services SaaS agreement with AT&T to deliver entitlement server capabilities via our eSIM cloud platform. This continued to expand our eSIM SaaS platform momentum, adding over 100 million devices to it. Additionally, Amdocs ConnectX has already more than 15 customers, including consumer cellular and PLDT, who are deploying the generative AI native platform to quickly launch existing new digital brands.

Adding to the list, I'm pleased to announce that Orange Belgium has selected Amdocs to lead key modernization initiative on their prepaid stack, leveraging our ConnectX platform. This project includes real-time charging and next-generation scalable architecture designed to support their needs. It will drive efficiency while transforming the user experiences with modern digital-first journeys that will redefine engagement for Orange Belgium prepaid subscribers.

Looking forward, cloud will remain a primary focus for Amdocs, as we continue to support our global telco customer base, many of which are only just getting started on their multiyear cloud journeys.

Now let's talk about generative AI and data on Slide 11. Following the generative AI-related deals we recently announced with e& UAE, Altice Optimum and Consumer Cellular, I'm excited to report that Telefonica Germany, one of the country's largest quad-play service providers, has selected Amdocs to extend its billing platform for both consumer and enterprise services.

As part of this expanded multiyear collaboration agreement, Telefonica Germany will deploy new generative AI use cases, leveraging Amdocs' amAIz Sales Agent to enable the efficient promotion of new products and to automate the upsell of personalized offers to drive higher ARPU. This award with Telefonica Germany is another proof point that shows that we are starting to see trial POC conversion to actual generative AI projects, and we are excited about the initial results we are seeing.

For example, one of the first service provider to integrate generative AI was e& UAE, a customer which is already achieving double-digit improvement in Net Promoter Scores after deploying amAIz agents. Such progress reflect Amdocs' core telco platform and data services expertise built on our vectorized amAIz platform, which we have deployed in collaboration with NVIDIA and other generative AI leaders. Moreover, I believe our recent success demonstrating the pivotal role Amdocs is playing as an IT player in helping accelerate generative AI adoption in telecom industry.

In addition to cloud and generative AI, we secured important wins in the strategic domain this quarter as highlighted on Slide 12. As previously announced, we finalized a significant 10-year digital modernization and managed service agreement with BT-EE in the U.K. to deliver a modern B2C mobile platform for its prepaid and postpaid segments.

We signed a multiyear strategic agreement with Telia Finland to build its next-generation digital BSS enhanced and with advanced AI capabilities. And AT&T Mexico closed a new digital program with Amdocs to enhance self-service experiences, expanding its digital selling capabilities.

Here in the U.S., we signed a multiyear software and IT service agreement with Fidium, a next-generation American fiber Internet and network service provider and a new logo for which Amdocs will modernize and manage its IT operation while supporting its broader digital transformation strategy. Elsewhere in the U.S., a leading Tier 2 operator selected Amdocs for additional 5-year renewal of their BSS ecosystem.

Service providers are also adopting next-generation monetization solution to support their wireless and fiber infrastructure elements. Amdocs recently signed an expanded multiyear billing transformation agreement with Altice, France's SFR to consolidate multiple billing operation to a unified cloud-ready platform. And we signed a new agreement with South Korea's telecom operator, KT, to upgrade and modernize its charging system to accelerate time to market and to boost operational efficiency.

This quarter was also -- we also expanded our activities with the 2 largest operators in Brazil. First, Amdocs entered an agreement with Claro Brazil to implement a real-time billing platform designed to enable full-scale converge across its multiple line of business. Claro also extended its multiyear service contract with Amdocs.

Second, in the network domain, we signed a modernization agreement with Telefonica Vivo to provide a future-ready foundation for ongoing operation by deploying our latest OSS products. Further underlying Amdocs expertise and growth potential in the network domain, we have expanded our managed services agreement with Globe in the Philippines to include network strategy and planning, mobile access engineering and optimization to enhance service quality and operational agility. Additionally, we delivered a successful go-live of Amdocs advanced network inventory platform for Vodafone Ireland and continue to expand our network activities with Vodafone Greece.

