Letter to Shareholders

Dear Fellow Shareholders,

Wireless, cable, media and entertainment service providers are undergoing a period of immense change as consumers have become more empowered in today’s digital world, expecting to receive services anywhere, anytime, with on-demand communications and content delivered to any device. This dynamic is reflected in the evolution of service providers into rich integrated media and communications companies, and the Amdocs product and services portfolio is well primed for this change.

Fiscal year 2016 was an important and successful year for Amdocs, as it demonstrated that we possess both the vision for the industry our customers are looking for, and the execution capabilities to deliver it. We also conducted several acquisitions during the year to expand our customer base and accelerate our drive into digital.

New Opportunities and Increased Activities at Our Major Customers

Transformation momentum in North America

Many of the North American fixed and mobile communications carriers are continuing to transform into integrated carriers, expanding their offerings with media, entertainment, internet of things and over-the-top (OTT) services. At the same time, traditional Pay TV operators are actively moving to refresh and transform their IT systems in order to respond to increased competition from communications carriers and OTT entrants. This transformation is a critical competitive imperative in order for these cable carriers to improve their customer experience, expand into new business lines and provide the needed service agility for this new market dynamic. We believe Amdocs is well positioned to monetize these changes.

We continued to support AT&T, our largest customer, over the last financial year as they pursued growth on multiple fronts, including integrating their DIRECTV business support systems (BSS) environment and their recent expansion in Latin America, which we helped enable. In other projects, we completed the deployment of an omni-channel billing and charging solution at TELUS, a leading Canadian service provider, with a multi-year extension for maintenance and ongoing services. At Cablevision (now Altice USA), we implemented a new digital front-end on our existing business support systems to create a first-class digital customer experience, and we are beginning a major IT transformation with one of the industry’s largest cable companies.

Growth in Europe, record revenues in Rest of World

Europe proved a growth engine in fiscal 2016, consistent with our expectations, as we have more than a hundred customers in this region and a broad installed footprint of our solutions. Additionally, this region is seeing increased service provider consolidation and a drive towards digital which is translating to opportunities for Amdocs. We continued to show strong momentum at the Vodafone Group: Vodafone Ireland selected Amdocs as the managed services integrator to lead a major quad-play transformation project while Vodafone Germany chose Amdocs for a digital transformation of its sales channels across its multiple lines of business. In other business, Three Ireland, a subsidiary of Hutchison, awarded Amdocs a five-year managed services contract to support its digital transformation across all lines of business.

Our performance in South-East Asia has also been healthy as we moved highly complex projects into production, secured new wins and extended the scope of our activities at existing customers. At Vodafone India, we assumed responsibility for their postpaid billing system under a five-year managed services model. In a further demonstration of our strengthening relationship with the Singtel Group, we signed a four-year services framework agreement with Globe Telecom, designed to accelerate innovation through strategic consulting and ongoing IT improvements. As part of our ongoing support of our clients in Latin America, we opened a new development and operations center in Guadalajara, Mexico.

Diversified and expanded customer base

Through last year’s acquisition of a substantial majority of Comverse’s BSS assets and their successful integration into the newly formed Amdocs Optima unit, we gained many new customers across Latin America, Europe, Africa and Asia. In addition to winning new business as a result of this acquisition, we importantly enjoyed a very high retention rate with these customers, signing a large number of maintenance renewals and upgrades at carriers such as BSNL, one of India’s largest service providers, Botswana Telecommunications, and Sky Italia.

The multi-year investment we have made to diversify and expand our customer base is translating into a long-term shift in our geographic mix, with business outside North America now constituting approximately 40 percent of our revenues compared to less than 30 percent only a few years ago. Importantly, we have simultaneously succeeded in maintaining our operating margins at the higher end of our long-term range.


New Offerings Helping Service Providers Digitize Customer Engagement

Well positioned to ride rising industry trends

Carriers are investing heavily to digitize their customer engagement and to bring machine learning and automation to their entire IT stack. This smart digital customer engagement is key for carriers in order to enable a truly personalized customer experience. We have developed many agile new technologies to match this evolving need. This year saw the release of our cloud-enabled CES 10 product portfolio, providing an intelligent digital platform with end-to-end multi-channel, digital care and commerce, customer management and big data analytics solutions with machine learning capabilities. To further our digital play we acquired three companies: Vindicia for software-as-a-service based subscription billing, primarily for over-the-top entertainment and other digital offerings; Brite:Bill, a designer of digital invoices that transforms customer bills into a personalized, digital, interactive billing experience; and Pontis, a leading provider of contextual digital engagement to provide more relevant offers across the entire customer journey.

In the realm of network modernization, we offer a broad suite of operational support systems (OSS) and network virtualization products to help service providers evolve their legacy networks into a more IT, data-centric environment. We have seen strong momentum in this space, particularly in service fulfillment as well as network functions virtualization (NFV) where we are collaborating with AT&T’s network virtualization ECOMP platform. We have the rights to market ECOMP globally and serve as the platform integrator as service providers seek to virtualize their networks and meet the demands of next-generation technologies.

As the consumer wireless market becomes saturated, service providers are beginning to place increasing emphasis on enterprise customers and resolving the complexities of serving the business segment. A leading North American multiple system operator (MSO) this year selected Amdocs for a transformation project to address the growing needs of its enterprise customer segment and we are conducting similar projects at carriers worldwide.

Service providers are also investing in customer profile and data intelligence systems, modernizing their business intelligence and data warehouses with open source environments and machine learning in order to generate real-time operating insights and better sales. Following our investments in this area, more than twenty service providers are employing our big data platform and services to transition into this open, intelligent data-centric environment. We manage some of the largest data lakes in the industry today, including large North America carriers’ data environments, Telefónica Vivo in Brazil and other companies such as Vodafone Germany and Globe Telecom.

For all the above offerings, we have placed a major focus on strengthening our ecosystem by working with a rich set of innovative partners and leveraging cloud and open source technologies and business models.

Stable profitability, allocation of free cash flow to enhance shareholder returns

We exited fiscal 2016 with diluted non-GAAP earnings per share growth of 5.6%, in line with the midpoint of our expectations at the beginning of the year1. This financial performance included operating profitability which was stable throughout the year as we balanced initiatives to improve internal efficiency with ongoing investments for future growth and a focus on consistent project execution.

Free cash flow generation (defined as operating cash flow less net capital expenditures and other) amounted to $497 million in fiscal 2016, of which we returned more than 100% to shareholders by way of share repurchases and our quarterly dividend program. Simultaneously, we utilized our balance sheet to fund the combined acquisitions of Vindicia, Brite:Bill and Pontis for approximately $260 million in cash.

Finally, our Board has also approved a nearly 13% increase in our quarterly cash dividend to 22 cents per share. This new payment will commence in April 2017, subject to shareholder approval, and marks the fourth consecutive year of dividend growth. Moreover, the decision to raise the dividend is consistent with our commitment to provide a dependable income stream to shareholders and is further demonstration of our confidence in the future success of Amdocs.


Future Growth Based on Providing Value

Confidently looking to the future

Our growth and investments over the past fiscal year has been based on the careful execution of our strategy to place Amdocs at the heart of service providers’ transformations to meet the demands of the digital world. There are very few companies in the world who can successfully handle the complexity of the IT projects we deliver and, as Amdocs marks its 35th anniversary, we are confident that we are well placed to maintain our upward trajectory and continue to provide value to our customers and shareholders.

Thank you for your support, confidence and commitment.
 
Eli Gelman
President and CEO,
Amdocs Management Limited
Director, Amdocs Limited
 
Robert A. Minicucci
Chairman of the Board,
Amdocs Limited