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Amdocs Limited (NASDAQ:DOX)
Q4 2018 Earnings Conference Call
Nov. 8, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Amdocs Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode, so if anyone should require assistance during the call, please press * then 0 on your touchtone telephone to reach an operator. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, today's conference is being recorded.

I'd now like to introduce your host for today's conference, Mr. Matt Smith, Head of Investor Relations. Sir, please go ahead.

Matthew Edward Smith -- Head of Investor Relations

Thank you, Liz. 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 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, 2017, filed on December 11, 2017; and our Form 6-K furnished for the first quarter of fiscal 2018 on February 12, 2018; the second quarter fiscal 2018 on May 21, 2018; and the third quarter of fiscal 2018 on August 13, 2018. 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.

Additionally, we are pleased to mention that our analyst and investor briefing will be held on Tuesday, December 11, at the NASDAQ market site in New York City. Please contact Investor Relations for further details and checking our IR website several days in advance details on how to access the live webcast.

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.

With that, I'll turn it over to Shuky.

Shuky Sheffer -- President and Chief Executive Officer

Thanks, Matt, and thank you everyone for joining us today. This is my first earnings call as the new Chief Executive Officer of Amdocs, and I would like to take this moment to thank Eli for his support and making this a smooth transition. I assumed the position of CEO October 1st, and I'm very excited about the opportunity to lead Amdocs forward in fiscal 2019 and beyond.

I'll talk more about the outlook for the coming year later in my remarks, but left me begin with a brief recap of our performance in Q4 and fiscal year 2018, both of which were solid and in line with our expectations. Q4 revenue was slightly above the midpoint of our guidance and our best quarter in more than a decade. Our operating profitability was stable, and our sales momentum was healthy as we continued to meet significant new target in line with our fiscal goals. Regarding fiscal 2018, I am pleased to say that we achieved our total revenue growth target on the year, our performance which saw a revenue decline in AT&T of 15% as is last estimated, reevaluated spending priorities around TimeWarner and the obvious requirements of core business. Nevertheless, we more than offset this headwind with the result of our strong progress with new and increasing customers in the broader North America, Europe, and the rest of the world.

Moreover, we grew total revenue for the year while maintaining consistent execution, closing several of our digital positions and meeting our commitments to return roughly 1% normalized free cash flow to shareholders. Altogether, we delivered full-year diluted non-GAAP earnings-per-share growth of 6.1% in fiscal 2018, in line with the midpoint of our guidance range of 4% to 8% [inaudible].

Now, let me provide some color in regard to original business activity in Q4 and the market dynamics we expect to see in the coming year. Beginning in North America, sequential revenue performance reflected normal fluctuation in customer activity. During the quarter, we won several new deals, including a digital transformation award with US Cellular which will support our five-year managed service agreement.

We have also met important difficult milestones with [inaudible] relating to the launch of [inaudible] drone services until the multi-year modernization agreement we announced in September 2017.

Regarding the outlook in North America, we continued to experience contracting business conditions between AT&T in the broader region. With AT&T, we remain confident in our ability to support its future digital requirements, yet it remains immature to assess the size or timing of future awards. Our fiscal 2019 outlook, therefore, assumes no significant shift in AT&T discretionary spending relative to the level of Q4. It will not reflect potentially not what business opportunities which may come to fruition with Time Warner.

By contrast, the outlook in broader North America remains relatively strong, as we lead with our position as the [inaudible] to support the continued digital transformation of the [inaudible] communication [inaudible] and media companies. To add to that, over the years, Amdocs has also tended to benefit from industry consolidation activity since we are the only vendor with the reach and proven track record for post-merger integration planning and execution. Along these lines, we are working hard to demonstrate the additional long-term value we can bring to T-Mobile for post-merger with Sprint.

At the moment, we continue with all the core activities of both customers, but as the measure is not yet full, it remains difficult to predict the long-term business outcome to Amdocs. And we remind you that consolidation activity like this can create additional near-term uncertainty, which is not necessarily reflected in our outlook.

To summarize North America, the long-term market fundamentals remain positive, but depression trends may continue to fluctuate in the foreseeable future before growth resumes in a steadier way.

Moving to Europe, we delivered our best quarter in more than a decade to close a strong year of double-digit growth. During Q4, we made progress with new customers in key markets where we had traditionally been underrepresented. For instance, we won our first ever transformation award with TIM, the largest communication provider Italy. This deal follows our greatest award with Vodafone Italy and Sky Italia and demonstrates the way in which competitive market dynamics often compel service providers to invest and modernize.

