Ladies and gentlemen, thank you for standing by. And welcome to the Second Quarter 2021 Amdocs Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Also please be advised that today's conference is being recorded.

[Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Matt Smith, Head of Investor Relations. Thank you. Please go ahead..

Thank you, operator. 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 effects 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, the duration and severity of the COVID-19 pandemic, and its impact on the global economy, 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, 2020 filed on December 14, 2020.

And our Form 6-K furnish for the first quarter of fiscal 2021 on February 16, 2021. 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 Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited and Tamar Rapaport-Dagim, joint Chief Financial and Operating Officer.

And finally, a copy of today's prepared remarks will be posted on the Investor Relations section of Amdocs' website following the conclusion of this earnings call. And with that, I'll turn it over to Shuky..

Thank you, Matt, and good afternoon to everyone joining us on the call today. I'm pleased to report another strong financial performance in our second fiscal quarter.

My comments today will refer to certain financial metrics on a pro forma bases, we're applicable to provide with the sense of the underlying business trends excluding the financial impact of OpenMarket which we divested December 31 as previously announced.

Revenue in fiscal Q2 was well above the midpoint of our guidance and up 5.7% for a year ago on a pro forma constant currency basis. Operating profitability exceeded the high end of target range as we balance absolute R&D as a percent of revenue with continued focus and operational excellence.

Free cash flow generation was also robust driven by the successfully delivery of project including milestone and healthy cash collection with customers. During Q2, return a record quarterly cash amount of more than $400 million to shareholders by the way of share repurchases and dividends.

This include the net proceeds from OpenMarket in line with the commitment we made a shareholders in the prior quarter. This was another strong sales momentum led by growing demand for our digital 5G offering.

Additionally, we solidified our market leadership in the public cloud domain by utilizing our strong balance sheet with acquire Sourced Group, a leading global cloud consultancy business for a net consideration of roughly $75 million in cash.

Before moving on, let me take a moment to address the situation in India where the COVID-19 pandemic is recently escalated. My thought are with our Indian employees, their family members and the community in large doing this extremely challenging time.

To those who have suffer personal loss, I would like to express my deepest sympathies and to those whose health has been impacted by the virus, I offer my warmest wishes and hope that you quickly make a full and speedy recovery.

Our priority is the health and well-being of our employees and we're investing resources to provide support for those most affected by the pandemic, which include making vaccination available faster whenever possible.

From an operational perspective, we can leverage this scale and flexibility of our global delivery model and our extended capabilities in other parts of the world such as the U.S. and U.K. where the state of the pandemic is much improved. And I called the development and delivery centers in Israel will continue to look pretty much back to the offices.

We are monitoring the situation daily to ensure business continuity for our customers. I am proud of our employees and I want to thank them for all their dedication and commitments throughout the pandemic and their ability to collaborate within and support one another during this difficult time.

Now, let me provide some color regarding our regional performance during Q2. Beginning with North America. We deliver our best ever quarter on the pro forma basis as a healthy level of customer activity continues throughout the region.

As North America mergers from the pandemic, 5G network and fastest secure broadband connectivity has become recognized as a backbone of society. Service provider are investing heavily in fiber and 5G deployment, as sweetness into many millions of dollar they located in the recent CeBIT Spectrum Auctions.

To monetize their investment and maximize ROI, service provider must bring exciting new 5G offers and services to consumers and enterprise customers. To make this lead our customer are in multiyear investments cycle in digital and 5G system metallization, cloud migration and next generation OSS platform for networks.

All of which Amdocs is well-positioned to support with our cloud native products and IP-based services. Let me take you through a series of examples to show how we are supporting our customer's as they build their capabilities to address these market dynamics.

At AT&T, we're executing a wide scope of activities under the four years managed services deal we announced in November 2019. On top of which we're accelerating new programs to modernize its consumer mobility domain, support a journey to the cloud and deploy 5G monetization solution leveraging open a charging and policy capabilities.

In T-Mobile we're accelerating the digital transformation under strategic multiyear agreement we announced last quarter. Implementing then to one product portfolio to support next generation communication services for its consumer and business customer and next generation hybrid cloud operation in the form of multiyear managed services engagement.

At Verizon, we are implementing Amdocs' catalog one, our cloud native platform designed to rapidly create and launch new 5G services offering. And we are now progressing an additional program in the network domain which level is Amdocs NEO,, our cloud native next generation OSS 5G platform for services and network automation.

