AMDOCS LTD Q2 FY2026 earnings call

New CEO Strategic Vision for the Agentic Era:

• Amdocs views the agentic/Gen AI revolution as a transformative opportunity for communications service providers to fundamentally rework IT and network ecosystems, simplify operations, and accelerate new offering launches. Amdocs is uniquely positioned to lead this shift due to its decades of deep telco industry domain expertise, strong engineering innovation pedigree, proven experience delivering and operating mission-critical systems, and long-standing outcome-based business model aligned to customer KPIs.
• Key priorities include: evolving the entire product portfolio to be agentic and automated, creating customized agentic transformation roadmaps for each customer based on their unique baseline, partnering strategically with leading AI and cloud ecosystem players to accelerate delivery, and accelerating internal transformation to become a Gen-AI native, more agile organization. This strategy expands Amdocs' addressable market within telco and opens potential expansion into new adjacent industries.

Operational and Commercial Highlights:

• Amdocs launched its purpose-built Amdocs AOS (Agentic Operating System for Telco) at Mobile World Congress, and has already secured initial commercial deals with customers including Tiget, Lumen, Bell Canada, Echo Star, and PLDT. Early results at PLDT show over 90% of customer requests are now resolved via the AOS platform, driving faster handling times and higher retail store productivity.
• Significant deal wins in Q2 include: an expanded multi-year managed services extension with AT&T Cricket Wireless covering dealer onboarding modernization; a five-year CRM and OSS modernization and support agreement with Vodafone Spain; a multi-year extension with KT (South Korea) to upgrade, modernize, and operate its charging system for faster 5G service rollouts. The cloud-based ConnectX platform added new customers including Vanta Wireless, Quartel Mobile, and a leading Singaporean operator, while Amdocs eSIM won deals with Celio (Brazil) and Mobifone (Vietnam).
• Key project execution milestones achieved: Amdocs now serves a large portion of AT&T's 5G subscribers on its next-gen charging platform and supported the launch of AT&T's new One Connect plan; reached commercial launch for its Vodafone Germany program; delivered a key milestone for Elisa Finland's mainframe-to-Google Cloud migration; completed a smooth go-live of Amdocs Resource Manager for US fiber provider Brightspeed, improving network inventory management and streamlining operations.

Financial and Leadership Highlights:

• Non-GAAP operating margin reached 21.5%, up 20 basis points year-over-year, driven by operational efficiency gains, automation, and AI tool deployment, offset by growth investments in AOS development and go-to-market. Non-GAAP diluted EPS was $1.78, 2 cents above guidance midpoint, while GAAP diluted EPS was $1.28, also above guidance.
• 12-month backlog hit $4.28 billion, up $30 million sequentially and 2.6% year-over-year. Free cash flow before restructuring payments was $97 million in Q2, bringing year-to-date free cash flow to nearly 50% of the full 2026 fiscal target. The company completed the acquisition of European network solutions provider Connect44 for ~$21 million net cash at closing, plus contingent consideration, and enhanced its financial flexibility via a new $800 million US commercial paper program and an upsized revolving credit facility.
• Long-time CFO/COO Tamar Rappaport Digim announced her retirement after 22 years with Amdocs, and internal candidate Tal Rosenfeld, a 20-year Amdocs veteran with deep finance and business leadership experience, will succeed her as CFO as part of a planned succession process.

By product segment: Managed Services revenue reached $759 million, a 1.6% year-over-year increase, accounting for 65% of total Q2 revenue, consistent with recent quarters. By geographic segment: Total Q2 revenue was $1.172 billion, up 3.9% year-over-year as reported and 2.2% in constant currency. North America generated $754 million in revenue, up more than 2% year-over-year, with a slight sequential decline due to normal customer activity fluctuations. Europe delivered record revenue of $192 million, up more than 6% year-over-year, driven by organic growth and the Matrix acquisition. Rest of the world revenue grew 8% year-over-year to $226 million, the highest level since fiscal Q3 2024, with strong sales momentum supporting expected full-year growth.

