Amdocs Ltd Q1 FY2020 Earnings Call

Thank you, operator. Before we begin, I would like to point out that during this call, we will discuss certain financial information that is not prepared in accordance with GAAP. The company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the company's business and to have a meaningful comparison to prior periods. 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. Also, this call includes information that constitutes forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include, but are not limited to, the effects of general economic conditions and such other risks as discussed in our earnings release today and at greater length in the company's filings with the Securities and Exchange Commission, including in our annual report on Form 20-F for the fiscal year ended September 30, 2019, filed on December 16, 2019. Amdocs may elect to update these forward-looking statements at some point in the future however the company specifically disclaims any obligation to do so. Participating on the call with me today are Shuky Sheffer, President and Chief Executive Officer of Amdocs Management Limited and Tamar Rapaport-Dagim, Joint Chief Financial and Operating Officer. And with that, I will turn it over to Shuky.

Thank you, Matt, and good afternoon to everyone joining us today. I'm pleased to report solid third quarter results which include record revenue above the guidance after adjusting for comps. In addition, stability was consistent with our open operating trend including investments to support new customer activity. We return more than 100% of normal and free cash flow to shareholders and we ended Q1 with record 12 months backlog of more than $3.5 billion. Based on the book of business reflects a high win rate during the quarter and includes the recent signing of major transformation projects such as Vodafone Germany and Northern Spain, both of which are among the largest economies today. We believe the world likes these reflect our pedigree for innovation, our position for consistent project delivery, and our unique ability to help our customers respond to major trends, so our market-leading portfolio of products and services. A fine example is CS20, a fully cloud-native and microservices-based version of what our customers experience with. Leading global services providers like Orange Spain, Korea Telecom Corporation, Sprint, and Vodafone Germany are already adopting CS20. By combining these with our go-to-market partners like Microsoft Azure and AWS, we believe Amdocs is positioned to bring the critical services needed to accelerate and enhance security and lessen expenses to the cloud over the coming years. Now let me proceed as usual with the recap of our quarterly activities by region. Beginning in North America, sequential revenue loss reflects the stabilization of AT&T and the ongoing strategic support we are providing to customers in the border region. Notably, the quarter includes Amdocs media signing a multi-year content servicing and global delivery deal with the iconic television studio MGM. Regarding the outlook in North America, let me take a moment to comment on the broader market conditions in which you’re operating. First, we believe the long-term telecom market dynamics remain generally favorable as service providers invest in strategic areas like digital transformation, wireless safety convergence, media, 5G, the enterprise segment, and the journey to the cloud. Such investments create opportunities for Amdocs to bring customer value with our products and services. Take Canada, for instance; we recently launched the RevenueONE, paired with local CS20 to help simplify retail engagement and improve customer experience. It’s a privilege, I’m pleased to say that we recently partnered with Microsoft Azure to support the integration of AT&T’s IT systems to the public cloud. Second, demonstrating the future value we can bring to T-Mobile and Sprint. Our relationships remain strong with both customers, as demonstrated by Sprint’s recent decision to collaborate with projekt202, an Amdocs company, which will bring experience and design and develop methodologies as part of Sprint's continued transformation on the duration of the customer experience. Having said that, we continue to see some indication of softness relating to the delay of T-Mobile and Sprint; the immediate future rests in the hands of the public. To summarize North America, we will remain on track to deliver modest growth this fiscal year, but to remind you this ongoing consolidation activity in the region remains a source of activity in our near-term outlook. Moving to Europe, we maintain healthy year-over-year revenue growth in Q1 and achieved high win rates for the quarter that include the previously announced transformation in Vodafone Germany. Additionally, we are pleased to announce the former Q1 signing of large-scale multi-year major transformation in Orange Spain, which will include a deployment of AmdocsONE in AWS cloud environment to enhance customer experience, smart monetization, and faster time to market with new services. The new deal follows our preliminary selection for this customer a few quarters ago and positions Spain as a natural market for Amdocs by adding to our existing activity with Vodafone. Our notable win this quarter includes a multi-year services agreement with A1 Bulgaria, a subsidiary of A1 Telekom Austria Group, where we have been selected to modernize, automate, and digitize its business as part of a long-term expansion to our previous engagement. Looking ahead, we expect Europe to deliver solid growth this fiscal year, including a stronger second half as new project activity ramps up, having said that, we are, of course, closely monitoring macroeconomic developments in the region. Turning to the rest of the world, we delivered mid-to-high single-digit year-over-year growth as we continue to support customer investment to modernize, automate and right-size the businesses. Among these, we signed a multi-year service agreement with a key operator in Latin America for digital customer management and commerce and successfully completed revenue assurance implementation in Safaricom, a major mobile network operator in Kenya. Q1 was also notable for an important 5G award from KT Corporation, the largest workplace services provider in South Korea, which was Amdocs CatalogONE in the cloud to accelerate the launch of new 5G services, monetizing revenue opportunities and cementing its market position as one of the world's leading service providers to commercially launch 5G services. Looking ahead, let's position ourselves for growth in 2020, driven by work-in-progress and the rich pipeline of opportunities we see across Southeast Asia, Latin America, and parts of Africa. However, we remind you that this quarterly trend may fluctuate given the project orientation of our activities in this region. To conclude my regional summary, Q1 was a successful quarter in which we extended our global market leadership by bringing the co-engines we have built to support our customer needs and to drive our future goals. One of these engines is the next generation networks where we recently launched our Amdocs service and network automation solution that can be implemented in on-premises cloud or public cloud environments like Microsoft Azure or AWS. Amdocs is already deploying components of this technology to accelerate network transformation in several customers, including three integrated service providers in Europe, a major telecom service provider in Asia Pacific, and leading operators in North America. I'm also pleased to report first quarter sales of Amdocs Media, which include the content process management expertise of Vubiquity, the cloud-based subscription billing capabilities in Asia, and our newly launched multi-cloud platform. In addition to MGM, which I mentioned earlier, Amdocs Media won several new customers in Q1, including A1 Bulgaria to support the roll-out of A1 Telekom's first TVoD platform in the region and other operators for which we will provide content services and licensing of TVOD and SVOD. Sports arena wise, we are also pleased to announce that the initial subscriber has been selected to support FC Barcelona's OTT platform. Finally, we are encouraged to report the positive initial customer response to Amdocs MarketONE, a new platform that combines an offer solution for subscription monetization, content management, and efficient onboarding of OTT partners we win. As we announced last quarter, T-Mobile recently selected MarketONE to support its OTT strategy and I'm pleased to reveal today that we've also signed a major Latin American operator to the platform. Overall, we believe Amdocs Media is developing its growth engine for the future and providing an example of the unique innovation we consistently bring to our customers by combining strategic acquisitions with our portfolio of products and services. So with that, we are pleased with operational and financial progress in the first quarter. Our record 12-month backlog is up 4.5% from a year ago and points to a stronger second half, in which we expect revenue growth to accelerate as new customer activities ramp up, and we are on track to deliver total expected shareholder return in the mid-to-high single digits for the 8th consecutive year in 2020 including non-GAAP diluted earnings per share growth of 3% to 7% plus our dividend yield. With that, let me turn the call over to Tamar for remarks.

