Matthew Smith - Corporate Secretary & Head of Investor Relations, Amdocs Ltd. Eli Gelman - Director Tamar Rapaport-Dagim - Chief Financial Officer.

S.K. Prasad Borra - Goldman Sachs International Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker) Shaul Eyal - Oppenheimer & Co., Inc. (Broker) Tom Roderick - Stifel, Nicolaus & Co., Inc. Jason Alan Kupferberg - Jefferies LLC Sterling Auty - JPMorgan Securities LLC.

Good day, ladies and gentlemen, and welcome to the Amdocs Q1 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Matthew Smith. Sir, you may begin..

Thank you, Chanel. Before we begin, I would like to point out that during this call, we will discuss certain financial information that is not prepared in accordance with GAAP.

The company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period.

Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the company's business and to have a meaningful comparison to prior periods.

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. Also, this call includes information that constitutes forward-looking statements.

Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated.

These risks include but are not limited to the effects of general economic conditions, and such other risks as discussed in our earnings release today and at greater length in the company's filings with the Securities and Exchange Commission, including in our Annual Report on Form 20-F for the fiscal year ended September 30, 2015, filed on December 10, 2015.

Amdocs may elect to update these forward-looking statements at some point in the future; however, the company specifically disclaims any obligation to do so. Participating on the call with me today are Eli Gelman, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, Chief Financial Officer.

With that, I'll turn it over to Eli..

Thank you, Matt, and good afternoon to everyone joining us on the call today. Our first quarter results were solid and we were pleased with our overall performance as we focused on influencing those factors within our control. We maintained a high win rate across global, wireless, broadband and Pay TV market.

We expanded business and won new projects with former Comverse customers and we made progress with newer business line such as network software, including network function virtualization, NFV, and mobile financial services, MFS. As we predicted last quarter, discretionary spending at AT&T continued at a slow pace.

We compensated for this by accelerating our initiatives in Europe and rest of the world to deliver revenues, margins and EPS in line with our first quarter guidance. We are proud of our strong performance outside North America.

The multi-year investment that we have made to diversify and expand our customer base are translating into long-term shift in our geographic mix with revenues outside North America now approaching 40% compared to less than 30% only a few years ago. Moreover, we have simultaneously maintained operating margins at the higher end of our long-term range.

Now let me provide some regional color with respect to the company activity in Q1. Starting with North America, revenue were primarily affected by AT&T. Performance at most other customers was in line with our expectation and included many activities such as the delivery of an upgraded Amdocs billing and charging solution for TELUS in Canada.

Regarding our outlook in North America, we believe the long-term market dynamics remained favorable despite the short-term recent softness. Let me take a moment to elaborate on this one.

First, competition among North American wireless operators continued to intensify presenting us with opportunities to partner and support our key customers in their strategic initiatives. For instance, T-Mobile has improved competitive position with go-to-market strategies enabled with Amdocs technology.

Others are looking for ways to improve their operations. This includes Sprint, where we provide the entire infrastructure behind a high quality customer experience across all channels.

We are monitoring development closely of this important customer and working with them to evaluate various strategies to increase revenue and reduce cost across Sprint organization. Second, we are seeing signs that Pay TV operators such as Charter, Comcast and Time Warner are finally contemplating modernization projects.

This is consistent with our long-held view that the Pay TV industry would eventually need to transform in order to respond to rapidly changing competitive dynamic. Furthermore, we believe that the depth of our CES 9 product suite compounded with the richness and quality of our services position us to support this type of customer over the long-term.

Third, the large integrated multi-play carriers such as AT&T are requiring increasing level of support as they pursue growth on multiple fronts. For example, we have enabled AT&T's initiative in the prepaid no-contract market and in recent expansion in Latin America.

Looking ahead, we believe we are well-positioned to bring long-term value and services to AT&T as it executes other strategic strategies such as video and network function virtualization.

Fourth and final, we believe we are well-positioned to address growing demand in the enterprise market segment where the high level of complexity is presenting service providers with unique requirements that very few IT companies can support.

To summarize North America, we are equipped to sell customer requirement such as those just outlined but it may be a few more quarters before original growth resume. As a reminder, our outlook remains subject to consolidation activities currently in progress for which may be contemplated among wireless and Pay TV operators.

Moving to Europe, we delivered a healthy quarter while expanding our business with affiliates of some of the region's leading service providers. For example, Vodafone Ireland selected Amdocs as managing system integrator to lead a major quad-play transformation project.

This award followed the project we announced last quarter to transform Vodafone UK enterprise business and highlights our growing momentum within the Vodafone Group.

Additionally, we completed the first important example of a converged system integration within Deutsche Telekom's global organization by successfully delivering multiple products based on CES 9 for CT Montenegro, a DATA Group subsidiary.

In managed services, POST Telecom extended its application management agreement with Amdocs for an additional three years through 2019. This agreement spans Amdocs charging, billing and customer management solution deployed in the past as part of POST Telecom BSS modernization project.

Looking ahead, we believe Europe is emerging as an important growth engine for Amdocs in fiscal 2016. Although quarterly trend may exceed the company's, given the timing of project activity and foreign currency fluctuation. Additionally, we expect regional microeconomics and regulatory conditions to remain changing.

