Amdocs' Q4 2025 Earnings Call: Contradictions Emerge on AI's Impact on Telecom, Cognitive Core Launch, and Growth Strategies

Date of Call: September 30, 2025

Financials Results

• Revenue: $1.15B in Q4, up 2.8% year-over-year in pro forma constant currency (reported revenue down 9% YoY reflecting phaseout of low-margin activities)
• EPS: $1.83 non-GAAP diluted EPS in Q4, slightly above guidance midpoint; GAAP diluted EPS $0.88 including $0.60 restructuring charge (ex-charge near high end of $1.41–$1.49 guidance); full-year non-GAAP EPS up 8.5% in FY25
• Operating Margin: Non-GAAP operating margin 21.6%, improved 290 basis points YoY and 20 basis points sequentially

Guidance:

• Full-year fiscal 2026 revenue growth expected 1.7% to 5.7% reported (1.0% to 5.0% constant currency)
• Q1 FY26 revenue expected $1.135B to $1.175B
• Non-GAAP operating margin targeted 21.3%–21.9% (midpoint ~ +20 bps YoY)
• Non-GAAP diluted EPS growth expected 4%–8% for FY26
• Free cash flow expected $710M–$730M (excludes additional restructuring payments)
• Non-GAAP effective tax rate expected 16%–19% (Q1 above annual range); anticipate higher finance costs

Business Commentary:

* Revenue and Profitability: - Amdocs reported revenue of $1.15 billion for the fourth quarter, exceeding the midpoint of guidance and up 2.8% from a year ago in pro forma constant currency. - Profitability improved by 20 basis points sequentially, and non-GAAP diluted earnings per share was $1.83, slightly above guidance. - The growth was driven by strong sales momentum and strategic wins in cloud and generative AI.

• Cloud and Digital Transformation:
• Cloud revenue contributed over 30% of total revenue in fiscal 2025, with a double-digit growth rate.
• Amdocs signed several new agreements for cloud migration and managed services, including a multiyear agreement with AT&T and expansions with Lumen Technologies and TELUS.
• The focus on cloud transformations is aimed at enhancing digital experiences and operational efficiencies for customers.

• Generative AI and Data Services:
• Generative AI-related deals were won with customers like Telefonica Germany, expanding Amdocs' footprint in this domain.
• Amdocs is investing in a Cognitive Core platform to integrate advanced generative AI capabilities, enhancing customer experiences and operational agility.

• The investment in generative AI is seen as a long-term growth engine for the company.

• Managed Services and Customer Diversification:

• Managed Services revenue reached a record $3 billion in Q4, with long-term managed services share increasing to 66% of overall revenue.
• Amdocs has expanded managed services agreements with customers like Globe and TELUS, and secured significant new agreements like a multiyear deal with PLDT.
• The diversification of services and expansion of managed services agreements support long-term customer relationships and business resilience.

• Financial Guidance and Market Conditions:
• Amdocs expects revenue growth of 1.7% to 5.7% as reported and 1% to 5% in constant currency for fiscal year 2026.
• The guidance reflects sales momentum in cloud and generative AI, while accounting for reduced discretionary spending at T-Mobile.
• The company is balancing strategic growth investments, including genAI, with ongoing operational cost efficiencies.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted Q4 revenue of $1.15B (up 2.8% pro forma CC), non-GAAP operating margin of 21.6% (up 290 bps YoY), and full-year non-GAAP EPS growth of 8.5% in FY25. They reiterated growth guidance for FY26 and emphasized accelerating generative AI investment as a new growth engine (Cognitive Core).

Q&A:

• Question from Timothy Horan (Oppenheimer): You've had a lot more experience with AI at this point. Can you just talk about maybe qualitatively how impactful you think it will be to the telecom industry? And how much can you think improve productivity over time and generate kind of new services? And related to that, I guess the same thing internally, how much can it improve your own productivity internally? I realize you are reinvesting a lot of that productivity in R&D and in investing for longer-term growth?
  Response: GenAI is already delivering benefits in cost, quality and speed; initial wins are add-on agents and care/commercial use cases, and the company is building a larger 'Cognitive Core' layer to enable agentic capabilities that could become a major growth engine.

• Question from Timothy Horan (Oppenheimer): And do you have a rough idea when that will hit the market?
  Response: Management expects Cognitive Core to be market-ready around mid-2026.

• Question from George Notter (Wolfe Research): I wanted to probe the decision to reallocate more capital into the business from an R&D perspective... you're implementing AI internally... you've been on a path generating 60–70 bps of efficiency each year; the coming year it's going to be more like 20 bps. Is that the amount of the investment, that incremental 50 or so bps? Or are there other growth factors we should look at?
  Response: The margin impact reflects an intentional reinvestment across R&D and go-to-market to capture a sizable GenAI opportunity; productivity gains continue but management is reallocating some of those savings into sales, marketing and product investment.

• Question from George Notter (Wolfe Research): Are customers expecting pricing concessions as you use AI to improve efficiency, and is that pressure rolling down to Amdocs in renewals or new contracts?
  Response: Yes, customers expect savings, but Amdocs offsets pricing pressure by shifting contract scope to include cloud, GenAI and transformation work under outcome-based models, which minimizes net margin impact while expanding wallet share.

• Question from Tal Liani (Bank of America): Cash flow is down next year. Why is it? Also the growth midpoint on a constant currency basis isn't much acceleration — what are the puts and takes, given disclosure that T-Mobile will be down in 2026?
  Response: Cash flow is broadly stable versus prior guidance (we remain conservative); FY26 growth reflects strong sales momentum but assumes a T-Mobile revenue decline and a stronger second half as new deals ramp.