Thank you, Shuky. First fiscal quarter revenue of $1.02 billion was at the midpoint of our guidance range of $1.16 billion to $1.55 billion and includes the positive impact on foreign currency fluctuation of approximately $3 million relative to the fourth fiscal quarter of 2019. Revenue performance was slightly above the midpoint of our expectations excluding foreign currency fluctuation. On a year-over-year basis, our first quarter revenue grew by 3% consistent with our guidance. Q1 revenue includes the fourth quarter revenue contribution from the previously completed acquisition of TTS Wireless in early August 2019. Our first fiscal quarter non-GAAP operating margin was 17.1%, slightly above the midpoint of our long-term target range of 16.5% to 17.5% and consistent with our guidance that profitability in the first half of the year will be impacted by investments required to support the ramp-up of new awards. Below the operating line, non-GAAP net interest and other expense was $400,000 in Q1. For forward-looking purposes, we continue to expect non-GAAP net interest and other expense in the range of $3 million quarterly versus foreign currency fluctuation. If you look at non-GAAP EPS, it was $1.06 in Q1, a penny above the midpoint of our guidance range of $1.02 to $1.08. As anticipated, our non-GAAP effective tax rate of 18.8% in the first fiscal quarter was above the high-end of our annual target range of 13% to 17%. If you look at GAAP EPS, it was $0.85 for the first fiscal quarter, above the midpoint of our guidance range of $0.79 to $0.87. Free cash flow was $105 million in Q1. This was comprised of cash flow from operations of approximately $164 million, offset by $59 million in net capital expenditures. Normalized free cash flow was $121 million in the first fiscal quarter and it's on track with our expectations for the year, which I will expand on in a few minutes. Please refer to the reconciliation table provided in our Q1 earnings release for an explanation of the difference between normalized and reported free cash flow in the quarter and for past periods. DSO of 88 days decreased by three over the last year, but grew by one day compared to the prior fiscal quarter. We remind you that this might fluctuate from quarter to quarter. The sequential gap between unbilled receivables and deferred revenue narrowed by $15 million compared to the fourth fiscal quarter of 2019, reflecting a decrease in total business deliverables of $2 million and an increase in total deferred revenue both short and long-term of $30 million relative to a year ago, with the gap improving by $6 million. Changes in this gap are primarily due to the timing of contract-specific milestones relating to transformation projects we are delivering for our customers. Moving forward, you should expect unbilled receivables and total deferred revenue to fluctuate from quarter to quarter in line with normal business activities. Moving on, our 12-month backlog was a record of $3.52 billion at the end of the first fiscal quarter, up $30 million sequentially from the end of the prior quarter and equivalent to year-over-year growth of roughly 4.5%. Our 12-month backlog increased due to signing new deals during the quarter, including Vodafone Germany and Orange Spain. As a reminder, we believe our 12-month backlog continues to serve as a good leading indicator of our forward-looking revenue. Our cash balance at the end of the first fiscal quarter was approximately $486 million. Additionally, our Q1 balance sheet reflected the adoption of ASC 480-Q, a new lease accounting standard under which leased assets and leased liabilities are recognized on the balance sheet for most leases, including operating leases longer than 12 months. The adoption of ASC 842 does not necessarily impact our consolidated statements of income or the consolidated statements of cash flow for the period. During the first fiscal quarter, we repurchased $90 million of our ordinary shares under our current authorization. As of December 31, we had close to $1 billion of authorized capacity for share repurchases, with no status expiration date, which we will execute at the company's discretion going forward. This includes $149 million remaining under general authorization and a further $800 million as of the new authorization which was approved by the board last quarter. Now turning to our outlook for the second fiscal quarter of 2020, we