Our broadening momentum was also strong in Q4 and included expansion of existing five-year service agreements as the leading service provider in Germany. In Switzerland, Sunrise Communication extended their collaboration with Amdocs to deliver best-in-class customer service, provide [inaudible] component to design a digital journey for customer [inaudible] business.

Regarding the outlook in Europe, the [inaudible] favorable as the trends to both multiply and convergence are intensifying. That said, we expect our growth in Europe to moderate significantly in the coming year. Finally, due to timing of new awards, the nature of ramp down of existing projects and the macro political [inaudible] environment of the region.

Turning to rest of the world, we closed the record year with a solid quarter that includes a new six-year deal to consolidate, modernize, and manage the IT infrastructure of PLDT is Amdocs Intelligence Operation. This significant agreement with PLDT follows the seven-year $300 million massive transformation service agreement to be signed with the customer in January 2018. It is certain proof of our ability to continuously grow the footprint in markets like the Philippines, we can leverage our existing local knowledge and sophisticated attention for structure.

Our media offerings are also proving relevant to the rest of the world. In its Argentinian division, Turner International recently selected Vindicia CashBox to power the subscription requirements of the new cloud gaming services Gloud. This important deal marks the first of its kind for Amdocs and demonstrates the value that we can bring to groups like Turner and WarnerMedia as they look to expand globally in the emerging e-gaming and e-sport markets.

Looking forward to fiscal 2019, we believe our healthy backlog and the pipeline of opportunities support another year of growth in the rest of the world, primarily led by Southeast Asia and surrounding regions where activity remains stronger as compared to Latin America.

To summarize my original comments, we are pleased with our recently gained momentum in activity, the mix of which is very balanced across our various business lines, customers, and geography. Moreover, we continue expect continued growth ahead as we expand our leadership around the continued digital transformation of service providers and accelerate the monetization of new business lines which are now production proven and commercially ready. This primarily includes North America digital modernization, media and entertainment, and network software and related services where we are positioned to capitalize on next-generation investments in NFV and 5G.

With this in mind, let me know turn to our financial outlook for fiscal 2019 and our priorities for revenue growth, margin performance, and capital allocation in [inaudible]. First, we expect total revenue growth within the range of roughly 2% to 6% on the constant currency basis, the midpoint of which is an improvement of the pace of the quarterly. This outlook is supported by the visibility of our record 12-month backlog and the stability of our revenue stream, approximately 75% of which is recurring in nature.

Second, we expect non-GAAP operating margin to remain at the higher end of our future current target range of 16.5% to 17.5% in fiscal 2019 as we continue to focus on transformation, product delivery, automation, innovation, and other investments necessary to sustainably accelerate our revenue growth for the long term.

Third, we remain committed to the proactive and disciplined allocation of capital. We have the capacity to return the majority of normalized free cash flow to shareholders in fiscal 2019, subject to factors such as M&A, financial markets, and prevailing industry conditions. I am pleased to say this includes a fourth quarter increase in the quarterly cash dividend for the sixth consecutive year, subject to shareholder approval in the annual general meeting in January 2019.

Additionally, we retain the optionality to execute on M&A strategically for long-term goals, possibly utilizing debt where appropriate.

Overall, we expect to deliver total shareholder returns in the mid-to-high single digits in fiscal 2019, including diluted non-GAAP earning per share growth in the range of 3% to 7% plus our dividend payment.

In this final point, I would like to highlight that our next Analyst Investor Day, which will be held on December 11 in the NASDAQ MarketSite headquarters in New York City Midtown. We hope that you can join Tamar, myself, and other members of our management team to hear more about the exciting dynamics we see across the global communication media industry, our strategies to sustain growth over the new three-year financial outlook.

With that, I will turn the call over to Tamar.

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

Thank you, Shuky. Fourth fiscal quarter revenue of $1 billion was slightly above the midpoint of our guidance range and included, as anticipated, a negative impact from foreign currency movements of approximately $5 million relative to the third quarter fiscal 2018. Our fourth fiscal quarter non-GAAP operating margin was 17.2%, a decrease of 10 basis points from compared to prior quarter, but consistent with our tracking at the higher end of our long-term target range of 16.5% to 17.5%.

Below the operating line, non-GAAP net interest and other expense was $3.4 million in Q4, primarily reflecting foreign exchange movements. For forward-looking purposes, we continue to expect a non-GAAP net interest and other expense in the range of $2 million dollars quarterly due to foreign currency fluctuations.