Before discussing our fiscal 2026 outlook, I wanted to circle back on generative AI to share our thoughts with respect to our strategy and investment plans as presented on Slide 14. Over the past couple of years, we've shared our belief that generative AI holds immense potential to transform the telecom industry. We've been working closely with our customers to deliver tangible improvement in critical areas such as customer care and network operation while building out generative AI capabilities in our amAIz platform.

As the technology matures, the industry advance and we see the progression from POCs to production, we believe there is now the potential to unlock even greater opportunities to enhance experiences, agility and efficiency. To fully capture this potential for Amdocs and for our customers, we are accelerating our generative AI investment, which we expect will open new pathway for future growth across our entire customer base, irrespective of their BSS or SS version. This included fast tracking the development of what we call a Cognitive Core, a next-generation platform built on the solid foundation of Amdocs amAIz.

It integrates advanced generative AI capabilities such as agent-to-agent MCP technologies, our vectorized telecom expertise and the enablement of agentic services. In the coming quarters, we'll share more about our vision for AI-powered telecom operating system. For our customers, this investment in generative AI may represent a substantial shift in how they will adopt future software and services. Notably, we believe it promises to simplify and accelerate their digital transformation and journey to the cloud delivered under our outcome-based model.

Overall, with focused and intentional investment, we expect Cognitive Core to emerge as a long-term growth engine for Amdocs by enabling us to better serve our full spectrum of customers from those running current platform seeking cost-effective line of business modernization to top-tier innovators already modernizing on Amdocs' next-gen platform to lead with future-ready digital experiences.

Now let me comment on the current operating environment and our outlook for fiscal year 2026. We are entering fiscal 2026 with a healthy 12-month backlog visibility and a strong overall book of long-term business supported by a recent win momentum. With our unique tech-led and outcome-based accountability model, Amdocs is strongly positioned within our serviceable addressable market of nearly $60 billion to monetize a rich pipeline of opportunities across cloud, digital network and generative AI and data. That said, we are closely watching for any impact of the uncertain global macroeconomic environment on us and our customers' demand and spending behavior.

Tying everything together with our outlook on fiscal -- on Slide 16. We expect revenue growth in the range of 1.7% to 5.7% as reported and 1.0% to 5.0% in constant currency for the full year fiscal 2026. As to our profitability, we expect a non-GAAP operating margin to increase by roughly 20 basis points year-over-year at the midpoint on our target range as we balance our strategic long-term growth investment with the benefits of ongoing cost and efficiency gains across the business.

All up, we expect to deliver a non-GAAP diluted earnings per share growth of between 4% to 8% in fiscal 2026, the midpoint of which equates to an expected total shareholder return in the high single digits, including our dividend.

With that, let me turn the call over to Tamar for remarks.

Thank you, Shuky, and hello, everyone. Thank you for joining us. Before I begin in today's comments, I will compare certain financial metrics on a pro forma basis, which adjusts prior year fiscal year '24 revenue by approximately $600 million to reflect the phaseout of certain low-margin noncore business activities, which were substantially already ceased in the first quarter of fiscal 2025. To further assist your modeling, the regional mix of this revenue was similar to the overall company, and it contributed roughly $150 million per quarter.

To begin, I'm pleased with our solid financial performance for the fourth fiscal quarter as detailed on Slide 18. Q4 revenue of approximately $1.15 billion was up 2.8% year-over-year in pro forma constant currency. Revenue exceeded the midpoint of our guidance with no impact from foreign currency movements as compared to our guidance assumptions. Reflecting the phaseout of certain business activities, reported revenue declined by 9% from a year ago.

On a regional basis, North America improved more than 2% sequentially, posting its strongest quarter of the fiscal year. Europe declined, reflecting normal business fluctuations following a record quarter in the previous quarter. Rest of the world was slightly lower on a sequential basis, reflecting mixed trends. With our strong sales momentum, we have clear visibility to continued growth in Rest of the World, but quarterly trends may fluctuate given the project orientation of our customer activities in this region.