NEO allows service providers to harness the power of cloud-based virtualized network that are more dynamic agile and scalable. Around cable and media we are also busy.

We just completed successful subscriber migration for Altice USA, falling into a position of service electric cable TV last year, and we are continue to implement our BSS and OSS platform for Comcast business. In Charter, we are deploying our system to support Spectrum Mobile under a multi year managed services agreement we announced it last quarter.

And we were recently selected by DISH to provide a cloud-based billing for enterprise and wholesale customers on its next generation 5G network.

Amdocs media this year also extended its long term engagement with Vimeo, which will continue to use Vindicia cloud-based SaaS solution to enhance monetization of its subscription and one-time purchase services.

Moving to Europe, we deliver healthy year-over-year revenue growth on a pro forma basis as we continue to program digital transformation project to support, improve customer experience, operating efficiency, and multiple convergence strategies for our customers.

During the quarter, we saw continued demand for Openet's 5G charging and policy solutions., which a major Tier 1 operator in the U.K. recently implemented on AWS public cloud to support its global IT platform.

In Italy, we expanded an existing relationship with Fastweb, which we selected Amdocs to monetize its mission critical inventory system as part of our transformation to create a 5G ready platform to grow and differentiate its business and we expanded our relationship with ACS, evolving a content connectivity solution provider, with select an Amdocs end to end testing framework to automate its flow validation process.

Turning to the rest of the world revenue grew over year and we began to see early, but encouraging signs of recovery in Latin America. Amdocs was selected by America Mobile to deliver a digital transformation in Claro Chile and Claro Puerto Rico.

And Amdocs has signed a three-year agreement with Claro Brazil to support Claro's postpaid business and to provide services and solution for its digital information.

In Chile, Vubiquity extended it's long term standard relationship with VTR part of the Liberty Global and we signed a multiyear agreement with Telefonica HispAm to provide content licensing and processing for Movistar play service in the five markets including Argentina, Chile and Peru.

In Southeast Asia, Globe Telecom in the Philippines implemented our next-generation cloud native catalog one and digital one platform for its enterprise business, which we will operate and maintain other multi year managed services contract.

We think our partnership with India's Airtel, where we completed a seamless migration of Airtel wireless postpaid customer to Amdocs' modern digital business system, and we signed a new deal to provide open its charging for the data management product on Microsoft Azure for M1 Limited in Singapore.

Moving on, let me update you on the strategy to grow by accelerating the communication industry journey to the cloud. As we outlined few quarters ago, Amdocs bring a full range of products and services with which to offer every customer a ready and tailor made journey to the cloud.

I am pleased to report that we see an attractive and expanding pipeline of opportunities, which we hope to accelerate with the recent steps we've taken to solidify our leadership in this domain.

First, we are today pleased to announce the acquisition of Sourced Group, a leading global technology consultancy specialize in cloud transformation for sophisticated enterprise customer in different industries such as communication and financial services across North America, Asia Pacific and Australia.

Sourced Group is part of our wide cost companies investment in the cloud and brings a proven cloud migration platform, deployment and landing zone framework and trusted design processes alongside it deep partnership with AWS, Microsoft Azure and Google Cloud.

The acquisition also complements our portfolio of cloud native products and services and further expands and diversifies our customer base, a line was to implement cloud at scale. We are delighted that innovated so steam is joining Amdocs We are proud to bring such a great professionals and practices to our industry.

Second, I am pleased to announce an expanded strategic collaboration with Microsoft to widen the availability of our portfolio on Azure. The collaboration will enable service provider to Tromso with cloud native solution in cloud services and deploy 5G networks in the cloud with Azure for operators.

Automated by the Amdocs NEO suite and monetize by end of charging. We have also extended our multiyear strategic agreement with AWS to include in detail subscription management portfolio provided on AWS global cloud. To wrap up, let me briefly comment on the outlook for the remainder of our fiscal year 2021.

We are raising our guidance for the full year revenue growth to reflect on solid performance in the first two quarters and our expectation for a stronger second half. Confidence is supported by the visibility of our 12 months backlog, which is up more than 9% for a year ago on a performer basis.

And they believe that there is a rich pipeline of opportunities across operating regions, which are working hard -- which we are working hard to monetize by executing on our growth strategy. We are focused on profitability and the disciplined use of cash.