Diluted non-GAAP EPS was $0.99 in Q4, above the midpoint of our guidance range of $0.95 to $1.00. Our non-GAAP effective tax rate of 17.1% in Q4 was at the high end of our expected annual range of 13% to 17%, but still slightly better than expected.

Diluted GAAP EPS was $0.31 for the fourth fiscal quarter, below our guidance range of $0.71 to $0.79, primarily due to the one-time loss of $55 million incurred to settle a previously disclosed long-running legal dispute with Vest Corporation in the US District Court in Oregon. This amount includes a settlement of $50 million plus legal fees and other associated costs of another $5 million. While we excessively denied and continue to deny any and all wrongdoing to the effect of this claim and were ready to vigorously defend ourselves, we balanced and considering the relevant litigation in the recent past, we believe it made better business sense to settle this case and mutually release each party and its respective customers with no admission of liability or fault.

Normalized free cash flow was $89 million in Q4. This was comprised of cash flow from operations of approximately $116 million, less $35 million in net capital expenditures and other, and excluding payments of non-recurring charges in the multi-year development of the new campus in the total amount of $8 million. Normalized free cash flow generation for the full fiscal year 2018 was $428 million, which was below our expectations of about 400 million, primarily because of the shift of the amount due by several customers which have been collected in the first week of this quarter. DSO of 88 days declined by one day quarter-over-quarter. We remind you that this item may fluctuate from quarter-to-quarter.

Total unbilled receivables increased by $11 million as compared to third fiscal quarter of 2018. Our total deferred revenue, both short and long-term, decreased by $14 million sequentially in Q4. The net balance of unbilled receivables and total deferred revenue reflects our high-level of transformation project activity and resulting timing differences between revenue recognition and the invoicing of customers.

Our 12-month backlog of 3.36 billion at the end of fourth quarter fiscal quarter, which is up $30 million sequentially from the end of the prior quarter. We believe our 12-month backlog continues to serve as a good indicator of our solid book of business and its year-over-year increases over 3% supports our outlook for fiscal 2019.

Our cash balance at the end of the fourth fiscal quarter was approximately $519 million. During the fourth quarter, we repurchased $90 million of our ordinary shares. In total, we have, as of September 30, approximately $637 million of authorized capacity for share repurchases to be executed at the company's discretion going forward with no stated expiration dates.

As a reminder, we retain the flexibility to vary the level of share repurchase activity from quarter-to-quarter, depending on factors such as the outlook for M&A, financial markets, and prevailing industry conditions.

Now, turning to our outlook, we expect revenue to be within the range of $990 million to $1.03 billion for the first fiscal quarter of 2019. Embedded within this guidance, we anticipate a negligible sequential impact of foreign currency fluctuations as compared to Q4.

For the full fiscal year 2019, we expect total revenue growth in the range of roughly 1% to 5% as reported and roughly 2% to 6% a constant currency basis, after adjusting for a negative impact from foreign currency fluctuations of about 1% relative to exchange rates prevailing at the end of our fourth quarter of fiscal 2018.

We anticipate our non-GAAP operating margins to remain within the same target range of 16.5 to 17.5 in fiscal 2019. We expect our quarterly non-GAAP operating margin to fluctuate at the higher end of this range in fiscal 2019. We expect our non-GAAP effective tax rates to remain within the same target range of 13% to 17% for the full fiscal year 2019.

We expect the first fiscal quarter diluted non-GAAP EPS to be in the range of $0.95 to $1.01, and with respect to Q1, we expect our non-GAAP effective tax rates to be above the high-end of our annual target range of 13% to 17%.

Our first fiscal quarter non-GAAP EPS guidance incorporates an expected average diluted share count of roughly 142 million shares and the likelihood of a negative impact from foreign currency fluctuations in non-GAAP net interest and other expenses. We excluded the impact of incremental future share buyback activities during the first fiscal quarter, as the level of activity will depend on market conditions.

For the full fiscal year, we expect to deliver diluted non-GAAP EPS growth of 3% to 7%, the midpoint of which is within three-year range we issued at our last Analyst and Investor briefing in December 2015. Additionally, our full-year EPS outlook incorporates our expected repurchase activity over the year.