Shifting down the income statement. Non-GAAP operating margin of 21.6% improved by 290 basis points from a year ago, driven by the announced phaseout of low-margin noncore business activities and the benefit of ongoing efficiency gains within our operations. Non-GAAP operating margin improved by 20 basis points sequentially. Interest and other expenses amounted to roughly $10.3 million in Q4.

On the bottom line, non-GAAP diluted EPS of $1.83 was slightly above the midpoint of guidance. Diluted GAAP EPS of $0.88 included a restructuring charge of $0.60 per share, resulting from certain transformational actions we have taken to optimize our workforce allocation, technology mix, infrastructure, workspace and other resources as we prepare to accelerate the internal adoption of generative AI in fiscal 2026. Excluding this restructuring charge, diluted GAAP was at the high end of the $1.41 to $1.49 guidance range.

To quickly summarize our full year 2025 financial performance, results were consistent with the original guidance we provided a year ago, as shown on Slide 19. Revenue was up 3.1% in pro forma constant currency, above the midpoint of guidance. On the bottom line, we delivered non-GAAP diluted earnings per share growth of 8.5% in fiscal year 2025, consistent with the midpoint of guidance and driven by sustained revenue growth, a 300 basis points improvement in non-GAAP operating profitability and the benefits of our share repurchase activity.

Turning to Slide 20. This year, we delivered double-digit growth in cloud, which exceeded 30% of overall revenue as compared with roughly 25% in the prior year. Further highlighting the ongoing diversification of our business and growing traction in international markets, half of our top 12 customers are international customers, 2 of which are new logos added in the last 10 years, as Slide 20 shows. Additionally, we continue to expand our footprint with long-standing customers and new logos in North America.

A great example is Charter, with which we had limited business a decade ago, but is now one of our top 10 customers. Over the years, we have also added new logos in North America, such as Consumer Cellular and Fidium in fiscal 2025.

Turning to Slide 21. Managed Services revenue was a record $3 billion in fiscal 2025, up 3.1% from a year ago. Managed Services as a share of overall revenue also reached a new high of 66% in fiscal 2025, further strengthening our business resilience as we maintained high renewal rates and expanded our customer activities under long-term agreements. As Shuky alluded to earlier, several of our key deals signed in the fourth quarter were struck under multiyear managed services engagements, the most significant being our landmark agreement with PLDT from the Philippines, for which Amdocs will manage its complete IT services requirements, covering architecture, implementation, operations and performance outcomes with end-to-end accountability.

Additionally, we expanded our managed services agreements with Globe in the Philippines to include network operations and TELUS in Canada to cover the migration of its wireless monetization operations to Google Cloud. Managed Services can also be a spearhead to winning new customer logos, such was the case with Fidium in the U.S. for which Amdocs will serve as the primary and exclusive partner to maintain and operate its ID fiber operation across multiple applications while supporting its IT transformation as a preferred development partner.

Moving to the balance sheet and cash flow highlights on Slide 22. DSO of 74 days was down by 2 days sequentially and unchanged year-over-year, reflecting normal fluctuations in the business activity. Unbilled receivables net of deferred revenue rose by $62 million sequentially in Q4 and was relatively flat compared to a year ago, aggregating both the short-term and long-term balances. As a reminder, the net difference between unbilled receivables and deferred revenue fluctuates from quarter-to-quarter, in line with normal business activities as well as our progress on multiyear transformation programs.

Driven by a strong fourth quarter, free cash flow before restructuring payments was $735 million in fiscal 2025 and above our guidance range of $710 million to $730 million. Including restructuring payments of $90 million, reported free cash flow was $645 million for the year. Overall, we finished fiscal 2025 with a healthy cash balance of approximately $325 million and an available $500 million revolving credit facility, providing ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth.

Switching to capital allocation on Slide 23. This quarter, we repurchased $136 million of our shares. We had up to $1 billion of remaining repurchase authority as of September 30, 2025. We paid cash dividends of $58 million in the fourth fiscal quarter. Looking to fiscal 2026, we expect free cash flow of between $710 million to $730 million, not including additional payments we expect to make under our current restructuring program.