Turning finally to rest of the world, we achieved another quarter of record revenue as we focused on deploying several highly complex projects. At the same time, we continued developing many new customer relationship we acquired through the Comverse BSS transaction, across regions such as Latin America, Europe, Africa and Asia.

Along these lines, we announced today new award for Amdocs Kenan and Amdocs C1 solution, with a number of service providers including Kyivstar in Ukraine, Liberty Global in Switzerland, and Telefônica Brasil following its acquisition of GVT by Vivo.

Building the pipeline of opportunities will continue to take time but activities such as this highlights sustained business momentum with former Comverse customers and demonstrate our commitment to provide additional value, innovation in broader range of products and services to these customers.

Regarding our outlook in rest of the world, we believe double-digit growth is sustainable in fiscal 2016. Although we are closely monitor regional microeconomics development and we remind you that the quarterly trend may be lumpy due to the foreign currency movement and the project orientation of our customer's activity.

To summarize our regional view, we are pleased with our overall performance and the result of our geographic growth initiatives. Our high win rate over the past three years means that we are now deploying a record number of transformation projects. The complexity of these projects naturally present challenges, but they are well within our capability.

On the other hand, they also provide the base on which we can secure additional projects and services over the long-term. Another important dimension of our long-term growth relates to the innovation we bring through acquisition strategies.

Along these lines, in mid-January, we completed the acquisition of cVidya, a privately-owned vendor of revenue assurance and fraud management solution.

This small but highly complementary transaction adds to our capability in the area of revenue guard and fraud management, and at the same time, creates new opportunities for Amdocs to cross-sell a wide range of products and services to the established base of customers already using cVidya products.

Our initiative to drive growth in newer business lines also progressed. During quarter one, Vodafone Germany selected Amdocs for its network optimization service project. Similarly, Nepal's Ncell, part of TeliaSonera, selected an Amdocs' RAN solution for mobile network optimization.

The mobile financial services which secured several new customers win, in addition to Globe Telecom in the Philippines which has committed to greater existing Amdocs NFS solution to our latest versions.

In addition to our organic and inorganic growth investments, we are committed to the disciplined and proactive allocation of cash to shareholders over the short and long-term. Our current plan remains to execute on our share repurchase program at a level above those suggested by our 50/50 framework in fiscal 2016.

To support this, we have received the authorization of our board for an additional 750 million share repurchase plan with no expiration date. This new authorization is in addition to the 160 million that will remain from the end of the quarter one under the previous 750 million authorization.

We will execute our buyback program at the company's discretion going forward. And we've retained the flexibility to vary the level of service activities (11:44) from quarter-to-quarter.

To wrap up, with the visibility provided by our 12-month backlog and the solid pipeline we see ahead of us, we are on track to deliver revenue growth for fiscal 2016 within our previously guided range of 2% to 6% on a constant currency basis.

We still expect total – potential opportunities such as those of AT&T and the former Comverse customers to contribute to a stronger second half and we remain comfortable that we can deliver non-GAAP earnings per share growth in the range of 3.5% to 7.5% in fiscal 2016. With that, I will turn the call over to Tamar..

Thank you, Eli. First fiscal quarter revenue of $922 million was within our guidance range of $905 million to $945 million and included the negative impact from foreign currency fluctuations of approximately $5 million relative to the fourth fiscal quarter of 2015.

Our first quarter guidance range has included a minimal sequential impact from foreign currency fluctuations. Revenue performance was therefore slightly above the midpoint of our expectations after adjusting for foreign currency fluctuations.

Our first fiscal quarter non-GAAP operating margin was 17%, an increase of 10 basis points compared to the fourth fiscal quarter of 2015 and towards the high end of our long-term target range of 16.2% to 17.2%. Below the operating line, non-GAAP net interest and other expense was $1.7 million in Q1.

For forward-looking purposes, we continue to expect non-GAAP net interest and other expense in the range of a few million dollars quarterly due to foreign currency fluctuations. Diluted non-GAAP EPS was $0.86 in Q1, $0.01 above the mid-point of our guidance range of $0.82 to $0.88.

Our non-GAAP effective tax rate of 14.9% in Q1 was within our expected annual range of 13% to 16%. Free cash flow was $163 million in Q1. This was comprised of cash flow from operations of approximately $199 million less $36 million in net capital expenditures and other.

As usual we anticipate free cash flow in the second fiscal quarter will be lower due to timing of annual bonus payment. Additionally, we remind you that we expect free cash flow to convert at a rate more on par with our expected non-GAAP net income in fiscal 2016. DSO of 72 days increased by two days quarter-over-quarter.

This item may fluctuate from quarter-to-quarter. Total unbilled receivables increased by $2 million as compared to the fourth fiscal quarter of 2015. Our total deferred revenue both short and long term decreased by $9 million sequentially in Q1. As indicated in the past, both of these items may fluctuate from quarter-to-quarter.

Our cash balance at the end of the first fiscal quarter was approximately $1.2 billion. Please note that this balance does not reflect the acquisition of cVidya which closed in mid-January.