To assist you in your modeling, we expect to generate free cash flow of roughly $500 million in fiscal 2019. However, we expect normalized free cash flow of roughly $600 million in fiscal 2019, the majority of which we are trying to return to shareholders through our ongoing share repurchase and dividend programs. Normalized free cash flow adjusted for specialized [inaudible] such as the capital expenditure of roughly $50 million associated with the multi-year development of our new campus in Israel and a cash payment of $55 million related to the settlement of the previously mentioned legal dispute.

Finally, we expect the total return we deliver to shareholders will be enhanced beyond the earnings growth outlook by our dividend program, which is the new quarterly dividend rate of $0.285 per quarter per share, if approved by shareholders at the annual meeting in January, and that would yield about 1.8% in the current share price. Therefore, we expect the sum of our diluted non-GAAP EPS growth plus the dividend yield to equate to a total shareholder return in mid-to-high single digits in fiscal 2019.

With that, we can turn it back to the operator to begin our question-and-answer session.

Questions and Answers:

Operator

Ladies and gentlemen, if you'd like to ask a question at this time, please press the * then the 1 key on your touchtone telephone. If you're question has been answered, or you wish to remove yourself from the queue, you may do so by pressing the # key. Again, if utilize like to ask a question at this time, that's * then 1.

Our first question comes from the line of Shaul Eyal of Oppenheimer. Your line is now open.

Shaul Eyal -- Oppenheimer & Co. -- Analyst

Thank you. Good afternoon, guys. Question on AT&T. You mentioned the current inability to forecast the growth assumption within the US region. You mentioned also AT&T in that respect. Is it because of changing dynamics or is it because of the ongoing consolidation in a way similar to what we had seen back in 2015 on the heels of the AT&T/DirectTV transaction? Is it anything along these lines? Just trying to get a better understanding with respect to the dynamics.

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

Shaul, just to make it maybe clear, we're seeing a clear contrast in the demands and the trends between AT&T and rest of North America. So, while we're actually seeing a very good momentum in winning new business across the board in North America, we mentioned paid TV as a growth driver, we just mentioned the new win with US Cellular around digital mobilization, and there are others that we cannot provide by name. In AT&T, we are still not seeing the appetite coming back for major new investments, and therefore we are being cautious in our view and talking about relatively staying with no significant changes relative to our Q4 level fiscal 2018.

Now, I think some of it is definitely about prioritization and planning ahead -- how are we going to move forward with WarnerMedia. Some of it may have to do with other parts of the business and how they are realigning priorities. So, it's important to indicate that the same time what we are saying and continuing to support many activities AT&T, across many buying centers and different type of things. We're still not seeing enough new indications coming along of investment decisions to refuel that growth that we like to see in that account, as well.

But definitely the overall North American picture is a contrast between the dynamics in AT&T and the rest of the business going actually at a very positive momentum.

Shaul Eyal -- Oppenheimer & Co. -- Analyst

Thank you for that, Tamar

Shuky Sheffer -- President and Chief Executive Officer

 I want to add -- it's Shuky- that definitely the partnership with AT&T remains strong, and we don't lose any business to competition. We are at the heart the AT&T activity, so I want to echo Tamar. Obviously part of it relates to the TimeWarner acquisition, but overall difficult to predict.

Shaul Eyal -- Oppenheimer & Co. -- Analyst

Right. This is extremely helpful color. Thank you for that.

And maybe on Vubiquity, I don't know, Tamar, if you can -- if you want to disclose the contribution or even if you're not disclosing, maybe just a word about the progress you see with Vubiquity over the course of the past few quarters?

Shuky Sheffer -- President and Chief Executive Officer

We don't disclose the number, maybe Tamar will share some, but overall what we see with Vubiquity is that traditionally Vubiquity had a very strong success with many media customers. And we see an increased pipeline for additional customers, from APEC to North America to Europe, leveraging our existing partnership with our customers. As I mentioned before, we see major conversions to paid-TV, both in Europe, like in North America. So, we can leverage this relationship during this great offering of Vubiquity. We see increase in pipeline. These deals sometimes are 10 cycles long, but overall it looks promising.

Shaul Eyal -- Oppenheimer & Co. -- Analyst

Got it. Thank you for that, Shuky. Thank you, Tamar. I'll step aside now.

Operator

Our next question comes from Ashwin Shirvaikar with Citi. Your line is now open.