Our free cash flow outlook equates to a conversion rate of roughly 90% relative to expected non-GAAP net income and translates to a healthy free cash flow yield of roughly 8% relative to Amdocs' current market capitalization. Regarding our capital allocations for the coming year, we expect to return the majority of our free cash flow to shareholders. This includes dividends for which we are pleased to announce a proposed 8% increase in our quarterly cash payment to a new rate of $0.569 per share, subject to shareholders' approval at the Annual Meeting in January 2026.

Moving to Slide 24. 12-month backlog was $4.19 billion at the end of Q4, up 3.2% from a year ago. We expect 12-month backlog to represent roughly 90% of our forward-looking revenue, further underscoring the importance of this metric as a leading indicator of our business.

Now turning to our revenue outlook on Slide 25. We are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business and operational uncertainty in the current business environment. The first quarter and the full year fiscal 2026 financial guidance reflects what we consider to be the most likely outcomes based on the information we have today, but we cannot predict all possible scenarios.

For the full fiscal year 2026, we expect revenue growth of between 1.7% and 5.7% as reported and between 1% to 5% in constant currency. We expect our strong sales momentum in fiscal 2025 to contribute to fiscal year 2026 revenue growth, and we assume a stronger second half to the fiscal year as we ramp up activities on recently secured deals. On the other hand, our fiscal year 2026 revenue guidance assume a revenue decline at T-Mobile due to reduced discretionary spending. Our annual guidance also incorporates some contribution from inorganic deal activity. As for the first fiscal quarter, we expect revenue between $1.135 billion to $1.175 billion.

Moving down the income statement, we expect non-GAAP operating margins within a new and improved target range of 21.3% to 21.9% in fiscal 2026, the midpoint of which is roughly 20 basis points higher than the prior year. Our profitability outlook reflects an intentional decision to accelerate our R&D, sales and marketing investments with respect to generative AI and next-generation Cognitive Core platform while balancing this with ongoing cost and efficiency gains resulting from our continued focus on operational excellence, automation and the internal deployment of generative AI-based tools across our business. Our margin outlook excludes additional restructuring charges we may take.

Wrapping everything together on Slide 27, we expect to deliver non-GAAP diluted earnings per share growth of 4% to 8% in fiscal 2026. This outlook assumes pressure from below-the-line items in the year ahead. We anticipate a moderate increase in our non-GAAP effective tax rate to a rate for fiscal year 2026 of between 16% to 19%, primarily driven by a combination of regulatory changes, including the implementation of the Pillar 2 global minimum tax and other evolving international tax requirements. In the first fiscal quarter of 2026, our non-GAAP effective tax rate is expected to be above the annual range.

Additionally, we anticipate higher finance costs this year, resulting from a reduced cash balance and funding of our strategic long-term growth plans. Overall, we expect to deliver high single-digit expected total shareholders' return in fiscal 2026, assuming the 6% midpoint of our non-GAAP diluted EPS growth outlook plus our dividend yield of roughly 2.7% based on the new dividend payment we announced today.

With that, back to you, Shuky.

Thank you, Tamar. I'm pleased with our solid financial performance and continued strategic progress in fiscal 2025, and I'm excited by our technological leadership and potential to open new growth opportunities by accelerating our generative AI investment in the year ahead.

With that, we are happy to take your questions.

And our first question for today comes from the line of Timothy Horan from Oppenheimer.

You've had a lot more experience with AI at this point. Can you just talk about maybe qualitatively how impactful you think it will be to the telecom industry? And how much can you think improve productivity over time and generate kind of new services? And related to that, I guess the same thing internally, how much can it improve your own productivity internally? I realize you are reinvesting a lot of that productivity in R&D and in investing for longer-term growth?

Thank you, Tim. We are evolving our offering in the in the GenAI domain. Internally, as you mentioned, we are using more and more generative AI capabilities in the software development life cycle and operation. And this is improving gradually, and we see more and more, I would say, benefits. It's not just to cost, to quality, to speed, many items that we see using this technology.

From the offering perspective to customers, the initial offering that we have and which we are deploying and now successfully converting POCs to actual deals was more, I would say, add-ons on top system, some agents in the call center for care and for commerce and things like these type of capabilities, which now we are doing with many customers we mentioned and are pretty successful.