We now expected to deliver a double digit total shareholder return in the fiscal 2021, including an improved outlook for pro forma non GAAP earnings per share growth plus our dividend yield. With that, let me turn the call over to Tamar for her remarks..

Thank you, Shuky. Let me start with a quick housekeeping item with respect to OpenMarket which was included in our reported numbers for the income statement and cash flow in the first fiscal quarter of fiscal 2021, but is excluded for the second fiscal quarter of fiscal 2021, following they completed divestiture of these assets on December 31, 2020.

To provide you with a sense of the underlying business trends, my comments today will refer to certain financial metrics on our pro forma basis which exclude the financial impact of OpenMarkets from the current fiscal year and comparable fiscal year period.

Second fiscal quarter revenue of $1,049 million, significantly exceeded the midpoint of our guidance range of $1,015 million to $1,055 million, revenue include the positive impact on foreign currency fluctuation of approximately $3 million relative to the first fiscal quarter of 2021 and a negative impact of 1 million relative to guidance.

Additionally, Q2 revenue included a small amount of less than $2 million from two acquisitions, which we closed in the month of March, Sourced Group, the cloud consulting company Shuky mentioned and another small one, which I will describe later.

On a pro forma basis revenue grew by 5.7% year-over-year in constant currency in the second fiscal quarter. Our second quarter revenue as reported grew by 0.1% year over year, and was down 1.4 at a constant currency given the comparable quarter of last year still included OpenMarket results.

Our second fiscal quarter non-GAAP operating margin of 17.6% exceeded the high end of our long term target range of 16.5% to 17.5%. It was up 30 basis points sequentially and 40 basis points from a year ago.

The non GAAP operating margin improvement reflects the diversity of open market, as well as initiative operational excellence, while accelerating our R&D investments in our strategic growth domains of digital 5G in the clouds.

Below the operating line, non GAAP net interest and other expense was $3.9 million in Q2, the mix of which includes interest expense related to our short term boring and 10 year bond and the impact of foreign currency fluctuations.

For forward looking purposes, we expect that foreign currency fluctuations will continue to impact the non GAAP net interest another expense line in the range of a few million dollars on a quarterly basis. If you look at non GAAP EPS was $1.13 in Q2, slightly above the midpoint of our guidance range of $1.09 to $1.15.

Our non-GAAP effective tax rate was 18.2% in the second fiscal quarter, yet we are on track to meet our annual target range of 13% to 17%. Diluted GAAP EPS was $0.91 for the second fiscal quarter in line with the midpoint of our guidance range of $0.87 to $0.95.

Normalized free cash flow was $133 million in the second fiscal quarter, up significantly as compared to $76 million a year ago. On a reported basis, free cash flow was $70 million in Q2.

This was comprised of cash flow from operations of approximately $120 million, less $49 million in net capital expenditures and other and included the annual cash bonus payments to our employees in January for the prior fiscal year 2020 consistent with our guidance last quarter.

Please refer to the reconciliation table provided in our Q2 earnings release for an explanation of the difference between normalized and reported free cash during the quarter and for past periods. These serve 79 days, decreased by three days year-over-year and increased by one day as compared to the prior fiscal quarter.

We remind you that DSOs may fluctuate from quarter-to-quarter. As of March 31, total deferred revenue exceeded total unbilled receivable by $167 million. This reflects a decrease in total unbilled receivables of $19 million, and an increase in total deferred revenue of $8 million as compared to the first fiscal quarter of 2021.

Changes in a bill receivables and total deferred revenue are primarily due to the timing of contract specific milestones. Moving forward, you should expect these items to fluctuate from quarter-to-quarter in line with normal business activities.

Moving on, our 12 months backlog was $3.54 billion at the end of the second fiscal quarter, up approximately $50 million from the end of the prior quarter. On a pro forma basis, our 12 months backlog was up roughly 9.3% year-over-year.

As a reminder, we believe our 12 months battle continues to serve as a good leading indicator of our forward looking revenue. I am pleased to report another record quarter for managed services arrangements, which comprise roughly 61% of total revenue.

This performance reflects high renewal rates the adoption of our managed transformation model and continued expansion of activities within existing customers. To clarify, the OpenMarket business was not classified as managed services and therefore, its exit does not impact our revenue for managed services.

