Amdocs Limited (NASDAQ:DOX) Q1 2024 Earnings Call Transcript

Amdocs Limited (NASDAQ:DOX) Q1 2024 Earnings Call Transcript February 6, 2024

Amdocs Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. Welcome to the Amdocs Limited First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program Mr. Matt Smith, Head of Invest Relations. Please go ahead, sir.

Matt Smith: Thank you, John. Before we begin, I need to call your attention to our disclaimer statement on slide two of the presentation. It notes that some of our comments today may be forward-looking statements and are subject to risks and uncertainties, including as described in Amdocs’ SEC filings, and that we will discuss certain financial information that is not prepared in accordance with GAAP. 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. Participating on the call with me today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, Chief Financial and Operating Officer.

To support today’s earnings call we are providing a presentation which can be found on the Investor Relations section of our website, and as always, a copy of today’s prepared remarks will also be posted immediately following the conclusion of this call. On today’s agenda, Shuky will recap our business and financial achievements for the first quarter fiscal 2024 and will also update you on the continued progress we have made executing against our strategic growth framework, including generative AI and our continued sales momentum in cloud. Shuky will finish by discussing our financial outlook for the full fiscal year 2024, after which Tamar will provide additional details on our first quarter financial performance, our forward guidance and also our continued commitment to ESG.

So, with that, I’ll turn it over to Shuky.

Shuky Sheffer: Thanks, Matt, and good afternoon to everyone joining us on the call today. I am pleased to report a solid start to the fiscal year, many thanks for which go to our amazing people around the world who work hard to deliver the innovation and value our customers need on their journeys to cloud-based 5G, fixed wireless access and fiber networks, improve digital consumer and B2B experiences, and harness the power of generative AI. The first fiscal quarter financial highlights appear on slide. Record revenue of $1.25 billion was up 5% from a year ago and in line with the midpoint of guidance, non-GAAP operating margin increased by 40 basis year-over-year and 30 basis points sequentially as our initiatives to accelerate profitability yield results, non-GAAP earnings per share was $1.56, consistent with the midpoint of our expectations, and we closed Q1 with a record 12-month backlog of $4.21 billion, up approximately 3% from a year ago and a healthy acceleration of $60 million on a sequential basis.

Our 12-month — our record 12-month backlog position reflects healthy first quarter sales momentum, as highlighted on slide 8. We deepened our relationships with key North American customers such as AT&T and T-Mobile and strengthened our international footprint by expanding existing activities at large operators such as Vodafone Germany, A1 Telekom Austria, Magyar Telekom in Hungary and Etisalat by e& in the UAE. Additionally, we added new logos like Finetworks in Spain and DELTA Fiber in Netherlands and achieved another quarter of strong sales momentum in cloud with migration awards at operators in Canada, Southeast Asia and a new project with NTT Infranet in Japan. Q1 was also notable for Amdocs’ consistent project execution. We successfully completed major implementations at several large-scale customers around the world, thereby creating the foundation for future business expansion.

Amdocs was instrumental in supporting the merger integration of T-Mobile and continues to support T-Mobile’s modernization journey to offer an unparalleled consumer and B2B customer experience in the industry. Elsewhere, Amdocs enabled the seamless migration of 14 million customers to a new omnichannel platform at Three UK and the conversion of around 138 million subscribers to our latest cloud-based charging technology for a leading operator in Southeast Asia. At Claro Puerto Rico, Amdocs’ full digital transformation for prepaid offerings was completed, covering 100% of stores. Amdocs also extended its software and maintenance agreement with Claro Brazil until 2026, supporting over 40 million subscribers. For Telcel Mexico, we upgraded and migrated an existing Amdocs campaign management solution to AWS, migrating an on-premise architecture with a secure cloud-based solution.

From an operations perspective, we provided flawless global support to our customers under managed services engagements during the peak retail sales period of Black Friday and the holiday season. To remind you, our managed services business forms the bedrock of Amdocs’ highly recurring revenue streams, in support of which we signed expanded long-term agreements with customers such as Charter in the U.S., and Claro in Chile and Puerto Rico in Q1. Rounding out our operational highlights, Amdocs continued to bring cutting-edge technology and fresh innovation to market this quarter, reflecting our long-term commitment to deliver customer value through R&D and strategic M&A. Later this month, we will introduce the newest version of Amdocs Customer Experience Suite and service offering at Mobile World Congress, including our latest generative AI offering innovation, we expect to demonstrate our technology leadership across all domains, from customer experience to the network.