The next, I would say, GenAI capabilities is what we discussed today, what we call Cognitive Core. The idea is to add a layer on the top of our BSS systems or the different one that we are supporting today and actually create a new model that can support agentic activity, agent to agent and actually completely disrupt and change the way we are running this operation today.

Part of the investment that we discussed that we are going to accelerate this year is to build this layer. I think it's going to be -- it will take some time to deploy it. We believe it's going to be extremely exciting and give completely new capabilities to our customers in the agentic area. And we definitely believe that this will be another very important growth engine for Amdocs for the years to come.

And do you have a rough idea when that will hit the market?

Mid-'26.

And our next question comes from the line of George Notter from Wolfe Research.

I guess I wanted to just probe the decision to kind of reallocate more capital into the business from an R&D perspective. I heard certainly what you said about building more agentic capability. I guess I'm just looking for sort of the puts and takes, right? You're implementing AI internally. You've been on a path of generating 60 or 70 basis points of efficiency each year. The coming year, it's going to be more like 20 basis points. Is that the amount of the investment, that incremental 50 or so basis points. Is that the right way to look at it? And -- or are there some other kind of growth factors we should look at?

Yes. Most of the margin story here is this intentional decision to invest more into this opportunity that we see as an exciting one. So at the same time, as you said, that we are continuing to enjoy the productivity gains. We do want to reinvest in making sure we are capturing this growth opportunity. It's not just R&D. It's also in the sales and marketing aspects, the go-to-market, how we are going to support and accelerate our coverage of the different opportunities in the pipeline. So I would say it's both.

And definitely, we would like to see that keeping and accelerating the momentum we think we can bring on that aspect. We talked in the last 2 quarters about the fact that we are moving from proof of concept and feasibility to actual commercial deals. We continue to see that with the examples of Telefonica Germany we mentioned now and etisalat is much more mature and adding more and more use cases. PLDT as part of a large mega deal that we just signed is going to include adoption of our amAIz platform. So we are continuing to see more and more commercial pickup on that aspect and think that there's a great opportunity there.

Got it. Okay. And then also, I just wanted to ask about your conversations with customers. Obviously, the company prices its contracts, its businesses on outcomes, not billable hours times rate model. I get that. But I assume your customers do expect that you're using AI internally to improve efficiency. And I'm wondering if there's some expectation from customers to get better pricing or contract prices from you guys as part of that realization. I'd like to hear more about how those conversations are going. And at the moment of contracting with customers, are you seeing that pricing impact or pressure roll down on to Amdocs or not?

So this is not new. I mean, yes, now I think the most discussed item is generative AI, but this -- we have the situation pretty much in every renewal situation. Over then, we changed technology, we moved to the cloud. So technology is evolving. Definitely, there is discussion like this with GenAI.

What we are trying to do, obviously, is, a, our business model is, for the most part, as you mentioned, is outcome-based. So this is helping a bit. And I think what is more important that whenever we renew or sign a new agreement, we are doing a lot of effort very successfully to completely change the scope of the agreement by adding transformation to the cloud, generative AI capabilities and other automation and other products that we have.

So yes, there is pressure. Customers expect to see savings. But as you mentioned, because we are not in a rate cut type of relationship as part of this discussion, on one hand, we show the customer efficiencies; on the other hand, we're expanding the scope of our activities. We're adding new products and new services and GenAI capabilities. So between the 2, I think we are doing a pretty good job in minimizing the impact.

And just to add on that, George, our offering is very rich. And typically, what happens is as we get into these dialogues with customers looking on their own on total cost of ownership, how they want to achieve this kind of savings or what benefits they're looking for in terms of improving customer experience and other pain points they have. So engaging in this dialogue, we have a lot of tools to go into this -- to go back to Shuky's point of mentioning additional scope.

So we can take a bigger wallet share of what they need to invest in and give them the benefits that they're looking for. So it's not just a dialogue on, "Okay, what do we do for you right now and how are we pricing it moving forward?" It's a whole different dialogue that is emerging. And we've seen this quarter a lot of Managed Services expansion and extensions, and that has been part of this discussions. And as you can see, we're expanding the 12 months backlog beyond that. I feel very good about the fact that it's expanding our book of business beyond the 12 months that we are including in the backlog.