Our cash balance at the end of the second fiscal quarter was approximately $1.2 billion, including aggregate borrowing of roughly $750 million. Our balance sheet reflects the acquisition of Sourced Group, a leading global technology consultancy for a net consideration of roughly $75 million in cash.

Additionally, we recently completed two small acquisitions. One in March, but still within fiscal Q2, and the second in April. In the first small acquisition project to our digital experience group subsidiary acquired ADK for net consideration of roughly $14 million in cash.

Based in Boston, ADK is user experience and application development company, which complements project Q2 [ph] capabilities and has a diversified list of global enterprise customers, including Sutton [ph], Dell bank, Mercer and Brown-Forman.

Clearbridge Mobile is the second small acquisition for net consideration of roughly $50 million in cash, targeted to further expand our digital portfolio capabilities.

Clearbridge is a Toronto-based mobile app development company, which provides user centric design and engineering services for Telco such as [Indiscernible] and non-Telco customers like YES Network and TD Bank. For all three recent acquisitions, additional consideration may be paid later based on the achievement of certain performance indicators.

As a visual color on use of capital in early May, we repaid the $100 million of short term bank loan we took on during the early part of the COVID-19 pandemic last year. This repayment was executed according to schedule under the original terms of the loan agreement.

We remain comfortable with our balance sheet and believe that we have ample liquidity to support our ongoing business needs, while retaining the capacity to fund our future strategic growth investments as and when the right opportunities arise. Additionally, we're committed to maintaining our investment grade rating.

Now turning to the outlook, the prevailing level of macroeconomic business and operational uncertainties surrounding the magnitude and duration of the COVID-19 pandemic remains elevated, including the recently escalated situation in India.

The midpoint of our revenue 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. We expect revenue for the third fiscal quarter of 2021 to be within a range of $1,040 million and $1,080 million.

Our Q3 revenue guidance anticipates a negative sequential impact of approximately $3 million from foreign currency fluctuations. Additionally, our guidance incorporates the benefit of the recently completed acquisition as just discussed.

Regarding the full year 2021, we are raising our outlook for revenue growth on a pro forma basis to a new range of approximately 5% to 8% year over year constant currency, as compared to a previous range of 3.5% to 7.5% year over year.

The new outlook equates to an improvement of roughly 100 basis points at the midpoint of the range, about half of which is attributable to core business, and the other half from recently completed M&A.

On a reported basis, we now expect full year revenue growth in the range of 1% to 4% year over year, as compared with our previous range of negative 0.3% to plus 3.7% year over year.

The adjusted revenue outlook on a reported basis anticipates a positive impact on foreign currency fluctuations of approximately 1% year over year, as compared to a positive impact of 1.2 previously.

Additionally, our outlook remains consistent without previous guidance for an acceleration in the rate of year over year growth on a pro forma basis in the first -- sorry, the second fiscal half. Moreover, we still expect to see all three geographical regions to deliver revenue growth on a pro forma basis for the full year of fiscal 2021.

As a final point to further help in your modeling we'll remind you that we originally planned for OpenMarket to contribute revenue in the range of $300 million for the full year fiscal 2021, roughly 75% of which was expected from North America with view hope accounting for the rest.

Regarding profitability, we continue to anticipate quarterly non GAAP operating margins to track roughly in line with the high end of the annual target range of 16.5% to 17.5%.

This outlook assumes accelerated R&D investment as a percent of total revenue to support our customers and future strategy, balance with our continued focus on delivering operational excellence. We expect this third fiscal quarter diluted non GAAP EPS to be in the range of $1.14 to $1.20.

Our third fiscal quarter non GAAP EPS guidance incorporates an expected average dilution share count of roughly 128 million shares. We excluded the impact of incremental future share buyback activity during the third fiscal quarter as the level of activity will depend on market conditions.

Regarding the full year fiscal 2021, we are raising our outlook for non GAAP diluted earnings per share growth to a new range of 7.5% to 10.5% on a performance basis, as compared to 5.5% to 9.5% previously. The improved outlook is mainly the result of better business fundamentals.

On a reported basis we expect to deliver fully diluted non GAAP EPS growth of 6% to 9% year over year as compared to 4% to 8% year over year previously. As a reminder, this outlook includes the impact of OpenMarket for the first fiscal quarter only.