Our 12-month backlog, which includes anticipated revenue related to contracts, estimated revenue from managed services contract, letters of intent, maintenance, and estimated ongoing support activities, was $3.09 billion at the end of the first fiscal quarter, up $10 million sequentially from the end of the prior quarter.

During the first fiscal quarter, we repurchased $100 million of our ordinary shares under our $750 million authorization plan. We had $160 million remaining under that authorization as of December 31. In addition, our board has authorized an additional $750 million new purchase plan to be executed at the company's discretion going forward.

That additional authority does not have a stated expiration. Now turning to our outlook, we expect revenue to be within the range of $905 million to $945 million for the second fiscal quarter of 2016.

Embedded within this guidance, we anticipate a marginal sequential impact from foreign currency fluctuations as compared to Q1 and an immaterial contribution from our recent acquisition of cVidya.

For the full 2016 fiscal year, we continue to expect total revenue growth within our previously guided range of roughly 2% to 6% on a constant currency basis. On a reported basis, we expect revenue growth in the range of 0.5% to 4.5% for the full fiscal year as compared with our previous guidance in the range of 1% to 5%.

Our new range now includes an anticipated drag from foreign currency fluctuation of about 1.5% relative to exchange rate prevailing at the end of our fourth quarter fiscal 2016 as compared with our previous guidance that assumed 1% drag.

Incorporated within this outlook and consistent with our prior expectation, we anticipate revenue from our directory business in fiscal 2016 to place a drag of less than 1% on total company results. We continue to anticipate our non-GAAP operating margin for fiscal 2016 to be at the higher end of our long-term target range of 16.2% to 17.2%.

As a reminder, operating margins may fluctuate within our long-term target range from quarter-to-quarter. We expect our non-GAAP effective tax rate to be within our target range of 13% to 16% for the full fiscal year 2016. We expect the second fiscal quarter diluted non-GAAP EPS to be in the range of $0.84 to $0.90.

Our second fiscal quarter non-GAAP EPS guidance incorporates an expected average diluted share count of roughly 152 million shares, and the likelihood of a negative impact from foreign exchange fluctuations in non-GAAP net interest and other expense.

We excluded the impact of incremental future share buyback activity during the second fiscal quarter as the level of activity will depend on market conditions. For the full fiscal year, we are on track to deliver our guidance for diluted non-GAAP EPS growth of 3.5% to 7.5%.

Our full-year EPS outlook does factor in expected repurchase activity over the year. As Eli indicated earlier, we plan to execute on our share repurchase program at level substantially above that suggested by our 50/50 framework in fiscal year 2016. With that, we can turn it back to the operator to begin our question-and-answer session..

Thank you. And our first question comes from S.K. Prasad Borra of Goldman Sachs. Your line is now open. Please go ahead..

Thanks for taking my questions. Eli, I have two questions. First one on North American growth, was it in line or was there any expectations and given you had a 13% decline, is it more or less like the trough or are you expecting the trends to worsen in the second quarter? Just trying to get my head around what's the bear case..

No, we're basically expecting more or less the rate of the business we had in North America. The longer term, as I've said, we are working for quite some time on reducing the dependency of North America as a single market.

Not that we don't like North America, on the contrary, but we just had a higher than desired dependence in North America just over the last few years. This quarter was not different. And the reason why we are relatively positive is because we made all the shifts from, let's say, 30/70 to 60/40 while maintaining the operating margin of the company.

Specifically this quarter, the results that we got are within the expected business in North America. We had some expectations for next quarter, and the following quarters, and we believe that North America, as I depicted in the prepared remark, has at least four good reasons to come back to growth.

One of them is the competition among the wireless operators, you probably – you live in this country so you see it everyday on the advertisement and news and what have you. We believe that Pay TV and the cable industry is waking up. It will take maybe some time but at least (20:49) we see the first sign.

We believe that we can provide additional service and additional value to AT&T.

And the enterprise sector is very, very important because all carriers in North America believe today that the enterprise segment, that is to say, the law firms and the hotels and the brokerage firms and companies and so on and so forth, are very good customers and they have a very complex requirement because usually they acquire packaged service and the secured Internet and high-speed communication lines and many other services.

And we came up with very strong proposition for the enterprise market. We saw the same thing in Vodafone that we announced last quarter and we see more progress on this respect in North America as well. So, between at least these four components, we believe that North America growth will come back and we'll accelerate our growth in North America.

While we say that, we keep accelerating in Europe and the rest of the world, so that will add up for the growth in the second half of the year.

So, in North America, bottom line was not a surprise and we're prepared for that, and we believe that we understand quite well the dynamics of the market and these dynamics give us the comfort level or the belief that North America will come back to growth, which is its expectation, we've seen it before several years ago again by the way but it cycles (22:32)..

Great. Okay. Probably the second question just on the rest of the world, obviously it was surprising and definitely a positive. Is this growth sustainable, I mean 54% growth in first quarter on top of the 37% growth you saw in fourth quarter.

What kind of projects are these, are these more system integration type of projects or are you signing more and more managed services contracts as well?.