Now, let me update you on our growth strategy, which is focused on delivering the market-leading innovation our customers need to, simplify and accelerate the industry’s adoption of generative AI, accelerate the journey to the cloud, create seamless digital experiences by transforming customer journeys for consumer and B2B, unlock the future market potential of true 5G standalone networks with next-gen solutions, and deliver dynamic connected experiences with real-time, automated networks. Beginning on slide nine, generative AI remains a strategic priority for Amdocs. As generative AI gradually moves to the carrier-grade implementation stage, service providers are looking to companies like Amdocs to do the on the ground work to deploy the technology and deliver the business benefits.

We see this reflected in the great progress we have made across the three core pillars of our generative AI strategy over the last quarter. First, powered by our generative AI framework amAIz, Amdocs’ flagship CES24 suite now benefits from generative AI across BSS, OSS and Network domains. Customers who adopt our latest products, such as our Customer Engagement Platform, Amdocs CPQ Pro, Amdocs Catalog or Amdocs Intelligent Network Suite, will therefore benefit from embedded, native generative AI-powered copilot assistants. Second, our gen AI use case factory continues to accelerate the introduction of new generative AI use cases that address the communication industry’s key business imperatives, a taste of which we gave in our generative AI investor webinar in December.

The initial results are promising. With Bill Inquirer, for instance, CSP’s can better solve customers’ billing-related inquiries and recommend alternative products. This instantly transforms traditional Care agents to super agents, while increasing call deflection rates by up to 20% and reducing average handling time by almost 50%. Third, we continue to evolve amAIz in strong collaboration with our webscale partners and industry leaders, including Microsoft and NVIDIA to accelerate the development of generative AI applications and services. To summarize, we believe Amdocs has already established a leading role as a dominant industry technology enabler, capable of helping service providers to fully harness the power of generative AI by simplifying and accelerating the path to adoption.

Amdocs’ position is evidenced by our active engagements including several pilots and close collaborations with several of our large flag ship customers for which we are enabling the important generative AI use cases of the future. We are laser-focused on delivering measurable business results. Moving to the cloud on slide 10, the strong sales momentum of last fiscal year carried into Q1, reflecting growing market recognition for our telco-industry expertise and ability to provide an end-to-end, fully accountable cloud migration paths. During Q1 we won several new deals, including, the start of a cloud migration program with a large Tier 1 operator in Canada and the upgrade and move to the cloud of a legacy CES 9 platform for a leading service provider in Southeast Asia.

Additionally, we secured a cloud transformation and managed services agreement with NTT Infranet, a subsidiary of Japan’s NTT Group, under which we will migrate NTT Infranet’s legacy IT systems to the cloud and deliver cloud security and operations services using the Amdocs cloud management platform. Moving to digital modernization on slide 11, we further strengthened our existing relationships with North America’s leading communications service providers, including continued support of T-Mobile’s modernization journey to offer exceptional customer — consumer and B2B customer experience. At Comcast, we achieved major migration milestones related to its multiyear B2B digital transformation. In support of Charter’s Spectrum services, we extended and expanded our managed services activities under new multiyear agreements which include the Amdocs Charging and Mediation solution and we are working with Altice to expand their mobile sales solution, allowing them to sell services to business customers through mobile eCommerce and point of sale channels.

Our digital expertise is also resonating in Europe and Rest of World where we are — where our products and services are highly relevant. A1 Telekom Austria recently selected Amdocs Subscription Marketplace to enable easy onboarding, integration and monetization of partner services; in Spain, we won our first project with Finetwork which selected Amdocs’ AI-based Digital Brands Suite as a Service to enable triple-play fiber, TV and mobile services; we reached an agreement to embark on the BSS modernization journey of a leading service provider in Central Europe; and in the UAE, we strengthened our collaboration with etisalat by e& with a multiyear enterprise factory engagement to accelerate and modernize their entire testing lifecycle across IT and user acceptance testing.