expect revenue to be in the range of $1,035 million to $1,075 million. Embedded within our Q2 revenue guidance, we anticipate a sequential positive impact from foreign currency fluctuations of approximately $2 million as compared to Q1. Regarding the full fiscal year 2020, we expect to deliver total revenue growth in the range of roughly 2.5% to 5.5% on a constant currency basis. The midpoint of which is unchanged as compared to our previous expectations of 2% to 6% year-over-year. Our outlook assumes just over a point of growth from TTS Wireless consistent with our prior guidance. On a reporting basis, we now expect full year revenue growth in the range of 2.5% to 5.5% as compared to the range of 1.5% to 5.5% previously. The outlook now includes an immaterial year-over-year impact from foreign currency fluctuations in fiscal 2020 as compared to an anticipated drag of about 0.5% previously. We continue to expect all three of our operating regions will grow on a reported basis in fiscal 2020 and that the ramp-up of recent contract awards will contribute to the acceleration in the rate of year-over-year revenue growth in the fiscal second quarter. We anticipate our non-GAAP operating margins to be consistent with the higher end of our unchanged target range of 16.5% to 17.5% over the full fiscal year 2020. As I touched on it earlier, to remind you the future investments required to support the ramp-up of new deals, non-GAAP operating margins in the first half of the fiscal year might be slightly lower than the second half but are still expected to remain at or above the guidance midpoint of 17% in Q2. We expect our non-GAAP effective tax rate to remain within the same target range of 13% to 17% for the full fiscal year 2020. We expect second fiscal quarter diluted non-GAAP EPS to be in the range of $1.03 to $1.09, with respect to Q2, we expect our non-GAAP effective tax rate to be above the high end of our annual guided range of 13% to 17%. Our second fiscal quarter non-GAAP EPS guidance incorporates an expected average diluted share count of roughly 136 million shares and the likelihood of a negative impact of foreign currency fluctuations on non-GAAP net interest and other expenses. We exclude the impact of incremental future share buyback activity during the second fiscal quarter, as the level of activity will depend on market conditions. For the full fiscal year, we are on track to deliver diluted non-GAAP EPS growth of 3% to 7%, consistent with our prior guidance. Additionally, our full-year EPS outlook incorporates our expected repurchase activity over the year and a neutral impact from the acquisition of TTS Wireless. We now expect normalized free cash flow for fiscal 2020 of approximately $500 million, which is a slight improvement when compared to our previous guidance of $480 million. As a reminder, we expect normalized free cash flow in the first half of the year to be slightly lower than in the second half. In Q2, the initial impact of the new deal with AT&T, as well as setup costs we expect to incur during the establishment phase will require working capital investment relating to the ramp-up of recent transformation projects and the timing of annual bonus payments in fiscal Q2, just as we see every year. As stated before, we believe that roughly one-third of the annual normalized free cash flow will be generated in the first half of the year and roughly two-thirds in the second half of the fiscal year. The significantly stronger second half normalized free cash flow will reflect the conversion rate of 100% relative to non-GAAP net income. We now expect the reported free cash flow for the year 2020 to be approximately $400 million, which is improved compared to our previous guidance of $350 million. Reported free cash flow includes multi-year development of our new capital expenditure for which we now anticipate capital expenditure of up to $90 million in fiscal year 2020, as compared to our previous guidance of $120 million and other items. Regarding our capital allocation plan, we still expect to return roughly 100% of our normalized free cash flow in fiscal 2020. As a reminder, we retain the flexibility to vary the level of share repurchase activity from quarter to quarter depending on factors such as outlook for M&A, financial markets, and prevailing industry conditions. With that, we can turn back to the operator, and we are happy to take your questions.