So, it fluctuates. So you may call it a surprise. We're basically saying that the long-term is a double-digit growth and it fluctuates between quarters. So, I would not respond to quarter or a specific year, but we still think that rest of the world is sustainable at double-digit growth for 2016, probably beyond that as well.

And the type of projects are mainly transformational projects right now. So, it could be BSS or OSS project transformation and they need to skip a generation. Don't forget that most of these companies are about 15 years to 20 years old and whatever they had is a homegrown or systems from our competitors are not good enough.

So you can think about Telefônica all around Latin America. They have to transform Brazil, they have to transform Argentina, they have to transform Peru, they have to transform others. American Mobile, the same thing, in Latin America, in Singapore Telecom all across Asia. And we announced those in the last couple two years or three years.

The end result of it, and so it's mainly transformational project, including system integration work, including other activities that has to do with transformation. The result of it is that we have a record number of projects that are under transformation, which creates some pressure but that's what we are good at.

I mean, it's our bread and butter, so we know how to do this. The beauty of it is that once it's stabilized, it provides additional opportunities for cross-sell and upsell or to move to managed services.

So the fact that we don't have a lot of managed services today is quite natural because these customers have to go to the transformation first and then move to managed services.

After saying all that, we have some islands of managed services activities already in the rest of the world like in the Philippines, it's a large managed services, we have a few in other places. But I would say, if you want the gist of it is, many transformation projects hopefully, they can transform to additional project and to managed services..

Okay. So a quick follow-up on that one.

So would you say that pipeline is probably pretty solid in the rest of the world that one has to be not so worried about the general macro concerns?.

Well, I was born worried so I would always be worried about it. I'll tell you that the macroeconomics in China, for example, does not affect us A, because we don't work in China, we chose not to work in China and so it doesn't affect us directly.

And it affects only as a derivative, the market in Indonesia, or the Philippines, or Korea, or in other places that we are working in.

The same goes with Brazil, the competitive landscape is actually much more important than the overall macroeconomics because as long as we have three really strong companies in Brazil which is Oi, Telefônica which is called Vivo there and América Móvil. The competition between them actually dictates the market.

So thus in Brazil, it's also quite relevant, the same story quite relevant to Argentina or Chile, or Colombia, or Peru. So, I would worry but I think that we are usually affected by different things and the competitive landscape is such that I think that people needs our services.

I'll tell you more in that, in the rest of the world the prevailing direction is to move from simple prepaid to postpaid and data. The data uptick is actually quite incredible and they are skipping a generation – they are catching up with Europe and North America. We wrote the book on postpaid, on data, on converged prepaid and postpaid.

And on top of it, they have some video, like Telefônica is going quadruple play all over Latin America. So, we see a very similar phenomenon that we have seen in North America just in a slightly delayed phase..

That's good..

Thank you. And our next question comes from Ashwin Shirvaikar of Citigroup. Your line is now open. Please go ahead..

Thank you. Hi, Eli. Hi, Tamar..

Hi, Ashwin..

Hi, Ashwin..

I guess, my first question is just to clarify what was your organic constant currency growth in the quarter?.

On a constant currency, we've taken a hit of $5 million relative to the prior quarter. And the cVidya acquisition took place only in mid-January and even in second quarter it should have a minimal impact to total, so..

So really it's basically Comverse, any contribution that you got from – on that?.

Yeah. But sequentially, it was not a material change. We have seen better momentum as we described, so we have seen better results coming from Comverse's customer base. Probably just to remind you is a combined customer base, meaning, just giving you an example, VimpelCom, whether you consider there is Comverse or Amdocs, take Comverse.

That's why we are not getting into the speculation. Even internally, it's getting more difficult.

What's the next deal that is coming in such account? Is it a pre-Comverse contribution or a post-Comverse? You understand what I mean?.

Yeah, yeah, yeah, understood. Understood.

So, just to – I don't want to oversimplify the situation, but it seems to me that when you look beyond North America, quite excited, quite bullish in North America, a big factor is AT&T spending cautious, but I missed if you – and I don't know if you can actually state this or not, but what is the specific set of issues at AT&T? Is it a competitive matter? Is it pricing? Or do they already have enough penetrations, so high percentage of their offerings already? What is the analysis of that?.

Actually, Ashwin, first of all, you summarized it right. We are bullish on rest of the world. We're even bullish on Europe and now that we have such a great progress in the last couple of quarters, so we're bullish on Europe. And even in North America, we are bullish just for the longer-term.

And the nature of specific – the specific of AT&T is none of the above. It's not the competitive landscape that people are taking business from us. It's not AT&T don't want to do certain things, or the pricing is being compressed. We have been through a fair pricing with AT&T.

The first pricing dialogue with AT&T, as we are with any other customers all the time, so it's not that at all.

It's just that AT&T decided that because of all the activities that they had, you need to remember that AT&T moves really fast on at least four dimensions, actually I think it's more than that, but the four dimensions are prepaid and no-contract, well, they call south of the border but Latin America penetration, revamping the entire infrastructure of the network under Domain 2.0, the NFV projects and so on and so forth, and the video and Pay TV.