Turning to slide 12, we continue to deliver the flexible solutions services — service providers need to launch and capture new revenue monetization opportunities, such as fixed wireless access, in the 5G standalone era. We’re excited that AT&T is leveraging our cutting-edge BSS platform, part of the Amdocs CES suite, to enable the successful commercial launch of AIA, AT&T’s Internet Air broadband service that is now available in 59 locations across the country and we are looking forward to the next successful phase of this program. In Europe, Magyar Telekom, Hungary’s leading service provider, elected to deploy Amdocs’ Policy and Charging Control function, and we reached an agreement with Magenta Telekom in Austria to upgrade Amdocs Online Charging System to support their 5G standalone modernization journey.

Additionally, we extended our collaboration with a leading service provider in North Africa to enhance their 5G network capabilities with our cloud-native policy solution and deliver an improved user experience for their customers. Amdocs was also chosen by DELTA Fiber, a leading fiber and cable network operator in the Netherlands, to provide ongoing development support and software maintenance for their monetization engine, empowering them to unlock new opportunities for sales growth. Turning to network automation, we recently announced Amdocs’ new end-to-end service orchestration solution, elements of which is already deployed at some customers. Service providers can now harness the power of virtualization, cloud, 5G slicing and edge technologies to streamline the orchestration of complex new services.

The solution also integrates last year’s acquisition of TEOCO’s service assurance business, which in the first quarter won two deals with leading Western European operators, including the major expansion of TEOCO’s system to Transmission, Mobile core and RAN domains at one customer, and an upgrade and move to the cloud at the other. Turning to slide 14, let me say a few words about the state of the current operating environment. First, while macro uncertainty and industry pressures persist, the overall operating environment remains mostly unchanged as compared to our initial assumptions at the start of the fiscal year. Second, we remain confident in our relatively resilient business model from which we generate highly recurring revenue streams resulting from our support of mission critical systems under long-term engagements, including managed services.

Third, we continue to see a rich pipeline of opportunities to help our customers on their multiyear journeys to modernize for, cloud-based 5G, fixed wireless access and fiber networks, improved digital consumer and B2B experiences, and generative AI, where we believe Amdocs already has a dominant position as the industry’s leading enabler. Fourth, we believe Amdocs is strongly positioned as a highly relevant and trusted partner to help our customers accelerate efficiency and productivity gains, enabling future long-term cost savings. Wrapping everything together on slide 15. We are reiterating our guidance for constant currency revenue growth of between 1.2% to 5.2% in fiscal 2024, which includes another year of expected healthy double-digit growth in cloud activities.

Additionally, ongoing efforts to achieve our expected pace of profitability improvement this year are yielding results as we implement automation, sophisticated tools and generative AI capabilities to improve efficiency across our business. Overall, assuming the midpoint of our guidance, we are on-track to deliver double-digit non-GAAP diluted earnings per share growth for the fourth straight year in fiscal 2024. With that, let me turn the call to — over to Tamar for her remarks.

Tamar Rapaport-Dagim: Thank you, Shuky, and hello, everyone. Thank you for joining us. I am pleased with our solid financial performance in the first fiscal quarter, the highlights of which you can see on slide 17. Record Q1 revenue of approximately $1.245 billion was up 4.8% year-over-year in constant currency. On a reported basis, revenue increased 5% and was at the midpoint of guidance, including an unfavorable impact from foreign currency movements of approximately $1 million compared to our guidance assumptions. On a sequential basis, revenue included an unfavorable impact from foreign currency movements of approximately $5 million. On a geographic basis, all three operating regions delivered year-over-year growth in Q1, including North America which delivered a record quarter.

Moving down the income statement, our non-GAAP operating margin of 18.1% was up 40 basis points from a year ago and up 30 basis points as compared with the prior quarter, driven by the ongoing adoption of automation, artificial intelligence and other sophisticated tools. Interest and other expenses amounted to roughly $8 million in the first quarter, mainly due to adverse foreign currency movements in the quarter. On the bottomline, non-GAAP diluted EPS of $1.56 was at the midpoint of guidance and included a non-GAAP effective tax rate of 15.3% which was within our annual target range of 13% to 17%. Diluted GAAP EPS was $1.26 for the first fiscal quarter, which was at the high end of the guidance range of $1.18 to $1.26. Moving to slide 18, 12-month backlog was a record high $4.21 billion, up approximately 3%.