We expect our non GAAP effective tax rate to be within the annual target range of 13% to 17% for the full fiscal year 2021. We now expect normalized free cash flow for the fiscal year 2021 of approximately $820 million, which is slightly improved from our prior guidance of $800 million.

The outlook is equivalent to about 8% of Amdocs' market cap and represents a conversion rate of roughly 130% relative to our expectations for non GAAP net income. As a reminder, we expect free cash flow to convert at a rate more than par with our expected non GAAP net income over the long term.

Additionally, we now expect slightly better reported free cash flow for fiscal year 2021 of approximately $620 million as compared with $600 million previously.

Our reported free cash flow outlook anticipates expenditures of roughly $140 million in relation to the development of a new campus in Israel, $40 million of capital gain tax in relation to the diversity of OpenMarket and other items. As previously stated, we expect fiscal 2021 to be the peak year of capital expenditure for the new campus.

Note that the gap between the expected free cash flow on a normalized and reported basis has widened primarily due to the tax in relation to the capital gain of OpenMarket.

During the second fiscal quarter we repurchased $360 million of our ordinary shares under our current authorization, including roughly $260 million, funded by the net profits from OpenMarket. As we committed to in the previous quarter, roughly $100 million of our share repurchases in Q2 were executed as part of the regular share repurchase program.

Regarding our capital allocation plans for the rest of fiscal 2021, we expect to return a majority of our normalized free cash flow to shareholders in the form of our quarterly dividends, and share repurchase programs subject to factors such as the status of COVID-19 pandemic, the outlook for M&A, financial markets, and prevailing industry conditions.

As of March 31, we had roughly $228 million of authorized capacity per share repurchases. Additionally, our board has today authorized another share repurchase plan of $1 billion, which we will execute at the company's discretion going forward.

Overall, we remain on track to deliver accelerated pro forma revenue growth, improved profitability and strong free cash flow in fiscal 2021.

The combination of which now supports an outlook for double digit total shareholders return of roughly 11%, including the 9% midpoint of our pro forma non GAAP earnings per share, growth guidance, plus our dividend yield. With that, we can turn it back to the operator. And we're happy to take your questions..

Understood. [Operator Instructions] Your first question comes from the line of Ashwin Shirvaikar from Citi. Your line is open..

Thank you. Hi, Shuky. Hi, Tamar. Congratulations..

Hi..

Hi..

Hi. Congratulations. It's a very solid quarter, a healthy outlook. And that's actually my first question is, with regard to the outlook, I get the half of the improvement is because of acquisition. But the other part, the inorganic piece.

In which areas has sort of the velocity of client demand results? Are you seeing bigger project sizes or the speed of assigned work coming in faster.

What's been the important change that you've observed?.

So, Ashwin, it's a combination of all of those pillars none of them in particular, but that's actually very exciting because in general, we are seeing very positive momentum across 5G cloud, digital transformation. So we are continuing to see that momentum building up. We tried to give some color to the prepared remarks.

On the momentum we're seeing in North America a very broad base, including key existing customers like AT&T and T-Mobile, all the way to new logos such as Verizon. Very happy also, with the fact that Europe is continuing to play well for us.

Starting to see policy and charging awards happening in Europe in conjunction with continued digital transformations. And also rest of the world that is grown for the third quarter in a row and sequentially and back to year-over-year growth. That's very important.

Then with some even encouraging size and color, which has been more of the slower part of the regions in the recent pandemic here. So it's very encouraging both from regional point of view as well as the growth pillars that we're seeing..

Got it. Understood. And then with regards to Sourced and the other two smaller acquisitions, they have non telecom clients, including, say financial services, for example.

Is the intent to keep those clients grow the non telecom piece, incrementally any thoughts on that?.

So, you're right. Both sourced and the other acquisition bode some major financial services customer. And definitely the main reason that we acquire the companies will support our strategy source to support our strategy for the journey to the cloud. They are really top notch consultant.

We got a lot of knowledge, top knowledge consultancy capabilities in AWS, Azure and Google, that definitely we are going to leverage in our taking the industry to the cloud of the comps and media industry. Having said that, they bought us some financial services customer. We are going to continue to support this financial services customer.

And at the same time we are evaluating if we can obviously push this domain and actually, this customer can get some other additional service from Amdocs. At this point is more opportunistic rather strategic, but we're evaluating this opportunity..