This is huge. I mean any one of them is quite big. So when you compare to the initiatives of Verizon or Sprint or T-Mobile, I mean, this is really huge, and just on top of regular activities and mobility and enterprise and what have you. And I talk about four new activities.

So we would expect that AT&T, for whatever reason, only business reasons in my opinion, will slowdown or accelerate some activities. Could be maybe it was related to the end of the year or not, I don't know. But we're in dialog with these executives and we know their decisions, so we are in contact with them.

We already announced that we are doing all the infrastructure underneath their no-contract and prepaid and Mexico activities and the expansion in south of the border.

And we're working diligently on the DIRECTV regions because it's a major component of the strategy, the integrated solution of DIRECTV with the rest of the previous offering that AT&T had. They have an opportunity to have a seamless service proposition that requires a lot of back end software that we provide.

And we're also trying to create the credibility and the relevancy to help them in the best way we can on the Domain 2.0, on the NFV. This is a very new topic. So it's not like others have it or something like this. So the relative softness we have in AT&T is not because of pricing, it's not because of our competitive landscape, none of the above.

It's just business, fluctuation of discretionary expenses, the most normal thing you can expect. But these fluctuations affects us in a big way, I'm sure that there are other suppliers where they did it being affected even more so than us.

So AT&T makes some discretionary expenses priorities and we are affected by that, but I think that we are the most relevant partner to AT&T in many, many of the activities that they do. And if we have anything here to tell you about anyone of those new initiatives, we will be the first one to tell you about it..

Ashwin, just to clarify another point. The activity we're doing for AT&T in Mexico and in Latin America, is part rest of the world, not in the North America side. So that's part of the areas where we're seeing growth which is not reflected in North America numbers..

Okay. No, that's really good enough..

Okay. But we have a big project in Mexico and it's in within AT&T, we don't report it as North America..

Okay. No, that's good enough..

Customers are customers anyway. But I know that we gave you enough color to understand that why we are not so worried about it. We think it's a timing thing, it's like a discretionary thing.

We have seen it in other players, but plus minus 5% or 10% in one customer may affect us in almost negligible way and we can compensate for that, and the same percentage in AT&T is just big..

Thank you. And our next question comes from Shaul Eyal of Oppenheimer. Your line is now open. Please go ahead..

Tamar and Matt, congrats on continued consistent execution and in choppy markets. Eli, I wanted to start with your comment about signs, like positive signs coming from Pay TV providers.

Can you elaborate a bit what is that you're seeing now that wasn't present in prior months, prior years?.

So it's a very good – thanks for the comments, first of all, Shaul. And as for your question, the level of interaction and the level of interest they show in new offering is just refreshing.

Now, we didn't say that we will win it or we won it or – but, first of all, we want to have activities and then we have a chance to compete with our competitors and win it.

But you can see activities around the enterprise because all of the people understand, including the MSOs, Charter, Comcast, all of those see enterprise as a growth engine for them.

And the fact that they show interest in our proposition on enterprise, as I mentioned, we believe that we have a really groundbreaking solution for the enterprise segment. They show interest in that. The same goes about OSS activities because they deploy high-speed Internet lines and fiber optics and WiFi.

These are all part of the technology that are very common in the MSO space, including Comcast, Charter, DIRECTV, other people. They need to improve their customer service. Look, when you compare AT&T Net Promoter Score, which is the best indication for customer experience, is the highest in the industry all based on our technology.

The same goes with our customers. And when you look at MSOs and almost there is no almost difference between Charter and Comcast and Cablevision and others. They are quite close, so all of them go to the conclusion that they have to improve it.

So we hope and we believe that they will go to people like us and try to modernize their back end customer experience system. So that's another angle.

So between the infrastructure of the network and OSS projects and between the enterprise and between the need to improve the customer experience, these are three sectors that we see more interaction, more activities, and we believe it may lead to projects, so that's one angle.

The other one, which is more generic, they see the pressure on the competitive landscape. Look, AT&T and DIRECTV is only showing up now to the space of combined Pay TV and mobility. But the MSOs need to prepare themselves for that, it's a different breed of competitors. Netflix is actually doing quite well with the – Netflix and Hulu and others.

So it is another pressure point.

So when you combine the competitive landscape which we cannot generate, but maybe it's generating the demand and the three – and there are a few others but the few dimensions of need of the cable and Pay TV carriers, I think that's what brings them into higher level of activity, higher level of inquiries, some bids, some initiative that they are taking, some of them have a new officer for customer experience, something that we didn't see before.

So, when you add all these up and you connect the dots, that translate to, I think, there are signs of movement there that we didn't see in previous quarter and previous years. Now we need to obviously see that it will and get the purchase order. We don't like it being just a theoretical thing and then our competitors may win. We want to win..

Got it, got it. And on maybe another topic on the product front. So, Eli, you mentioned fraud management, and we don't hear too much about this field that was treated probably 10 years, maybe 15 years ago as the best kept secret of the broader telecom arena.