On a sequential basis, our 12-month backlog accelerated by a healthy amount of $60 million in Q1 as we continued to sign deals with new logos and existing customers. As a reminder, our 12-month backlog has roughly averaged around 80% of forward-looking 12-month revenue over the years and has therefore traditionally served as a good leading indicator of our business. Turning to slide 19, managed services revenue was a record $722 million, equivalent to about 58% of total revenue. Our managed services engagements support the resiliency of our business and provide the bedrock of Amdocs’ recurring revenue streams, near 100% renewal rates and multiyear engagements, such as the recently expanded agreement with Charter which Shuky referenced earlier.

Among other highlights this quarter, Amdocs extended its managed services for CLARO/VTR Chile, we signed a new managed services agreement for policy and charging at CLARO Puerto Rico, and Amdocs signed a cloud transformation and managed services agreement with NTT Infranet. Now, turning to the balance sheet and cash flow highlights on slide 20. DSOs of 75 days decreased by 12 days year-over-year in Q1 and increased by six days sequentially. The sequential first quarter change in unbilled receivables net of deferred revenue was $79 million in Q1, aggregating the short-term and long-term balances. As a reminder, the net difference between unbilled receivables and deferred revenue fluctuates from quarter-to-quarter, in line with normal business activities.

Reflecting strong execution, we reported free cash flow of $139 million for the first quarter, comprised of cash flow from operations of $182 million, less $44 million in net capital expenditures and other. Note that reported free cash flow in the first fiscal quarter included restructuring payments of $16 million, adjusting for which reported free cash flow would have been $155 million. Overall, we ended Q1 with a strong balance sheet and a healthy cash balance of approximately $601 million, including aggregate borrowings of roughly $650 million. We have ample liquidity to support our ongoing business needs while retaining the capacity to fund our future strategic growth. As a final point, Amdocs’ strong financial position is reflected by our investment-grade credit ratings at S&P and also Moody’s, which upgraded Amdocs by one notch to Baa1 in November.

Turning to capital allocation on slide 21, we repurchased $159 million of our shares in the first quarter and paid cash dividends of $51 million. Overall, we returned a total of $200 million — $210 million to shareholders through share repurchases and dividends in the first quarter. Looking ahead, we continue to expect free cash flow of approximately $750 million in fiscal 2024, excluding anticipated restructuring payments of approximately $24 million of which the majority was incurred in Q1. Additionally, we remind you that free cash flow in the second fiscal quarter is typically lower due to the timing of annual bonus payments. Our free cash flow outlook of $750 million for the year equates to a conversion rate of approximately 100% relative to non-GAAP net income and represents a healthy free cash flow yield of roughly 7% relative to Amdocs’ current market capitalization.

Regarding our capital allocations in fiscal year 2024, we expect to return the majority of our free cash flow to shareholders. Now turning to our revenue outlook on slide 22. To begin, we are continuing to closely monitor the prevailing level of macroeconomic, geopolitical, business and operational uncertainty, which remains elevated in the current business environment. Thus, the second quarter and full year fiscal 2024 financial 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. Beginning with the topline, we are reiterating our revenue growth outlook of between 1.2% to 5.2% year-over-year on a constant currency basis in fiscal 2024, the 3.2% midpoint of which is roughly half organic.

Consistent with our previous guidance, we continue to expect a stronger second half to the fiscal year, based on our expected plan of execution for deals already in 12-month backlog, plus new opportunities which we anticipate will convert to signed deals and contribute to revenue this fiscal year. Additionally, we remain firmly on track to deliver another year of double-digit growth in cloud activities, which, to remind you already represented more than 20% of total revenue in the prior fiscal year. Our annual outlook includes second fiscal quarter revenue within a range of $1.225 billion to $1.265 billion and assumes an immaterial sequential impact from foreign currency fluctuations as compared to Q1. On a reported basis, we now expect full year revenue growth in the range of 1.1% to 5.1% year-over-year, as compared with 1% to 5% previously, which incorporates an unfavorable impact from foreign currency fluctuations of approximately 0.1% year-over-year, as compared with an unfavorable impact of approximately 0.2% year-over-year previously.