So I think the method works. We can bring them that value while giving them the TCR reduction they're looking for and looking how to bring more and more of our offering to support their needs.

[Operator Instructions]

Our next question comes from the line of Tal Liani from Bank of America.

I have like 5 questions. So stop me when I'm going through too much.

Cash flow is down next year. Why is it? And then I have -- I'm not asking the question in any order. Maybe I'll ask 2 at a time. But also the growth, if I take your midpoint on a constant currency basis, the growth is not showing much acceleration from this year. It's actually below -- slightly below Street expectations. What are the puts and takes in the growth because you also made the disclosure that T-Mobile is going to be down in 2026. So can you kind of elaborate on the good parts and the parts that are maybe more flattish and declining? I thought after some discontinuation of businesses, growth should somewhat accelerate from where we are or where we were?

Thanks, Tal. So I'll address the cash flow first. We ended the adjusted cash flow for 2025 of $735 million, but we started the year with exactly the same guidance range that we are starting now, $710 million to $730 million. We want to be appropriately conservative. So I don't see that as a cash flow decline. We are more or less at the same level.

When we are looking into the question into the revenue growth, as you rightfully articulated, we are seeing, on the one hand, an amazing sales quarter, finishing 2025. Very happy about the deals we've signed. A lot of that momentum on the sales will contribute more into the second half of the year as it's naturally taking us more time to ramp up deals that we are capturing. So that's why we said that within the fiscal year '26, we will see a stronger second half growth. At the same time we see this positive aspect, we do see the pressure of lower discretionary spending in T-Mobile, and this is why we feel we want to be absolutely transparent about the decline we expect there. It is a major customer.

I just want to give some context. T-Mobile has been a long-term relationship for us. We are supporting their billing activities across all their key brands, Magenta, MetroPCS, now UScellular. And this is obviously a core activity of what we do for them, and we are very focused on continuing to bring value. But at the same time, we need to acknowledge the fact that they are reducing some discretionary spend. So yes, there are positives, there are some negatives. But I believe that overall, looking on the sales activity and how strong we finished 2025, we feel good about our future.

Tamar, can you elaborate on your top 10 customers? That's number one. This is kind of -- you normally give this time of the year, you give the disclosure in the K, if you have the data. And then just on T-Mobile, they announced they made a disclosure that they are starting to transfer customers to a new billing system, and they made a few days ago.

And the question is, is this kind of an end of a project? That's why revenues are going to be down? And is this normal for big transformational projects that at the end, you start to see a decline? When you say discretionary spending, it looks like things are being pushed out. And I'm wondering if it's really things that are being pushed out or being deprioritized versus the big contract that is basically done?

So Tal, to the point on the top customers, we are typically giving this information in our annual report that is coming out in December, and we'll do the same this year. I will just say that, as I mentioned on the prepared remarks, we are happy to see the customer diversification evolving in a positive way with more customers entering, I would say, the high thresholds of our business, including many international names that we've added, including relationship that a long time ago, were relatively small like Charter and are now a top customer.

And we -- when we look into our relationship with T-Mobile, we cannot comment on the specific project or specific program plans, et cetera, on a single customer basis. But I can definitely tell you that we've taken all the reasonable assumptions in terms of the outcomes that we are seeing with relations to us into the guidance that we've given. So more to come, of course, in terms of what we can release moving forward. But I feel that we have taken everything we know as of today into the guidance.

Got it. Last question. I promised you 5 questions. So last question. You -- in the last year, you implemented AI in order to save -- to improve margins in order to reduce costs, and you've done it very successfully. And now you are talking about increased costs. Tell us about the margin trajectory, meaning on one hand, you are reducing expenses. On the other hand, you are spending more. What drives the increase in spend? And how soon could it translate into accelerated growth?

Tal -- by the way, congratulations on the award, if we speak. The best way to tell it, if we did not have all the tools of capabilities we developed with generative AI in our software development life cycle, all the engineering activities in the company, including operation, in a year like this that we accelerate investment in developing our next generation, I would say, GenAI capabilities around the core system, you could see even a situation there is some pressure on the margin.

