Letter to Shareholders

Letter to Shareholders

Dear Fellow Shareholders,

Fiscal 2019 was a good year for Amdocs. We performed well in all areas of our business. We won important new projects and gained new customers across different geographies, executed professionally at existing engagements and innovated throughout our open and dynamic amdocsONE portfolio.

Key financial highlights for fiscal 2019 include:

  • Total revenue of $4.1 billion
  • GAAP operating margin of 13.9%
  • GAAP diluted earnings per share growth of 40.5%
  • Non-GAAP operating margin of 17.3%
  • Non-GAAP diluted earnings per share growth of 6.9%
  • Record 12-month backlog of $3.49 billion, an increase of 4% from a year ago

We achieved our total revenue target for the year, reflecting early but encouraging signs of stabilization at AT&T in the second half of the year, healthy customer activity in broader North America and solid growth in Asia-Pacific and Europe. We returned a majority of free cash flow to shareholders. Confident of future success, our Board has authorized an additional share repurchase plan of $800 million with no expiration date, which we will execute at the company's discretion going forward, and also approved the seventh consecutive annual increase in our quarterly cash dividend, subject to shareholder approval.

Helping our customers modernize, automate and digitize their business

Communications service providers worldwide are embarking on an accelerated journey to transform their businesses and deliver a digital customer experience, leveraging the new opportunities that will come with 5G adoption.

Our cloud-native amdocsONE portfolio has been designed specifically to provide an open and dynamic approach to upgrading pieces of their technology stack at the velocity needed – on a daily, monthly and annual basis – to enable IT to better meet the innovation needs of the business for improved customer experience, smart monetization and agile service delivery. Our customers have welcomed this approach,
awarding Amdocs significant digital transformation projects across the globe in fiscal
2019, often under a multi-year managed services agreement.

Selected digital transformation projects

  • Sprint
  • Telefonica Argentina
  • Telefonica Chile
  • Safaricom
  • VEON
  • XL Axiata

Continued growth in media and Pay TV sector

With the increasing convergence of wireless and Pay TV offerings, we are seeing traditional Pay TV providers continue to promote broadband and establish mobile services which requires them to transform their legacy business systems to accelerate their new digital offerings. Over the past few years this convergence has been a strategic growth engine for Amdocs and we fully expect this to continue in the future.

Following the successful acquisitions of Vubiquity and UXP Systems in fiscal 2018, we created Amdocs Media, integrating these and other Amdocs assets such as Vindicia, to allow service providers to monetize content as they build their media and entertainment business, and launched Amdocs MarketONE, a new subscription monetization solution. The importance of content in driving customer loyalty has never been greater as our customers seek to strengthen their brand across all channels. With our well-established business relationships with service providers, combined with technology and distribution ties to content creators and video distributors, we believe we are uniquely positioned to bring value in support of media and other direct-to-consumer opportunities.

Selected Pay TV/media projects

  • Altice USA
  • Charter
  • Comcast
  • Eros Now
  • NFL
  • Viacom

Building and monetizing open cloud and 5G networks

As service providers seek to shape the connected society, our Open 5G suite of solutions enables them to deploy the innovative new services and benefit from new monetization models that open cloud and 5G networks allow. We were the first company in the industry to announce a 5G-ready online charging system, and our monetization solutions help service providers capture every revenue opportunity in the 5G digital ecosystem, with a variety of new one-time, subscription-based and alternative (such as loyalty, social currency and ad-supported) payment models.

Our solutions already support some of the world's first 5G commercial services and help operators accelerate their rollout of innovative 5G services. In North America, we have conducted projects at customers around 5G network design and optimization and we also acquired TTS Wireless, a provider of mobile network engineering services with proven 5G experience, to further help service providers speed up their plans to launch 5G networks.

Providing additional validation of our progress in this domain, we were awarded Light Reading's Leading Lights Most Innovative 5G Strategy award for 2019 and placed at the top of the Gartner Magic Quadrant for Operations Support Systems, which also includes the ability to help service providers adopt network functions virtualization (NFV) and software-defined networking (SDN).

In this new open network ecosystem, collaboration plays a significant role. With Amazon Web Services, we help our customers drive the transition to digital faster and more cost-effectively
and we have also expanded our collaboration with Microsoft to help service providers offer their enterprise clients differentiated, cloud-based services on Microsoft Azure. Our network-as-a-service (NaaS) offering helps our customers accelerate growth beyond their traditional connectivity offerings for the enterprise sector.

Selected network projects

  • Globe Telecom
  • KT Corporation
  • SES
  • VodafoneZiggo

Unmatched project execution and operations

Underpinning our business activity is our reputation as a loyal and capable partner and delivery powerhouse, gained over more than 35 years. In an average quarter, we bring well over 80 major productions to completion, a success rate unmatched in the industry. Post-delivery, we are often engaged by the customer to provide managed services for these systems.

Benefiting our unique accountability model, many of these projects involve what we call managed transformations: a multi-year project in which we modernize legacy systems while operating them, and then continue to provide managed services once the transformation is complete, leveraging technologies and methodologies such as DevOps, site reliability engineering, automation and artificial intelligence. Driven by the continued ramp-up of such managed transformations at several customers in different geographies, fiscal 2019 was notable for the success of our managed services, which grew 10% compared to the previous fiscal year.

Selected managed services projects

  • Comcast Xfinity Mobile
  • PLDT
  • Sky Italia
  • Telkomsel
  • Vodafone Idea

A better future through inclusion

Key to our success are our employees, and we firmly believe in the positive power of a diverse and inclusive workforce. We have placed particular effort in recruiting more women for core technology roles, while in terms of the company's senior management, women general managers are responsible for over 40% of the employee population. We seek to create a welcoming work environment for all employees, regardless of age, disability, ethnicity, gender, religion or sexual orientation.

As part of our contributing to the communities in which we work, we place a special emphasis on improving employability for under-represented populations. Our volunteers prioritize financial, digital and English literacy, mentoring and STEM (science, technology, engineering and mathematics) education for young people, as well as upskilling women, people with disabilities and minorities. We're proud that approximately one in five Amdocs employees volunteer their services, working with nearly 500 different charities worldwide.

We also believe in the importance of sustainability and, for the first time, Amdocs has been included among the leaders in the S&P Dow Jones Sustainability Index (DJSI) North America, ranking in the top 10 percent. DJSI referred to Amdocs as being "best-positioned to address future sustainability challenges and opportunities," highlighting our performance around environmental and social policies, including operational eco-efficiencies, corporate social responsibility and employment practices.

Volunteering highlights in India
6,000 students receive STEM, remedial education and mentoring
7,800 students benefit from digital literacy training
Vocational training for 1,000 young people

In conclusion, we would like to thank you, our customers, and our employees for the support, confidence and commitment we enjoyed over the past fiscal year.

We are confident we have the right strategy in place, and the ability to execute upon it, and we look forward to driving further value for our customers and shareholders in fiscal 2020.

Shuky Sheffer
President and chief executive officer

Robert A. Minicucci
Chairman of the board