• Question from Tal Liani (Bank of America): Can you elaborate on your top 10 customers and on T-Mobile—are revenues down because a project is ending or because discretionary spend is being deprioritized?
  Response: Top-customer disclosure will be provided in the annual report; on T-Mobile management won't discuss specifics but incorporated expected reduced discretionary spend into guidance.

• Question from Tal Liani (Bank of America): You've implemented AI to raise margins but now plan increased spending—what drives the increase in spend and how soon could it translate into accelerated growth?
  Response: Management says earlier internal automation enabled room to reinvest savings into GenAI product development and go-to-market; they expect these investments to create a new growth engine but it will take time to scale.

• Question from Adam Parrington (Stifel) on behalf of Shlomo Rosenbaum: What is the organic constant-currency growth implied in the guidance for 1Q FY26 and full-year FY26, and how much is expected from inorganic deal activity?
  Response: Roughly half of expected growth could come from inorganic contributions (acquisitions), though prior year inorganic was less than half; management leaves flexibility for M&A to support strategic growth.

• Question from Adam Parrington (Stifel): Where are customers putting AI budgets and how does that align with where you're increasing GenAI investment?
  Response: Customer spend is focused on agent/building use cases for care and commerce and data readiness; Amdocs is scaling to augment core billing/monetization systems with a larger Cognitive Core layer applicable to all customers.

• Question from Adam Parrington (Stifel): You mentioned pressure from below-the-line items—what specifically are you referring to?
  Response: Below-the-line pressure refers to a higher non-GAAP effective tax rate (now 16%–19% due to Pillar 2 and other regulations) and increased finance costs from lower starting cash and planned strategic investments.

Contradiction Point 1

Impact of AI on Telecom Industry and Amdocs Growth

It involves differing perspectives on the impact of AI on the telecom industry and Amdocs' growth potential, which are critical for investor expectations and strategic planning.

How impactful will generative AI be for the telecom industry, and how much can it improve productivity over time? - Timothy Horan (Oppenheimer)

20251112-2025 Q4: Generative AI is improving software development, enhancing quality, speed, and cost. Currently, it's used for adding agents in call centers, but the next phase is Cognitive Core, offering agentic capabilities to enhance customer experience and efficiency. This will be a significant growth engine for Amdocs. - Joshua Sheffer(CEO)

How impactful will AI be for the telecom industry’s productivity and new services? How does AI enhance internal productivity? - Timothy Horan (Oppenheimer & Co. Inc., Research Division)

2025Q4: AI is enhancing efficiency and quality in software development and operations, improving cost, speed, and quality. Externally, it's being used for customer care and commerce. The next step is the Cognitive Core, which will integrate advanced AI into systems, promising significant growth for Amdocs. - Joshua Sheffer(CEO)

Contradiction Point 2

Market Availability of Cognitive Core

It involves differing statements about the market availability of a key product, the Cognitive Core, which affects expectations for Amdocs' growth and innovation capabilities.

How impactful will generative AI be for the telecom industry, and how much will it improve productivity over time? - Timothy Horan (Oppenheimer)

20251112-2025 Q4: The Cognitive Core is expected to be available mid-2026. - Joshua Sheffer(CEO)

When will the Cognitive Core launch? - Timothy Horan (Oppenheimer & Co. Inc., Research Division)

2025Q4: The Cognitive Core is expected to be available mid-2026. - Joshua Sheffer(CEO)

Contradiction Point 3

Impact of AI on Productivity and Revenue Growth

It examines the differing perspectives on the impact of AI on productivity and revenue growth, which are crucial for anticipating the company's future performance.

How impactful will generative AI be for the telecom industry, and by how much can it improve productivity over time? - Timothy Horan (Oppenheimer)

20251112-2025 Q4: Generative AI is improving software development, enhancing quality, speed, and cost. Currently, it's used for adding agents in call centers, but the next phase is Cognitive Core, offering agentic capabilities to enhance customer experience and efficiency. This will be a significant growth engine for Amdocs. - Joshua Sheffer(CEO)

When will AI contributions significantly boost revenue growth? - Shlomo Rosenbaum (Stifel)

2025Q3: AI contributions are starting in small increments. Data-related services are currently larger but will grow as we expand AI use cases. We expect to see more conversions and contributions as customer adoption increases. - Tamar Dagim(CFO)

Contradiction Point 4

Growth Expectations and Inorganic Deals

It involves differing expectations of growth from inorganic deals, which are critical for anticipating the company's future revenue and expansion strategies.

What is the expected organic growth in constant currency for fiscal 2026? - Adam Parrington (Stifel)

20251112-2025 Q4: About half of the growth is expected from inorganic deals. This lever will continue to contribute to strategic growth opportunities, including fiber growth. - Tamar Dagim(CFO)

What demand trends do you expect for fiscal year 2026? - Tal Liani (Bank of America)

2025Q3: While we expect AI to contribute to growth, we don't forecast material contributions in 2025. We'll see contributions from AI next year, and we expect more in 2025. - Tamar Dagim(CFO)

Contradiction Point 5

Impact of AI on Revenue Growth

It affects the understanding of how AI is contributing to revenue growth, which is a key strategic area for the company.

How impactful will generative AI be on the telecom industry, and how much will it improve productivity? - Timothy Horan (Oppenheimer)

20251112-2025 Q4: Regarding AI, we see progress with data-related activities supporting GenAI and some overlap with the cloud. AI use cases are maturing to real deals, which will be evident in future quarters. - Shuky Sheffer(CEO)

Are you using AI to improve productivity? Can you sustain the pace of margin improvements over the next few years? - Timothy Horan (Oppenheimer)

2025Q2: AI is beginning to contribute to the top line, but we're not going to quantify that until we feel that it's more of a consistent recurring revenue. - Shuky Sheffer(CEO)