Moving down the income statement, we are on pace to achieve non-GAAP operating margins within our annual target range of 18.1% to 18.7% shown on slide 23. As we said last quarter, we anticipate a gradual improvement in non-GAAP operating margin through fiscal year 2024, reflecting ongoing efforts to optimize Amdocs’ cost structure and the cumulative benefits of our continual initiatives to improve operational excellence. This includes the adoption of automation, other sophisticated tools and disciplined resources management, added to which we expect the implementation of gen AI to drive additional cost and efficiency improvements across our business. Below the operating line, we anticipate that foreign currency fluctuations and cost of hedging will impact our non-GAAP net interest and other expense line in the range of several million dollars on a quarterly basis.

We expect that our non-GAAP effective tax rate will remain within an unchanged annual target range of 13% to 17% for the full fiscal year 2024. Bringing everything together on slide 26, we are reiterating our outlook for non-GAAP diluted earnings per share growth in the range of 8% to 12% for the full year fiscal 2024, the midpoint of which is expected to mark the fourth straight year of near double-digit growth. Moreover, we expect to deliver double-digit total shareholders returns for the fourth year running in fiscal 2024, including our outlook for non-GAAP earnings per share growth, plus our dividend yield of about 2%. Before handing back to Shuky, I am proud to say that Amdocs was recently recognized for its commitment to sustainability and corporate responsibility by earning a place on the prestigious S&P Dow Jones Sustainability Index for North America for the fifth consecutive year.

More specifically, Amdocs was ranked in the 93rd percentile of the top 20% of the companies surveyed in the S&P Global BMI based on long-term economic, environmental and social criteria. We believe such an achievement reflects the important steps we are taking on our sustainability journey as we continue to bring our customers valuable, reliable and sustainable products, while ensuring our operations are held to the highest ethical standards. In line with our emphasis on conserving the environment, last year we set ourselves a long-term climate goal of becoming carbon neutral on Scope 1 and 2 emissions by 2040. Amdocs also continues to place people-centricity at the heart of our focus. During Q1, we held numerous company-wide campaigns to drive awareness around gender diversity and people with disabilities, and we remained active in the communities we serve worldwide, leading dozens of events globally to support digital inclusion, STEM education, food for the needy and many other important initiatives.

With that, back to you, Shuky.

Shuky Sheffer: Thank you, Tamar. As a I said in my opening remarks, we have started fiscal 2024 on a solid note and we are on-track to achieving a fourth consecutive year of double-digit non-GAAP earnings per share growth. With that, I am happy to take your questions. Operator?

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Q&A Session

Operator: Certainly. One moment for our first question. And our first question comes from the line of George Notter from Jefferies. Your question, please.

George Notter: Hi, guys. Thanks very much. I guess I wanted to start by asking about the headwind I think you guys have been talking about the last couple of quarters, customers looking to hold back on maintenance-type projects in lieu of bigger transformation projects. I see the guidance for the full year, of course, hasn’t changed, but could you give us an update on what you’re seeing in terms of that trade-off from larger customers?

Shuky Sheffer: Hi. As we said, we did not see a big change in the environment and given this is our first quarter for our customer, this is our fourth quarter, usually you don’t see any changes in trends. This is the end of the fiscal year. So, so far we did not see any change — significant change to what we discussed in the previous quarter when we gave the fiscal year guidance. For the most part, it’s the same. Our customers continue to invest in the all the next-generation and modernization program we are doing for them, both for consumer and B2B. Moving to the cloud, this is like we mentioned last quarter. We continue to see very strong momentum in all our cloud-related activities and we see and we predict another year of double-digit growth in this domain.

As I said, all the modernization program continues. The same headwind that we reported last quarter regarding mainly the legacy platform, it did not change. This is the beginning of the year. We’ll see what will go on moving forward. But as I said, this was our first quarter for our customer, this was our fourth quarter. So we did not see any changes in the overall environment.

Tamar Rapaport-Dagim: I just want to add a point of clarification here. What we’ve said is that, we’ve seen that pressure and enhancement of legacy systems.

Shuky Sheffer: Yeah.

Tamar Rapaport-Dagim: So these customers are actually investing significantly in building the new stack and modernizing the systems. We do not see that happening in terms of the maintenance of the managed services. In fact, we are reporting in our first fiscal quarter, as you can see, a record high managed services revenue, as evidenced both by the high renewal rates we’re seeing, as well as new customers that are signing up with us managed services engagement.

