Letter to Shareholders
Dear Fellow Shareholders,
Fiscal 2018 was a record year for Amdocs, with revenues breaking the $1 billion per quarter barrier for the first time while profitability remained at the higher end of our forecast. We believe this success is due to our early recognition of the industry trends driving our customers – expansion into new domains and the digitalization of the experience they provide their end users – and the gearing of our innovative solutions and services to help service providers adapt to their rapidly changing market dynamics.
The end of fiscal 2018 also saw the appointment of a new president and chief executive officer of Amdocs, Shuky Sheffer, a co-signatory of this letter. A long-time senior executive at the company, Shuky’s previous role was president of Amdocs Global Business, responsible for the organization’s customer business as well as delivery of projects to customers. Shuky has spent his whole career at Amdocs, aside from a three-year period as CEO of Retalix, a publicly traded provider of software solutions to retailers and distributors worldwide.
Looking ahead, as our customers continue their digital modernization projects, expand their footprint in the enterprise sector and evolve their service-driven networks, we see many opportunities for further growth as we support our customers on their transformational journey.
President and Chief Executive Officer
Robert A. Minicucci
Chairman of the board
In fiscal 2018, we deepened our capabilities within the media and entertainment industry, which is seeing increasing convergence of wireless and Pay TV offerings on the one hand, and the emergence of the direct-to-consumer content business model on the other, with the acquisition of Vubiquity, a provider of premium content services and technology. With this purchase, we feel Amdocs will be uniquely positioned to address the requirements of content distributors, content owners and the large internet players as the lines between each become increasingly blurred. Post-acquisition contract renewals with Turner and an expansion of Vubiquity’s existing relationship with Verizon already show positive momentum in this realm.
As service providers expand from mobile and broadband into digital life services like TV and video subscriptions, home automation and security, music subscriptions and online shopping, the importance of providing a single digital identity for their subscribers across all such services increases. To this end, we acquired UXP Systems, a leader in User Lifecycle Management, to reinforce our capabilities around digital identity, user entitlement, personalization and privacy, including content management. At the beginning of the fiscal year, we also acquired projekt202, a leader in experience-driven software design and development, to further help our customers improve the customer experience they offer.
Our performance over the past 12 months has been a testament to the strength of our unique business model, our focus on execution and the innovation we bring to our customers. We firmly believe Amdocs is one of the most advanced companies in the realm of highend enterprise software and related services. The launch at Mobile World Congress of amdocsONE provides service providers with a broad set of products and services designed to grow revenue and build loyalty. Available on an open, modular architecture, built on cloud-native microservice technologies for high velocity time to market, and deployed using DevOps in small iterations to control costs, amdocsONE is designed to accelerate our customers’ digital transformation and should drive our continued success.
Strategic projects in North America
Despite slower discretionary spending at AT&T, our largest customer, and uncertainty surrounding customer consolidation in this market, our broader customer activity in North America was healthy as we levered our leading capabilities in three dimensions: improved consumer and enterprise customer experience through digital modernization; support for the convergence of traditional wireless and Pay TV providers, and the enablement of next generation infrastructure investment such as network functions virtualization (NFV) and preparations for the launch of 5G networks (we were the first vendor to announce the launch of a 5G-ready online charging system).
At Rogers Communications in Canada we were awarded a project to provide its next-generation customer experience platform, which will enable Rogers to deliver a consistent and high-quality customer experience across its voice, video, data and connected devices services, while U.S. Cellular selected us for a turnkey project to transform customer digital care and commerce experiences over its Web and mobile channels. At DISH we successfully deployed the enterprise transformation project announced last year and we also delivered a radio access network optimization service for Voice over LTE (VoLTE) at another leading US carrier. Furthermore, we continued our extensive work on strategic projects at many of the continent’s leading Pay TV operators as they modernize their business support systems (BSS).
Double-digit growth in Europe, strong customer activity in Asia Pacific
Europe delivered solid double-digit growth in fiscal 2018 as we focused on project execution and winning new digital modernization awards across the region, including at Vodafone Italy, Altice SFR in France and A1 Bulgaria, where Amdocs solutions will enable these service providers to provide outstanding experiences for today’s massively connected, always-on customers. We also won our first-ever transformation award with TIM, the largest communications provider in Italy, expanding our customer footprint in this key European market. Furthermore, we secured a new customer in the country, Sky Italy, for a multi-year managed services arrangement that includes delivery of the Amdocs Open Network OSS suite on a cloud-enabled platform. At Three Ireland, our artificial intelligence and advanced analytics and machine learning platform will enable this Hutchison subsidiary to provide a personalized and proactive customer experience as part of its digital transformation journey. MTS, the leading telecommunications group in Russia, meanwhile selected Amdocs as a technology partner to help bring innovative digital content to its customers through a rich partner ecosystem.