Our first question is from Shaul Eyal with Oppenheimer & Company. Please go ahead.

Thank you. Good afternoon, Shuky, Tamar, and Matt. Congratulations on a well-executed quarter, improved outlook as well. Shuky, I was counting eight separate press releases of contract wins, each one illustrating different capabilities you bring to the market. Anything for microservices with Sprint, managed services with Telecom Austria, you mentioned, of course, your collaboration with Nice Systems at Vodafone Spain. So really showcasing your broad range of solutions, are we currently seeing the fruition of prior investments and end-market education which is definitely supporting some sort of acceleration at least from the midpoint of the prior guidance. We had an accelerating backlog last quarter, this quarter, it further grew sequentially, 4.5% year-over-year. What's happening out there from a macro level which is supporting that great improvement we have seen last quarter and how will it continue to support us this quarter?

Hi, Shaul. Good morning. I think what we see is the nice spread and consistent success overall, the different types of offerings that we have from products and services. Some of them are connected to investments that they’ve done in the last two, three years like building C1, D1, or what we call CS20 or AmdocsONE, the new platform that we have for deeper transformation, which is the microservices cloud-based platform. And at the same time, you see more demand, which is affecting our industry both activity of integration with the cloud. So we talked about our activities with AT&T and Microsoft. You see the move to the cloud is something that we are in discussion and, in some cases, in progress with many of our customers. So the move to the cloud advantage seems to have accelerated lately. Obviously, we are in dialogue both with Microsoft, AWS, and Google, and every one of our customers has different preferences for following the cloud partner. We see acceleration with media. So as you mentioned, we have success in Amdocs Media. So I think that overall look is nice; we feel a nice spread of the different offerings, so it’s not just offerings with that deal in both the across products and services.

Got it. Got it. And Tamar, if I may, in terms of the foreign exchange impact, I know Amdocs is exposed to, if I recall correctly, five to six major currencies amongst others, of course. Which is the one or two that have been mostly impacting the business? Is it the dollar, shekel? Is it the Euro or the pound sterling, anyone screening a little better or not during the quarter? I think also as we're looking to the remainder of the year.

Actually talking about revenue, because usually our hedging practice is highly focused on protecting the bottom line, and the exposure remains on the top line. So from a revenue perspective, I would say probably the Euro and British Pound are the ones that, maybe number three would be the Canadian Dollar. So typically those are the three currencies that are most impacting our revenue.

Got it. Thank you so much for that. Well done. Thanks.

Thank you.

Thank you. Our next question comes from Ashwin Shirvaikar with Citi.

Thank you. Hi, Shuky. Hi, Tamar. I apologize for the background noise; I'm currently at an airport. My question is about cash flow. It seems like you are still confirming deals at a good pace. You mentioned the cash flow estimate, and I would like to understand how much you have reduced CapEx. Is this because you are further along in realizing returns from older signed contracts? What is the necessity to invest in new ones? Also, regarding the lower CapEx spend, is that due to timing, or is it more permanent? Thank you.