George Notter: Got it. That’s great. And then the other question I wanted to ask was just on early feedback on the amAIz product. I think you guys have had it in the product set with customers for a quarter or so now. Also, I know you guys are not putting AI features in the older products. It’s all in the new CDS iterations. Can you just talk about, are you seeing more activity there with customers? Is there a possibility you could see some AI-driven revenue in this year? Any update on that would be great. Thanks a lot.

Shuky Sheffer: So, George, first of all, we see a significant acceleration in engagement. Just to remind, as we said on the prepared remarks, we have different layers of offering, different pillars of offering. Some of them are embedded in our product. Some of them are on top of our product. But the way we see Amdocs, at the end of the day, all our customers, when they need to implement generative AI, this is exactly where Amdocs can enable it. Meaning, you’re not just calling Microsoft and saying, I want generative AI. There’s a lot of activity, plumbing, whatever you can call it, under the hood, in data access. So, for every simple question or use cases, there is a ton of data that you need to bring in a secure way, in an affordable way, in a way that it’s a carrier-grade, I would say, operation to be able to implement it.

So, overall, as I said, I can tell you that the number of engagement significantly accelerated during this quarter. Now, regarding revenue acceleration, I think, we did not change our position in a way that, on one hand, from productivity gains, we see a lot already happening in 2024. And this — so far, we did not calculate additional revenue uptake regarding generative AI. Although, I believe that some of these many proof-of-concepts that we are doing right now will yield to be projects this year.

George Notter: Great. Thank you.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Timothy Horan from Oppenheimer. Your question, please.

Timothy Horan: Thanks, guys. Just following up on the macro, just to be clear, so in January and February, you haven’t seen any real change in trends on the legacy spending upgrades, just to confirm that or were you referring to the fourth quarter? And then, secondly, are you seeing an acceleration on the migration to the cloud or do your customers understand that they really need to migrate to the cloud more aggressively to use these new AI products? Thanks.

Shuky Sheffer: So, I think, first of all, definitely, we see acceleration. I mean, all our customers are in different types of shape of different phases of moving to the cloud. And most of the agreements that I mentioned today and before are related to moving and modernizing and moving the platform to the cloud. So definitely we see acceleration. Regarding the headwind that we discussed last quarter…

Tamar Rapaport-Dagim: It’s the same 3% headwind we discussed when you gave…

Shuky Sheffer: Yeah.

Tamar Rapaport-Dagim: … the original guidance for the year. We don’t see a change there.

Shuky Sheffer: It’s…

Tamar Rapaport-Dagim: So it’s baked into the guidance.

Shuky Sheffer: Yeah.

Tamar Rapaport-Dagim: We don’t see a different view on that based on everything we have as of now.

Shuky Sheffer: One…

Timothy Horan: Okay.

Shuky Sheffer: One month is to the year.

Timothy Horan: Got it. Got it. Any sense when that might turn around? I mean, could that last for another year or two, like, when you look at it historically, what had happened, and yeah, any sense about that would be great.

Tamar Rapaport-Dagim: As we said when we gave the original guidance for the year, we assumed for this specific year more or less the same level that we entered the year with. But we didn’t want to take a different position before we see any specific signs that it’s changing. So, I think, it’s too early to say right now whether it will change in several quarters from now. But we’ll definitely give an update as soon as we do see something. I think more importantly is, A, we continue to see 100% renewals; B, we continue to sign new logos; and C, as Shuky said, we’re very excited to see a growing pipeline of opportunities, some of which obviously signed already, as you can see from the $60 million sequential change in the 12-month backlog, which is quite significant, and some, of course, yet to be converted from the pipeline to deals.

Timothy Horan: And then just on the AI front, I know it was kind of asked, but do you have many examples of customers using it right now, like, you have products or services in production right now and how many more do you kind of expect to be able to deploy this year?

Shuky Sheffer: All the customers in this phase are still in the proof of concept. But we believe that we will move to production some of these POCs in the next couple of quarters already. Early, I would say, results are showing results beyond imagination. I mean, we see that the technology is working. It gives huge benefits in — especially in Care and other areas that we are experiencing right now and we are really, really bullish about the opportunity.