Indeed, I recall that service providers were losing billions of dollars annually on a global basis from fraudulent network activity. With everyone so focused probably in recent years on cybersecurity, network breaches slightly more maybe from an enterprise perspective, it seems we might have lost focus on that market segment.

Can you provide us with an update about this segment? What is it exactly that you guys are doing within this arena?.

So, first of all, it's not gone. Probably there is enough crooks in the world to keep the carriers worry about fraudulent activity. And that's why we believe it's a must for every telephone company.

And we believe that cVidya, specifically, have just a superior product and the fact that they did not provide robust services in implementing it and running it, and so on and so forth, are managed servicing it. It's an opportunity for us, so that's one component. The second one is revenue guard.

These systems, especially when they are not coming from us, they are distributed all across the organization.

Some of these organizations are globally spread and you have a lot of leakage of revenue, either that they didn't charge or didn't bill or didn't collect and the telephone companies of all sorts, from MSOs like Comcast all the way to AT&T and Vodafone, are just leaving on the table money that they deserve.

It's not like that they're just losing – money falls in between the cracks, let's put it this way. So to have a very good system that has probes, think about it logically, it has probes all around the organization and identify all these potential leaks is very important.

Now what we intend to accelerate is to add big data analytics application that will allow the carriers to do even a better job or us for them in identifying abnormalities. And abnormalities is exactly the stuff that usually leads to fraud and to revenue leakage.

So if you think about this field and think about a couple of fields down the road, I think big data analytics, which is a sweet spot for us today, would become an important component of the improvement over time. And the third and not last, we believe that all of these technologies and know-how will also be related to security and cybersecurity.

So it's a little further down the road, and we did not announce openly our strategies around this field, but we believe that these type of assets will be relevant, the know-how, the people, and so and so will be relevant in the stuff that we are doing.

We're already trying to see how we match this cVidya product into our MFS, the Mobile Financial Services arena. So we have a lot of activities around this small company. So revenue-wise it's insignificant and the M&A money was insignificant because we just got it cheap, let's call it this way.

But I believe that in the right hand, it actually could be a good nice growth engine for us. And again, it complements a component that we did not have before and we like to have A-to-Z type thing approach, a one-stop shop. So it complements another component that we don't have to develop or invest in..

Thank you. And our next question comes from Todd Roderick (sic) [Tom Roderick] (43:36) of Stifel. Your line is now open. Please go ahead..

Hey, guys. Good afternoon. Thanks for taking my question.

Eli, I wanted to follow-up, we haven't talked about the network optimization business in a while, and I was wondering if you could just provide an update on what you're seeing in that space, what sort of competitive dynamics and pricing pressure you're facing from some of the network equipment providers out there? And then, geographically are you seeing more interest for that product line in North America, rest of world, Europe, just where are you finding the most hits in network optimization?.

So it's an excellent question. I'm not sure I have an excellent answer because it's an evolving field. Let me try to give you some data points and maybe you can make the answer from these data points.

As expected, the current providers of network equipment, what we call the network equipment providers, are trying, at any given vehicle or power that they have to slow it down, that's for them a disaster.

So maybe on the language, they will say they are supporting it, they are investing in it, but in general, they're using a lot of far end field (44:53) and uncertainties to frighten the carriers in this direction. I believe and the industry, I think, believe that it's inevitably just a matter of pace.

Now, you need to distinguish between two components, the NFV, which is the network function virtualization, it's very confusing names but these are the control plane where you define the service, what is called the service creation environment.

And where you create the orchestration, in other words, you are tailoring the entire service to have a seamless service offering. This is very close, this is the high end, it's relatively close to the BSS and the stuff that we do today, would even, in theory, can rely on the same product catalogue and have a high integration level.

This is the layer also that muster the components underneath it, which could be, to the many following years, a hybrid solution. In other words, it has to orchestrate devices that are sometimes physical on the network and in some cases logical software. And we believe that the hybrid scenario will at least last for five years, maybe 10 years.

Now, in the lower level, there is a project or a trend called SDN, software defined network, which is basically translating the simple boxes into software. But all of these, either boxes or software, had to be controlled by the entity.

So some of the network equipment providers are trying to get into the SDN, some of them are doing some work there but in reality, we think that actually the early adopters would come and the disruptor will come from the small companies.

There is a lot of startups in this field, and we believe that some of it will go to the tradition, Cisco or Ericsson and the like but a lot of it will go to smaller companies. And then a free space, which is by far more complex, there are actually very few people that understand how to do it. We believe that we are one of them.

We are the only one out of the very few that is definitely not conflicting. The players out there would be Cisco and Huawei and others. As I said, we believe that we are just doing a better software but also we are not conflicting. So we are trying to promote it as fast as we can and to disrupt the market with it.

The whole idea is not only the cost of software that might be lower than the cost of hardware, the whole idea is business agility.

You can imagine that if you have a network that is all software devices, if you want to accelerate capacity or to change features instead of sending a technician that go to the box and do something, you just tweak it on a control plane in the data center. It's like managing a huge data center. So the bottom line is that the trend is absolutely there.