The reason that we are able, on one hand to accelerate the investment in GenAI and still to generate maybe a moderate but still 20 basis points of increasing the margin is because we have all these capabilities that we develop and continue to see progress of actually doing everything much faster and better and with higher quality.

Got it. So if I take a step back for investors that are long term and looking at Amdocs as a kind of safe, relatively low-risk investment for the long term. The question that I'm asking is you've had tremendous success in the last 1 or 2 years with big projects with big customers, you are doing great in cloud. You're doing good. We start to see signs of GenAI. But the growth is still the same in a sense that even before you decided to discontinue some operations, you were growing between 3% to 4%. Now the guidance is for the same growth, maybe it accelerates second half, but we're still in the same neighborhood of growth.

The question is, if you look out, without giving us guidance for growth, like specific guidance, but when you look out and you say where you want to position the company as a CEO a few years down the road, do you think that what you're doing today and your activity in cloud and your activity in GenAI, could it change the growth profile of the company? Meaning can you grow sustainably above the current 3% to 4% going into new markets and new TAMs? So sorry, it's a long-winded question, but I'm just trying to understand kind of the longer term, what you have in mind, the longer-term goals for the company in terms of growth.

I think the answer will be shorter than the question. But I think in the last couple of years, the main growth engine for Amdocs was the cloud. In order for us to break this 3% and to go to a mid-single digit that we would like to be, we need more than one growth engine as big as it is, it's become already 30%. So we really believe that with the investments we do and with unique offering, we are going to have more than one significant growth engine like cloud, and we believe that what we develop right now in GenAI will be another one. And the answer to your question, I think in the mid, we established 2, 3 growth engines, then we can be there, and this is our intention.

And our next question comes from the line of Shlomo Rosenbaum from Stifel.

This is Adam, on for Shlomo. What is the organic constant currency growth implied in the guidance for fiscal 1Q '26 and full year '26? There's some commentary around some contribution from inorganic deal activity. If you could talk about that, please.

We expect to have roughly half coming from inorganic. When we started 2025 as well, we talked about some inorganic contribution and eventually, it was less than half of the growth. So we leave some flexibility for that, of course. And if you look back on the -- just on the type of deals we signed even this quarter in Q4, we already see direct relation to past acquisitions and the benefit it's bringing. So we feel this is a very important way for us to capture strategic growth opportunities, whether it's fiber -- some of those small deals that we've done in 2025 was around the fiber growth opportunity as an example. So we want that lever to stay open and contribute to the company.

Okay. And the change in AI spend, where are you seeing customers put their budgets and capital? And how does that match up to the areas where you're stepping up investments in GenAI?

So far, most of the investment we're building agents and use cases to support, as I said, to improve activities in the call center, both for our digital application, both for commerce and care. What we've built right now -- and by the way, the other thing we talked about is actually GenAI is all about data, so how to prepare the data to be available in real time to support the agents.

What we are talking right now, it's a completely different scale. It's meaning that we are going to augment our core billing systems or core monetization system with the cognitive core layer that will, as I said, will allow agent to agent and all the capabilities of agentic options. This is a different scale of capabilities, which is relevant for every Amdocs customer everywhere. So we believe that from a scale perspective, it's much bigger from what we've done so far.

Okay. And there was some commentary about some pressure from below-the-line items just on the modeling side. What areas specifically you're referring to and what's driving that?

Referring specifically to tax rates as we see more regulatory changes around the world, like the Pillar 2 minimum tax as well as other countries that are putting some new regulations. We elevated the effective tax rate range from 15% to 17%, to 16% to 19%. So that would be one point. And the other one is financing costs. As we are starting the year in the lower cash balance and continue to have plans to invest in some strategic growth areas, we will see some higher finance expense costs. So that's what we refer to as items below the operating income line.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Smith for any further remarks.

Okay. Thanks, operator. Thanks, everyone, for joining the call tonight. If you've got any additional questions, please give us a call in the IR group here. And with that, have a great evening. Thanks a lot.

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