Timothy Horan: Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Tal Liani from Bank of America. Your question, please.
Tal Liani: Hi. I have two questions. First one, just to understand the EPS guidance. So when I compare your guidance for the year with street guidance, it’s right in line. But your guidance for next quarter is about $0.04 below the street. So that means that you expect that EPS will recover by $0.04 in the second half of the year. So, what drives the $0.04 recovery in the second half to bring you back to kind of in-line-ish EPS guidance? That’s the first question. And second question, I want to refer back to something you said last conference call and ask you just for an update. Last call, you said that when there are budget cuts, you see an immediate impact on legacy spending, but it takes more time to see ramping of modernization deals.
There’s kind of a time difference. So when it comes to modernization deals, have you seen any update, have you seen them coming versus previous expectations or do you expect to see them coming and what about timing of when they’re coming, just to get kind of an update on timing of cuts versus new projects? Thanks.
Tamar Rapaport-Dagim: So, Tal, regarding the first part of the question, we have elevated the operating margin range significantly for this year, as we indicated already in the beginning of our fiscal year, to 18.1% to 18.7%, and also said that we will see a gradual improvement as we go through the year. So, we already jumped now 40 basis points in our Q1 numbers and we continue to have the expectation that it will gradually improve, and with that, comes also the EPS stronger performance in the second half of the year. Regarding the second part of the question, you’re right, we explained that if a customer decides to slow down on some legacy enhancements, that’s pretty immediate and we will see the revenue pressure pretty quickly.
At the same time, when a new customer, let’s say, is signing up for a modernization project or awarding us a new managed services engagement, the ramp-up of revenue takes time. There’s a setup phase and then we start later on to enjoy the revenue peak up. We do see a very nice momentum in terms of our sales, both in terms of the cloud activities, as well as other modernization. We try to give a lot of examples of these new deals that support the $60 million sequential increase in the 12-month backlog. You can see that it’s across our strategic pillars, digital transformation, the 5G, the whole network automation aspect, the cloud, and all of that will support our visibility into the acceleration we expect in the second half. Of course, we still need to sign more deals.
We didn’t finish the sales. We need to sell more deals and we predict as part of that acceleration, also the continued conversion of our pipeline to additional signings.
Tal Liani: And Tamar, you used to say, I’ve been covering this talk as long as I’ve been an analyst, so you used to say many, many years ago that visibility entering a year is about 75%. What’s the visibility entering 2024 versus kind of historical visibility ahead?
Tamar Rapaport-Dagim: Actually, for some years now, we are talking about more like roughly 80% visibility entering a year. It has to do with the fact that the company enhanced the managed services as a percentage of revenue and we continue, of course, to focus on converting more existing customers to managed services, as well as adding new logos. So, looking into 2024, I would say roughly 80%. We shouldn’t take it mathematically, so don’t take 80% exactly and take the backlog and divide it by 0.8, but, roughly speaking, that’s a good indicator and we think that looking into the 12-month backlog as a good indicator of the future is typically helpful.
Tal Liani: Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of William Power from Baird. Your question, please.
William Power: Okay. Great. Thank you. Yeah. I wanted to circle back to generative AI. I know there were already a couple of questions. I wondered if you could, I guess, first just, update us on the progress of the Microsoft and NVIDIA partnerships, and do any of the early pilots kind of include those partnerships? Just kind of curious how that’s shaping up. And I guess kind of secondly tied to that, it sounds like, customer care is maybe one of the early pilots you’re looking at. I just, it’d be great to kind of hear thoughts on where you’re looking at other kind of proof of concepts or pilots outside of customer care with generative AI? Thanks.
Shuky Sheffer: So, definitely, I think that, in most of our POCs, we are engaging both with Microsoft and NVIDIA. Obviously, using OpenAI, and in some cases, and in some cases leveraging the NVIDIA platform. So this is pretty much happening in every — in almost every POC that we are engaging right now. Regarding use cases, you’re right that the low-hanging fruit use cases are mainly in the Care and they are in different domains from the one, like, why my bill is so high, why my bill is different than last week, last month’s bill, et cetera. We see many, many use cases like this. And at the same time, I try to do what the next best offer. I mean, to try to offer a better offer to the customer based off a lot of information that we get from generative AI.
And as I said in my prepared remarks, we see a lot of great results already in the Care, both for ability and improving the productivity of what we call the super-agent now with really great tools. And at the same time, deflecting a lot of many calls, giving these capabilities. Eventually, the idea is to open a chatbot or something to consumer, which much better services than the current chatbot. So we see a lot of, I would say, as you said, the low-hanging fruit use cases are mainly in Care and we are involved in all of them. But at the same time, we are implementing additional, I would say, generative capabilities like offer generation, catalog assist and many other capabilities that we have that are not necessarily on the Care side, but more on the monetization side.
So, but we see a lot of progress and we are working very tightly with both Microsoft and NVIDIA.
William Power: Okay. Maybe if I could flip in one more. I think in the prepared remarks, you referenced deep end relationships with both AT&T and T-Mobile. Those are your two biggest customers already. Maybe any other color you can share on, where you’re seeing the continued growth opportunities is some of that generative AI. I know some of it’s the broadband wireless, it sounds like, at AT&T, but anything else you could share on where you’re seeing the added growth opportunities, that would be great.
Shuky Sheffer: Not everything I can share. But I can tell you in a high level that we are, in both customers, we are accelerating the monetization activities. So we were in a certain level of activities last year and now we’re seeing both of them more activities and more acceleration. As a reminder, we are still in the very early stages of monetization in both of them and we see a pickup in these two customers in the acceleration of the monetization journey. I cannot share more detail beyond that.
William Power: Okay. Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Ashwin Shirvaikar from Citigroup. Your question, please.
Ashwin Shirvaikar: Thank you. Hi, Shuky and Tamar.
Tamar Rapaport-Dagim: Hi.
Ashwin Shirvaikar: Thanks. So, I guess, I wanted to ask about gen AI and your — just based on your prepared remarks and comments you’ve made and other stuff you put on your website, it’s pretty clear that you’re demonstrating more efficiency for your clients, better experience for their customers, things like that. I guess, how does that translate or how does it translate to Amdocs’ direct benefit in terms of, does it help you with more revenue growth, you obviously are benefiting on the margin side and you’re doing yourself with AI, but on the revenue side, are you able to monetize faster because of it?
Shuky Sheffer: The answer that this definitely will eventually contribute to our revenue acceleration. And I want to expand a bit more about what does it mean to implement a use case in generative AI and something, let’s say, in the Care domain. This is not just trying to do some simple integration and see that it’s working. You need to build a mission critical, because at the end of the day, if a customer decides to reduce the number of his CSR reps by 20%, you need to make sure it’s working all the time. So, it’s building, the plumbing around it is huge. You need to build infrastructure. That at certain point, you’re going to open AI. At certain point, when you want to load the data that comes from your own customer data, like last 12 months invoices, they are many, many information.