So Ashwin, thanks for the question. When we look at the normalized free cash flow that excludes the investments in capital, the improvement there by $20 million in our outlook for the year to $480 to $500 million is coming from business fundamentals and that's a combination of multiple reasons, nothing specifically. Now with one quarter in our bag already, we felt comfortable to raise that slightly by $20 million for the year. And as you mentioned, rightfully so, yes, we're continuing to receive confirmations. So while doing that, while working on that new deal awards, we believe that this is a good outlook and something obviously we feel comfortable with. Relative to the future capital investments that are impacting our reported cash flow, yes, we updated the number for the year from an expectation of $120 million down to $90 million. It has to do with our progress in different contractual engagements that we are continuing while the different RFPs having better regularity, projections on specific milestones. So it's not necessarily indicative of the overall investment going down, but more about how we are seeing specifically 2020 fiscal year as it goes forward in terms of the overall level.

Got it. And then, the second question is on pipeline. You have had at this point, at least the last couple of quarters have been, I would say quite strong in terms of signing new deals and growing the backlog. Is that having a possible negative impact? I shouldn't say negative, but is it kind of whittling down your pipeline that you need to now build up or is the pipeline continue to be strong as before? So, are you refilling the pipeline?

I believe the pipeline remains strong, and the rate at which we are closing deals is matched by the emergence of new opportunities. Therefore, our current success in closing deals is not adversely affecting our pipeline.

Got it. Thank you. Good to know. Congratulations.

Thank you. Our next question comes from Tom Roderick with Stifel.

Hi, Shuky, Tamar, Matt, good afternoon. Thank you for taking my questions. So Shuky, also the first question here for you. It's a high-level question, but I'm gathering you starting to have more and more conversations about it. Would love to hear your updated thoughts relative to the impact of 5G on the conversations you're having with some of your bigger carriers. Perhaps that is starting to play a role in some of the acceleration you see in your business. But could you just kind of give some thoughts as to the handful of carriers that are looking more seriously at 5G-related services and how they're evaluating the Amdocs portfolio as it relates to things like upgraded billing, content support, product catalog? And then I guess the last part of that would be how do you currently evaluate NFV in this world of 5G? How do those things sort of play out in the future? Thanks.

So regarding 5G, this activity is accelerating, 5G is real, everyone is in the process of deploying 5G, some of them faster, some are less. I think I mentioned it before; we have three different angles for 5G. The new 5G requires new policy and new rising challenging engines that can leverage all the capabilities, and by the way, first the new protocol, but definitely on the new capabilities of 5G. And so this is the first angle, actually as we speak, we are involved in many RFPs or activities and we have a very big pipeline in this domain. And the second is deploying 5G; as we have robust capabilities inside the deployment that we should accelerate by the TTS acquisition in North America from 5G deployment, even though we see the productivity also in Europe. So, the capabilities that we have to date in supporting 5G deployment. And to further this, once we announce our new catalog, which is the cloud-native, the best catalog today that exists in the market is motivational 5G. When you come, it has the abilities of edge computing, low latency, network slicing; all its capabilities need new monetization models, which require new ordering system upgrades, and obviously different catalogs. This is where we see the motivation perspective to serve the engine for 5G. When we are talking about the 5G platform, it is built virtual from the ground up from the design. So it's not like existing platforms. So I believe the same 5G will also accelerate the activities in the domain. But overall, this is our view of 5G and this is well, like lifting our money, being in from a service perspective to support the spending.

Outstanding. Thank you. Shuky. Tamar, just a couple of quick hitters here for you on the financial side. One thing, looking at the gross margins, they came down a little bit more than they typically would seasonally, but certainly understanding that you take on some of these transformational projects and they come with some up-front costs, perhaps some more bodies to get those off the ground. And you had a big extension with AT&T. Can you give us a sense as to how we should think about gross margins moving forward from here in light of your big transformational deals you announced this quarter? And then, second quick financial question. Do you have an update as to how TTS participated or delivered in the quarter for you? Looks like you're still predicting just a 1% tailwind from TTS for the year, but wondering if you have a number for the first quarter. Thank you.

Thanks Tom. I would only say I think that the right way to look at Amdocs is to focus on the operating margin. There is significant gross margin versus other operating expenses. I would advise you to focus mainly on the operating margin line. By having said that and back to your question, as we said, some of the pressure coming on profitability in the first half is related to the fact we're ramping up new deals and awards that we're very excited about, some of them require some costs related to them. For example, the significant wins we have with Vodafone Germany around transforming their business in a meaningful way across multiple lines of business, helping them become a digital organization, consolidating the recent business client. For us, it's a major ramp-up activity now in Germany just by way of example. So, there are many of these overseas transformations going on. Some of them require more setup investments than others. I wouldn't say too much attention to it. I would think that probably the second half you would see the focus is in the margin contributing to the overall improvement in the operating margin.