The nets are trying to fight it as much as they can, we are the disruptor, there are very few others, definitely not in our scale. We believe we could be the integrator of small companies. In terms of the geographic spread that you asked, AT&T is probably by far the most advanced company with its theory and its power line under the Domain 2.0.

You see some activities in Singapore Telecom, in Bell Canada, in Vodafone Group. We are trying to be active with as many as we can and the decision probably will be the next few quarters, may be the beginning of it, there will be some initial implementation and eventually it will catch up and then, I believe, it will be a big business.

So it's not something you can build into numbers tomorrow morning or the next – it's not in our numbers in the next few quarters but we believe that we will be successful eventually in this field, and that's kind of the dynamics I can share with you. I hope it helps..

That's great detail. Thank you so much for that. Maybe just a quick follow up on that. Eli, you mentioned, I think, you sort of started to answer this question right at the end there, but it does sound like there are some nice Tier-1 opportunities that you'll see some shots on goal with here in the next sort of 12 months to 18 months.

Should we look for that on the hybrid-based solution, may be more on the SDN side, where are these opportunities popping up if we had to break it between the NFV and SDN, where are they popping up amongst the Tier-1 operators?.

First of all, it's mainly Tier-1 operators because they are usually the early adopters and they can afford to do this transformation project. And also they have the scale to enjoy the business agility that I was talking about. And most of the use cases, by the way, today are in the enterprise space.

So it goes back to the enterprise comment that I made actually in the BSS flavor, it's also true to the network aspect. I think that big decisions and the most important ones are the NFV decisions.

So in the next 12 months to 18 months, you will see the big guys making decisions, that is to say Bell Canada in Canada, AT&T and Verizon in the USA, Singapore Telecom in Asia, Telefônica probably, Vodafone, these are the guys that will make decision. And the NFV is the most complex decision, it's by far bigger, it's one project.

Now there will be many, many, many small SDN projects. And these pieces, we can participate mainly as an integrator. We will not try to build a better virtualized probe than the people that I expect on this or virtualized – if you see packet core (50:39) or something like this, we would not.

So we are mainly after the high-end NFV component and maybe some services and integration on the SDN. And the SDN, you'll have a lot of announcement of small projects, which are not tipping the industry, the NFV decisions would be the stuff to watch for..

Thank you. And our next question comes from Jason Kupferberg of Jefferies. Your line is now open. Please go ahead..

Thanks. Good evening, guys. Just wanted to circle back on the Pay TV opportunities. I know you talked about them qualitatively.

But as we just try and think about it quantitatively, how can we potentially size these opportunities? And do you see them as being – be your transformation initiative followed by managed services, any rough way to kind of think about it from kind of a pipeline value standpoint over a multi-year period?.

So, Jason, it's a good question. I think because it's only the beginning, and again we're talking about signs of something that will transform, you had to take everything I'm saying with a grain of salt but....

Sure..

Longer period, I expect it to be as important and as big as business transformation in the wireless space and the broadband space and so on and so forth. So these are not small projects.

I believe it was first on the beginning, probably it will start with some smaller projects, smaller are not being $1 million or $2 million but maybe $10 million, $15 million, whatever. And then it could become multi-year transformation of project that can even turn to managed services over time.

We are talking about major, major carriers, Time Warner, Charter, together they're even bigger. Comcast, DIRECTV, these are huge companies. So I think in the beginning, it will be relatively, let's say, small to medium, and then medium project.

But I think that eventually this transformation had the potential to be quite sizable, I'd like to say, tens of millions of project per transformation. And yes, some of them can turn into managed services..

Okay, that's helpful. And then I just wanted to switch gears over to margins for a minute. I know you guys are running kind of near the higher end of your target range. But over time, do you see the opportunity for more efficiencies in service delivery. I mean, I'm thinking kind of about offshoring.

And I know you've done a fair amount of that over the years, but is there the opportunity to do more as you look forward over the next two years? What are your clients' attitudes about that?.

It's a fair question. I think that the real answer lies in the balance between growth initiative and the margins, because when you think about it. We're transforming, moving, growing in North America, but growing even faster in Europe and the rest of the world.

So, we're talking about new operations in Indonesia, in Manila, in Guadalajara, Mexico, in Argentina and many other places, and these are normal activities, but all of this cost a lot of money. So when you think about it, we need to do those while maintaining the profitability.

Now more than that, this new project by definition of new project but definitely in new regions, accounted lower profitability. So we actually have to improve the machine all the time to compensate for that.

So I believe that, yes, we can grow over time and we can get more efficiency, not necessarily in offshoring, I think it's mainly around – as we have done it up until now, mainly around engineering, we just do more optimization, more automation, more better clothing.

We're a software company and so most of our efficiencies come from professional – improving the professionalism on the IT space either, either building better products or implementing or managing the managed services product, maybe higher use of cloud in terms of – mainly for the use of cheaper hardware, stuff like this.

The offshoring, we are doing, we can do some more but I don't think it will generate a huge amount of efficiency.

So we still have some capabilities to improve it, but the reality is that we are tailoring it very delicately because we want to keep on growing and generate a new growth initiative in a market – S&P does not grow, telecom movement does not grow.