We were also pleased with our Rest of World performance, which was primarily led by relatively strong customer activity in Asia and the surrounding Pacific region. Highlighting our experience in the Philippines market, and the sophisticated IT infrastructure we have established to support customer activities in Manila and across the South-East Asia region, we secured a highly significant seven-year managed transformation deal with PLDT and its wireless subsidiary Smart Communications. Under this agreement, PLDT will modernize its IT systems and business processes using Amdocs solutions including artificial intelligence and machine learning. Later in the year we expanded this strategic partnership with a six-year managed IT infrastructure deal. Elsewhere in the Philippines, at Globe Telecom, we collaborated for the first time with Amazon Web Services (AWS) to deliver a fully digital customer engagement experience, and also signed a separate, multi-year services contract for continuous enhancement of Globe Telecom’s operations. We are seeing increasing awareness in this region of the benefits of our intelligent operations (managed services), including our automation of Vodafone India’s billing operations, enabling this operator to improve the customer experience in the areas of bill delivery and accuracy. At Bharti Airtel, India’s largest service provider, we are serving as its digital transformation strategic partner, deploying machine learning and artificial intelligence capabilities to enable Airtel to deliver next-generation services to its customers. Also in South-East Asia, we announced the successful completion of a converged billing transformation program at True Corporation in Thailand. In Africa, we gained a new customer at Safaricom, a major mobile network operator in Kenya, who will use our revenue assurance technology and expertise.
Innovation in practice, bringing positive results
At Amdocs, we pride ourselves on delivering innovation in practice and investing in new areas in order to bring positive results for our customers and shareholders. With the ability to provide offerings around content, virtualized network, and digital transformation, utilizing technologies and practices such as artificial intelligence, DevOps and microservices, we are committed to building the new engines that will sustain our market leadership position. These engines include our investment in Pay TV, with many leading North American Pay TV operators now using our digital technology solutions to drive their business and modernize their systems.
This year moreover saw an important milestone in our NFV journey with the announcement that we are supporting the commercial availability of Comcast’s software-defined wide area networking (SD-WAN) service for enterprise businesses, leveraging our leading NFV portfolio.
We also served as Bell Canada’s strategic partner for the implementation of the first network automation use case in production, which enables the much faster introduction of new services for Bell Canada’s enterprise and consumer customers. This use case leverages the Linux Foundation’s Open Network Automation Platform (ONAP), for which Amdocs was one of the co-authors of the original code base. In Australia, we partnered with Telstra to implement a next generation operational support systems (OSS) platform for its enterprise line of business that will enable Telstra’s network domain to evolve toward virtualization. Furthermore, in collaboration with Microsoft, we can enable operators to deliver virtual network services running on the Microsoft Azure cloud, orchestrated and managed using ONAP. We are encouraged to have seen recently some pick-up in the number of global service providers evaluating NFV and believe the progress we are making supporting the activities of our early adopter customers will encourage others to follow in due course.
Strength in diversity
At Amdocs, our over-arching corporate social responsibility theme is building a better future through inclusion. We are committed to diversity, believing a gender diverse, multi-cultural workforce provides strength and a competitive advantage. We run internal programs to increase representation and empower female employees of our company. We also strongly believe we should support the communities in which we work, placing special emphasis on improving employability for young people. We prioritize financial, digital and English literacy, mentoring and STEM (science, technology, engineering and mathematics) education. For example, in India alone, we have trained thousands of people in digital literacy and helped students participate in STEM-related programs. We are proud of the fact that approximately one in five of our employees are involved in volunteering in their community, donating over 35,000 hours of voluntary work in fiscal 2018. We are also committed to minimizing any negative environmental impacts of our operations through reducing emissions and waste, and via our carbon offsetting program.
Record revenue, stable operating profitability
Regarding our financial performance in fiscal 2018, we achieved our total revenue growth targets for the full year as we more than offset the discretionary spending headwinds at AT&T with healthy levels of activity at new and existing customers in the broader North America region, Europe and Rest of World. At the same time, our operating profitability was stable while we focused on project execution, reallocation of resources to growth areas, and closing the previously mentioned acquisitions for a combined amount of $355 million. We also met our commitment to return roughly 100% of free cash flow to shareholders after normalizing for the initial investments we made in our new campus development in Israel. Altogether, we delivered full year diluted non-GAAP earnings per share growth of 6.1% in fiscal 2018, in line with the midpoint of our expectations at the start of the year. In light of this performance, and the confidence we have in the future success of Amdocs, our Board has also approved the sixth consecutive annual increase in our quarterly cash dividend, subject to shareholder approval at the annual general meeting in January.
At the end of fiscal 2018, Eli Gelman stepped down as Amdocs president and CEO after eight highly successful years at the helm of our company. Under his leadership, Amdocs greatly expanded its customer base, entered new strategic domains and markets, and saw a significant improvement in its financial performance. We are grateful for Eli’s years of service and delighted he will remain with the company as a director.
We are confident we are well-placed to build further on the success of fiscal 2018 and, by doing so, continue to provide value to both our customers and our shareholders.
Thank you for your support, confidence and commitment.
President and Chief Executive Officer
Robert A. Minicucci
Chairman of the board