Excellent. Then on TTS, real quickly, did you have a number there?

Specifically, TTS, as we said before, we expect slightly over a quarter contribution to year-over-year growth. So we’re happy with the progress, integration is going well. We are seeing new opportunities. We said when we acquired TTS that this is very complimentary to what we have in terms of radio access network optimization. TTS is bringing great capabilities around the planning and design of networks and very relevant, of course, now with 5G being a topical investment cycle. We are happy with your progress. As we said, we acquired TTS with roughly $50 million revenue annually. We are seeing pretty much the space starting to ramp up, but I think it will take only a couple more months to start translating the pipeline that we’re accumulating with the synergies with Amdocs into a higher revenue growth rate.

Outstanding. Thank you both. I appreciate it.

Thank you. And our next question comes from Will Power with Baird.

Hey guys, thanks for taking the question. This is actually Charlie Ehrlich on for Will. Most of my questions have actually been asked, but could you just remind us of the work that you're doing with AT&T under the new extended collaboration that you guys announced this quarter? What kind of work are you doing exactly and is it expected to potentially bring the AT&T revenue stream back to growing in 2020 year-over-year?

The work we do primarily focuses on the consumer sector associated with our activities in AT&T mobility and AT&T entertainment. It encompasses a mix of managed services, project delivery, and new areas like security and data management. We are pleased to have stabilized the business, which is a significant achievement for us. We are now beginning to build a growth pipeline. One highlighted aspect this quarter is our partnership with Microsoft to facilitate transferring AT&T's applications to the cloud. This is just the beginning, and in the interim, we have developed a solid business. As I mentioned last quarter, our approach has been in two phases: first, stabilizing the business, which we accomplished last quarter, and now collaborating with AT&T. I believe our relationship is strong, and we are starting to create a new pipeline to accelerate growth.

That's really helpful. Thanks, Shuky. And just a quick follow-up on that. Is 5G also an opportunity at AT&T? Have you had any conversations related to that?

There is no Amdocs customer in North America and Europe that isn't currently discussing 5G. This applies not only to AT&T but also to every major customer in North America, Canada, and much of the rest of the world. APAC is progressing somewhat slower towards 5G compared to Europe. I believe North America is ahead of Europe and APAC in this regard. We are actively engaging in discussions about it. For instance, we talked about Korea Telecom, which many view as a leader in 5G monetization, particularly with what they refer to as standalone 5G. They have started using our catalog to enhance their 5G services, and we are having similar conversations with all our major customers.

Great. Thank you very much and congrats on the strong results.

Thank you. And our next question comes from Jackson Ader with JPMorgan.

Great. Good evening guys. Thanks for taking my question. There was a lot of activity in Spain. It looked like new customer activity and also signing expansion deals. Can you just remind us maybe how much activity you were doing previously in this particular geography? You've mentioned before how some of these deals require a large upfront kind of working capital investment? And I'm just trying to get a sense for what these deals may require.

Thank you, Jackson. As we've mentioned before, we are excited about our expansion in Europe to countries where we previously had no presence. For instance, we have made progress in the Netherlands, Italy, Ireland, and Russia. Spain is another example where we have increased our activity after being selective in the past. Our presence with Vodafone and our win with Orange Spain mark significant achievements for us. While there are some setup costs for new sites and local adaptations to our products, I don't see this as a large investment simply because it’s a new country. The margin pressure we discussed stems from the accumulation of these deals, which has caused some strain. However, it's worth noting that our margins have only decreased slightly from 17.3% to 17.1%. Overall, we are optimistic about Spain being a key market for us in the years ahead as we establish and grow our relationships there.

Great. That makes sense. And then just to follow up, and I apologize if you mentioned it, but the contribution from TTS in the quarter?

So TTS is roughly bringing in double-digit contributions per quarter. The company acquired around $50 million of revenue annually. And that's why we said that specifically in 2020, we think it would contribute roughly slightly over a point to year-over-year growth. But now we're starting to build up the department together of course, and then consolidating the TTS business with our own mobile network optimization business that we had before. So we are encouraged with the progress of the POI and think we have a great opportunity there.

Thank you. And ladies and gentlemen, this concludes our Q&A session. I would like to turn the call back to Matthew Smith for his final remarks.

Thank you everyone for joining our call this evening for your interest in Amdocs. I look forward to hearing from you in the coming days. If you do have any additional questions, please give us a call at the Investor Relations group. With that, have a great evening.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.