• For full fiscal 2026, management maintained the 3% constant currency revenue growth midpoint guidance, and tightened the constant currency growth range to 2% to 4% from the prior range of 1% to 5%. On a reported basis, the revenue growth range was tightened to 2.6% to 4.6%, with a midpoint 10 basis points higher than prior guidance, reflecting an upward adjustment to expected foreign currency tailwinds to 0.6% from 0.5% previously. Roughly half of expected 2026 fiscal growth is expected to be inorganic.
• Management maintained the ~6% non-GAAP diluted EPS growth midpoint guidance, and tightened the growth range to 5% to 7% from the prior 4% to 8% range.
• Non-GAAP operating margin is expected to land between 21.3% and 21.9% for full fiscal 2026, with a midpoint roughly 20 basis points higher than the prior fiscal year, balancing accelerated Gen AI/AOS investment with ongoing operational efficiency initiatives.
• Full fiscal 2026 free cash flow (excluding restructuring payments) is projected between $710 million and $730 million, representing a ~90% conversion rate relative to expected non-GAAP net income.
• For the third fiscal quarter of 2026, management expects revenue in the range of $1.155 billion to $1.195 billion.
• The non-GAAP effective tax rate is expected to remain within the prior target range of 16% to 19% for full fiscal 2026.

• Management noted ongoing uncertainty related to prevailing macroeconomic, geopolitical, and business conditions, and is closely monitoring changes in customer spending behavior in the current global environment, which could impact future results.
• Quarterly revenue trends in Europe and Rest of the world may experience fluctuations due to the project-oriented nature of customer activity in these regions, which can create quarterly volatility in results.

Q: Telecom customers are increasing capital spending for AI and data center capacity, driven by forward buying amid supply constraints. How can Amdocs participate and benefit from this current growth cycle?

A: Amdocs views the ongoing agentic/Gen AI revolution as a major long-term opportunity for the company. There is currently a large gap between AI technology potential and actual adoption among enterprise and telecom customers. Amdocs' deep industry expertise and proven track record guiding customers through major technological shifts position it as the best partner to help customers complete this transformation, so the company is well positioned to capture value from this cycle.

Q: As new CEO, what key changes are you implementing to accelerate growth, and how long will it take to see impact on results?

A: The four core focus areas are evolving the product portfolio to be fully agentic and automated, creating customized transformation roadmaps for each individual customer, building strategic ecosystem partnerships with leading AI and cloud providers to accelerate delivery, and accelerating internal transformation to make Amdocs a Gen-AI native, more agile organization, implementing agentic tools across all internal operations.

Q: Can you share details on AOS deal activity, the pipeline, low hanging fruit for adoption, and when AOS will meaningfully move the needle on revenue growth?

A: The market has had a very positive initial reaction to the AOS launch, with strong customer engagement that has already translated into several initial implementation deals. These opportunities start small, and AOS does not yet contribute meaningful revenue to the current fiscal year, but revenue is expected to grow over time as engagements expand. US telecom customers are actively pursuing AI adoption for cost reduction and service improvement, and they are holding meaningful transformation discussions with Amdocs rather than pursuing these projects in-house or with competitors, given Amdocs' expertise with mission-critical telco systems.

Q: How is internal AI implementation progressing for efficiency gains, and what new use cases are emerging? How are customer conversations about internal AI efficiency evolving?

A: Internal AI adoption has moved past the pilot and experimentation phase, and the company is accelerating full company-wide implementation of agentic tools, including rolling out agentic software development lifecycle processes to improve organizational agility. Customer conversations follow the same framework: customers are looking for end-to-end transformation of core business workflows, which is leading to expanded Amdocs footprint in areas not previously served by the company, aligned with Amdocs' long-standing outcome-based business model focused on delivering measurable KPIs.