In a market does not grow, we are growing all the time and all this growth, all these initiatives cost money. So we are careful to kind of balance between improving the operating margins and keep on pushing on the growth initiatives. We believe the growth initiative is critical for the company..

Thank you. And our next question comes from Sterling Auty of JPMorgan. Your line is now open. Please go ahead..

Yeah, thanks. Hi, guys..

Hi..

You're talking about a couple of things.

You talked about a couple of things that I think can come in and improve the growth profile in the coming quarters, but just to kind of cover our bases here, looking at the year-over-year move in North America and rest of the world, what should we be anticipating for the next couple of quarters? Is it going to be the same mix where rest of the world is propping up, kind of waiting for North America to recover or should we actually start to see signs of life in North America as soon as next quarter, to hit the guidance that you set forth?.

I think that – we tried in the prepared remark to say that we – obviously, we don't know exactly. But if I need to give you my best guesstimate, I think it would take another quarter until we see North America firing on all pistons.

Mainly AT&T because the rest of the activities are positive, obviously there is a lot of moving parts in North America, including Sprint, including M&A coming in. Maybe one of the big MSOs would try to transform faster. So it's really hard for us to predict it, but I don't think it is necessarily next quarter.

So what we could expect is that we will keep on growing in Europe and rest of the world as much as we can. I hope that we can maintain the high win rate in those regions.

And we will keep on working in North America, nothing is broken in North America, it's just a matter of acceleration of discretionary expenses which is discretionary and that's why they're hard to predict. The basic activity we have everywhere is not – and haven't been tampered, haven't been slowed down.

So it's only discretionary and these are stuff that is harder to predict..

Just to clarify, within the range of plus, minus $20 million we have on the top line guidance range. There are different scenarios that can play along and of course with these different scenarios, the regional mix can be different from one to another as well, so....

In general, I would really ask you not to measure us on a regional basis quarter-over-quarter. Year-over-year, it's fair. But quarter-over-quarter may fluctuate because of so many parameters including FX, including the discretionary expense, including the maturity of projects.

When you have transformation projects and you're recognizing revenue percentage, based on percentage of completion, it's enough. If the customer adds another two requirements or three requirements, then you need to change the entire project planning. So overall, the reason why I'm mentioning this shift is because it's very intentional.

We did not want to develop an addiction to North America, let's put it this way. So in the last couple of years we are definitely working hard to make sure that we don't slow North America. The overall company grows but we are growing faster on the non-North American market.

But measurement-wise, if you really want to get a feeling, I think it'd not be wise to liquidate any quarter because you may get some number that would not be meaningful and just – either will get you too excited or frightened for no reason..

No, that's fair. I just want to make sure that there wasn't any major projects that might be rolling off in the rest of the world area that was going to suddenly require the North America region to suddenly step up just to hit the near-term guidance which it doesn't not sound like that's the case there..

No, that's not – that what the question there, we don't expect any of those to happen. And as a matter of fact, we are working on new projects as we speak..

And then....

Also in North America, but definitely outside of North America..

And then my one follow-up would be to continue on the trend of the Pay TV discussion. The TV operators traditionally were, let's say, I guess, an easier billing solution than the more complex wireless billing, because of the rating engines, et cetera.

Does the new set of solutions into the enterprise ratchet up the complexity for those providers? Is that what maybe provides the tipping point for them to go through a modernization? And based on the discussions that you're having, is it more than just upgrading the system from what it was to something new that does the same thing? Is it actually adding feature functionality or products into the mix?.

Also, thank you for the questions, Sterling, because the short answer is yes and yes, but let me give you some color. The reason why the complexity was not there because they did not have competition, let's face it.

If you were living in an area that Comcast serve you would get Comcast service; if it's Cablevision, it's Cablevision; if it's Charter, it's Charter, and that's it. So for that you need a simple calculator to do the billing. You don't need sophistication and all the legacy systems are really quite stupid.

When we are talking about customer experience, that is to say, pushing even the same service to self-service, to e-commerce, to bundling and maybe a skinny bundle that is now popular in Canada and in Europe. We're talking about a completely different set of applications even on the current business.

When we're talking about enterprise that I mentioned in the context of the MSOs, these are completely new systems, these are completely new functionality, complexity is like high, and it's very competitive because there Charter and Comcast compete with Verizon and AT&T. It's a mature market that the big carriers go in there.

And you can understand that everybody wants to have Starbucks as a customer, nationwide in this case, or very large law films in New York or in LA or in Chicago or hospitals or universities, these are the enterprise.

So you can understand that these are big business for all these carriers and they compete, and sophistication is the only way to compete. So from quoting the offer all the way to execution and deployment, we are talking about completely, completely different level of complexity.

And as such, it's completely a new function on the enterprise, but also on the residential..

Thank you. And I'm showing no further question at this time. I would now like to turn the call over to Mr. Matthew Smith for closing remarks..

Thank you very much for joining our call this evening and for your continued interest in Amdocs. We look forward to hearing from you in the coming days. And if you do have any additional questions, please call the Investor Relations group. Have a great evening. And with that, we'll conclude the call..

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day..