Understood. Thank you..

Thanks..

Your next question comes from the line of Tal Liani from Bank of America. Your line is open..

Hey, guys. Hope everyone is okay there, given what we're seeing in the news. I wanted to ask you about -- first of all, just a general question. Is there any disruption to your business given what's happening in the country? Number one. And number two. I want to ask about the spending environment and your participation in 5G.

I'm asking this question every quarter because I know you should be getting some upside from it. And I wanted to know if you start to see any movement on carriers, spending on 5G, spending with Amdocs on 5G and what kind of projects you're seeing? Thank you..

So for your first question, there is no impact. I mean, there is some people are working from home a little bit, but it's, here in the last 12 months, the majority of the vast majority of the company because of the pandemic work from home. So I can tell you clearly there is no impact.

Regarding the second question, we are definitely enjoying the 5G trend. All in the cloud, which are very much tightly connected. All our new projects in North America, all the big ones are related to 5G. This is the consumer mobility, a modernization AT&T. This is all the modernization that we do in T-Mobile, which is pushing 5G.

And definitely Verizon selected our catalog mainly to support a new 5G offering. This is true also for Europe and develop APAC. So we see a lot of activity. And I think we said before that actually 5G initiated the new modernization cycle in the in motivation systems.

And we feel that they have the right products and services to support this a new wave of investment in the 5G. This is true not just for -- obviously we have ordering solution and billing solution. This is also for our network solution. As we mentioned, we are doing in 5g project with Verizon and other customers.

Because if we discussed before, in order to be able to deploy 5G services in the best way you need all the monetization systems, obviously, you need a very sophisticated catalog. And you need to make sure that all the provisioning of the services on the network is smoothly from the ordering system down to the network.

So we are very happy with this trend. And I would say that definitely North America, the vast majority of our projects are related to 5G..

Great. Thank you..

Thank you..

Your next question comes from the line of Tim Horan from Oppenheimer. Your line is open..

Thanks, guys. The bookings look really strong. Can you give us a sense of maybe just how that's trending and any expectations? And does this suggest a pretty good correlation to revenue growth for next fiscal year on kind of what we're seeing with bookings now? And then maybe just secondly, I know you touched on Verizon.

Any more color on the reports here for more outsourcing? Thanks..

I didn't understand the second question. But I think I'll start with the first one. We are very happy with the momentum. And this is why we were excited to raise the guidance for revenue for this year. So we see accelerated growth.

And this is accelerated growth is because the spending trends that we see and the fact that we came very well prepared with our products and services and we see a very, very good alignment from the market trends of a journey to the cloud, 5G convergence, B2B in other domains. So there is a very good alignment which support our growth.

And this is why we see a very strong second half of accelerated growth and we were able to raise the guidance. We are not giving at this point any guidance for next fiscal year. But you can see here from our tone that we are very excited about the momentum..

Two points to add here are 12 months backlog with definition covers the next 12 months. So it is an important leading indicator for what we see ahead of us. Again, it cannot translate that one for one with expected revenue growth, but it's a good indicator. The other point..

And its 9.3..

Yes. And its 9.3% year-over-year on pro forma basis. And the other point I would say is that we'll continue to see a strong momentum in our managed services revenue, which is kind of the underlying recurring revenue base of our relationship with customers on top of which we bring the new deals.

So, I think it's very important that this growth from the new pillars is coming on top of a very robust and strong base of business that we're continuing to shift into a more lengthy, I would say and robust managed services engagements with our customers..

Thanks. My second question was just around Verizon, their propensity to outsource more do you think.

And how we -- how do you think your position with ability to kind of gain more that outsourcing if they do so?.

It's still early stages. I can say you that we are enjoying a very good relationship with Verizon. I think there's a lot of appreciation in Verizon for our products and services. And as I mentioned in my opening remarks, they're leveraging a next generation. Catalog one is our cloud native platform to support all the offering.

This is going to be the master product catalog of Verizon. We have a lot of activity in the network, in the service designing, creating services around it. So where are we now? I still think so far it's moving very well ahead. I believe that it will continue to show very to Verizon. We can even expand the relationship..

Thank you..

Your next question comes from the line of Tom Roderick from Stifel. Your lines open..

Hi, Shuky. Hi, Tamar. Hi, Matt, great to hear from you. Thank you for taking my questions. So Shuky and Tamar, I really appreciated the mid quarter call, you're getting a lot of questions from clients, and there was some skepticism that I appreciated you taking some time to answer some of those questions.

One of the themes that sort of seemed to be up for question, when we did that last call was the durability of your relationship with some big tier ones, particularly AT&T at the heart of it.

When I listened to your remarks today Shuky, it seems very, very clear that not only is North America growing, but AT&T as a particular customer seems to be on very solid footing. So I'd love to hear just your perspective on the durability and sustainability of the projects that you're working on.

As you look at these type of projects, are they recurring revenue in nature and long standing that'll extend beyond just 2021? Tell us about the strategic nature of what you're doing there and getting tied into their future as opposed to catch up projects and band aid fixes that might only be for, say, 2021? Thank you..

Okay. So, as I mentioned, there are certain pillars to our relationship with AT&T, besides the fact that we have strong partnership with AT&T, probably more than 20 years. So, there is the first pillar of a very significant managed services that we announced in late 2019, that we signed for four years.

And this is managed services for many, many system of AT&T. Some of them are Amdocs system and by the way, some of them are not Amdocs systems. On top of it, we discussed about the fact that we have started the modernization journey of AT&T consumer mobility. Now, if you look at AT&T, AT&T is doing very well definitely in the mobility domain.

A consumer mobility is in the heart of AT&T strategy. And the fact that we were selected to do this project with AT&T, it means, that this is a very strategic project for us and AT&T. And definitely this is not a cluster or something like.

This is a very long term activity that we do for AT&T and this will be the next-generation cloud native system for AT&T for the years to come. Additionally, we are very involved with AT&T journey to the cloud.

We are working together with my Microsoft and they are taking different application to the cloud, not the vast majority of them are not even Amdocs. And this is a very significant activity that we do with AT&T. On top of it, as you might know, we are pretty much running the AT&T cricket, AT&T Mexico.

We are doing a lot of data related activity and security activity. So I would say that our partnership with AT&T is strategic than ever. And we are working with AT&T in the most strategic domains of AT&T. I hope this is clear enough..

Really helpful. Thank you, Shuky. Tamar, now that we have some of the numbers on the balance sheet Tomorrow, now that we have some of the numbers on the balance sheet behind the quarter and ability to kind of comment a little bit further on some of the questions around liquidity.

Can you kind of take us through a little bit more on your philosophy on your strategy regarding liquidity. Any recent needs to draw on the revolve? Right now, that's a question you've been getting from some investors. But maybe bigger picture.

If I look at this share buyback of $360 million in the quarter, that'd be a pretty tough thing to do if you're having liquidity issues. So again, if you can kind of highlight some of those strategies, and then repeat what you what you talked about with respect to where this share buyback goes from here? Thank you..

Sure. Thanks, Tom. So, I think we need to start with the fact that the business model is one that generates consistent and healthy margins then converged into cash flow. So as we always say that our business model should generate on par, the earnings to cash conversion over time. Some years, slightly less, some years more.

Specifically 2021, we are at 130% earnings to cash conversion. So while this is not necessarily sustainable for many years, obviously, it's a good place to be at.

Now, taking that in terms of the use of cash, we've always been looking on the balanced approach where we can do both, we can have cash to shareholders, and I believe we've been very consistent about that.

But the majority of our free cash flow over the years have been returned to shareholders, with the dividends that have been introduced already six to seven years ago, increased every year in double digit growth.

And share repurchase program that has been running for many years and again, authorized again and upload of additional $1 billion to that program. So we've been consistently returning cash, while continuing to fund the M&A strategy of the company.

Looking specifically into the question of the recent drawn facility during the peak of the pandemic, beginning period where liquidity stress was all over the markets, we decided as a short term move to draw some money in the facility, which has been returned pretty quickly.

And then as the more strategic move, we enjoyed the historically low interest rates in the market, probably the lowest I've seen the last 14 or 15 years, and issued the public bond for 10 years at $650 million. That's adding to our capacity, something that is good to have. We declare, we're continuing to maintain an investment grade rating.

And we're going to use this cash if and when the right strategic opportunities present themselves. In terms of return of cash to shareholders, we've been returning over the last five years, about $0.5 billion every year to shareholders. This year, obviously, it's going to be much more. Just this quarter, we returned over $400 million.

And over the overall fiscal year 2021, we indicated we're going to return the majority of the $800 generated as normalized free cash flow. So clearly, we're returning a lot of cash to shareholders, both specifically in 2021 and in a consistent manner over the last five years..

Really helpful. Thank you, Tamar. Appreciate it..

Thanks, Tom..

[Operator Instructions] Your next question comes from the line of Jackson Ader from JPMorgan. Your line is open..

Great. Thank you. So Shuky, on the sourced acquisition, I think and lot of us think of DOX [ph] has being able to handle complex digital transformations are moves to the cloud.

So just curious, what expertise does the Sourced Group have that maybe -- would be complimentary to DOX?.

Hi Jackson. Sourced Group have over 150 top professionals that understand the cloud environment extremely well, developed their own tools, landing zone other capabilities. When you search in the market today for cloud capabilities, it's not easy to get talent.

What we were able to get a really top notch talent with the Sourced Group that actually we have obviously at the same time, we are re-skilling our employees, we have thousands of thousands of employees, which cloud certified, AWS, Azure and more.

And this is a great addition, but more from the consultancy perspective that we added to our capabilities. So it complements our cloud native system implementation capabilities, Operation capabilities. Now we have also a very strong consultancy with topnotch experts..

Okay, great. And then Tamar, just a quick clarification, for my follow up. The acquisitions in the quarter, any commentary you can give on how much they contributed to the backlog number, the ones that were actually closed before quarter end.

And then any margin color you can give on those?.

It was very little. Usually what happens when we acquire those more of a consulting and development arms, their visibility of the business -- the way they used to run it is pretty low. So we have very, of course, conservative as we acquired them in terms of how much we add to the backlog, basing that just signed an very high a visibility business.

So most of the $50 million sequential increase has nothing to do with those acquisitions. I believe that what you're seeing in terms of the pattern of the backlog, we've seen two very strong quarters before Q2, where we've had 140 sequentially, and then 150 sequential addition to a 12 months backlog.

As we said before, this is not sustainable, unfortunately, in this stage and certainly every quarter. But definitely with 50, I feel very good. If you remember our past track record that it used to be mainly quarters of $20 million, $30 million sequential increases in 12 months backlog.

So having another strong quarter with a $50 million sequential addition is definitely an indication of the strong business momentum we're seeing..

Great. Thank you..

Thanks..

Your next question comes from the line of Will Power from Baird. Your line is open..

Okay. Great. Thanks. Yes, I guess first clarification then I have a second question. I guess in the press release, you indicated the revenue is down, I think $37 million sequentially. It sounds like that was principally OpenMarket.

But I just to be clear, I think open market by itself would have been a fair amount more than that, right?. And so that would imply some offsets.

So I guess just maybe just a little clarification on that first?.

Yes, absolutely. OpenMarket, as we've indicated, was expected to generate around $300 million in fiscal 2021. So if we assume for simplicity, linearity, let's say 75 a quarter. So absolutely, we've seen positive momentum.

And that's why when we are indicating the pro forma performance, we are talking about 5.7% year over year growth in Q2, pro forma constant currency. So the momentum is strong in real terms..

Okay. All right. And then my second question, I think, Shuky has said that North America pro forma revenue was a new record. I don't know if we got an update on the other two geographies, but I guess it just be curious, pro forma without OpenMarket.

If you look to Europe, rest of the world, how are those two trending? What are some of the puts and takes year over year there?.

So as we said, about a quarter of the OpenMarket revenue was coming from Europe. So you can see that also if we take Europe, the performance has been strong on a pro forma basis. Some of that -- a little piece of that has to do with currency. But even if I take out the currency impact, it's been a strong quarter for Europe year-over-year as well.

And just to clarify, the rest of the world numbers, there was no impact of OpenMarket. So the open market revenue was about three quarters going into North America and a quarter going into Europe..

And again, its like the third sequential growth in….

In the rest of the world, yes. Third quarter in the row in which we're going, yes..

Okay. All right. Thank you..

Thanks, Will..

There are no more questions at this time. Turning the call back to Mr. Matt Smith for closing remarks..

Thank you everyone for joining the call today and you're interested in Amdocs. We look forward to hearing from you in the next few days. And if you have any additional questions, please call the investor relations group. And with that, have a great evening. Thank you..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..