Ashwin Shirvaikar -- Citigroup Research -- Analyst

Thank you. Good evening. Hi, Shuky. Hi, Tamar. Shuky, congratulations on your first Amdocs EO call. I want to go back to the specific assumptions that are in there on a full-year basis. If I could, starting with revenue, I understand that 4Q North America you're assuming -- 1Q you're assuming similar to 4Q, but on a full-year basis, what sort of assumptions are you making on the revenue line? And then the margin expansion that we have seen -- a steady margin expansion over the last few years, would you expect that to continue. There's some uncertainty about margins versus tax since you only provided tax for that quarter.

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

So, clarification. The message around no significant change relative to Q4 is specific on our assumptions on AT&T. In general in North America, we are seeing good momentum, as I mentioned, across the board. It's actually both in the US and Canada, paid TV, wireless. We are actually seeing quite a nice level of activity.

In terms of how we're looking on the margin, it's a combination between the factors of continuing to expand into many new models and many new countries. We gave Italy as an example. We are continuing to see very strong momentum with [inaudible] et cetera. And many activities we are wanting to improve the margins of the performing edges of the company. We are not building a margin expansion, per se, as a driver this year.

We would like to continue to push for growth, and we have accelerated, as you've seen, on a constant currency basis [inaudible] 4% relative to 2.3% on constant currency growth of '18. We are putting the focus on the acceleration of growth and grabbing the opportunities we're seeing around the world to bring new business and maintain more or less the margin at around the higher end of the 16.5% to 17.5% that is targeted.

On a tax rate level, again just to clarify -- the annual basis projection is to remain in the range of 13% to 17%, which is consistent with what we've had in fiscal '18. Specifically in Q1, the [inaudible] that we are expecting to be higher level of the high end. But that's because we've seen volatility in tax rates between quarters before, so I don't think it's something to worry about. It's just giving you additional color of how exactly the specific EPS guidance on a non-GAAP basis in Q1.

 Ashwin Shirvaikar -- Citigroup Research -- Analyst

Got it. And then, as I think about you had the comment on Europe -- the new signings and such, would that imply that the strong European growth that we have seen in this quarter should continue?

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

Europe is based on many project activities relative to the...If I'm looking at recurring revenue versus project activity, specifically in the European region we are still seeing a high percentage of project activity. Therefore, when we're looking on the 17% year-over-year growth of Q4, we don't believe this is sustainable moving forward, given some natural fluctuations we're seeing with projects that are ramping down, just getting to the finish line, and where new business is ramping up. But at the same time, the win rate is very healthy. We're continuing to see new wins in the backdrop already, and we have also a solid pipeline. So, we do believe Europe will continue to be a growth area for us. Just wanted to set expectations at the right level for moderation relative to that strong double-digit growth we've seen in Q4.

Shuky Sheffer -- President and Chief Executive Officer

The trend in Europe, which is now both consolidation and convergence. So, you see Vodafone is buying both Kabel Deutschland, now they bought LGI. The same in the UK between VT and Everything Everywhere. It's consolidation and convergence activity, I think, is our switch off, because this is where we need to modernize the support system and be able to offer these to market. So, this is why we said that we are very optimistic about Europe.

Ashwin Shirvaikar -- Citigroup Research -- Analyst

Understood. Thank you.

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

 Thank you, Aswin.

Operator

Our next question comes from Jackson Ader with JPMorgan. Your line is now open.

Jackson Ader -- JPMorgan Chase & Co. -- Analyst

Great. Thank you. Good evening, everybody. My question is if we think about the sales efforts that -- when you're going after some of the emerging opportunities, let's say, like paid TV or Vubiquity, relative to your traditional markets, what does the sales effort look like when you're trying to close one of those deals? Does it require more resources, less resources, sales cycles? What does it look like?

Shuky Sheffer -- President and Chief Executive Officer

Actually, what we do is we have -- when we are leveraging the existing sales or account management people that we have to, they are ready. They're managing all our customers worldwide. We train them to identify if our customer...For example, many of our wireless customers want to with [inaudible]. So, every opportunity with one of these customers is in the direction of getting what's stopping delivery digital content [inaudible] presents an opportunity for us. So, traditionally what we do is leverage the existing workflow that we have in the long-term relationship with the customer, and then we bring over all the experts from Vubiquity who can explain to the customer the variable position. But overall, we are very dependent, and it's working well for us in the existing workforce -- or sales force.

Jackson Ader -- JPMorgan Chase & Co. -- Analyst

Okay. That's actually all we had tonight. Thank you.

Operator

Our next question comes from Tom Roderick with Stifel. You're line is now open.

Matthew VanVliet -- Stifel Financial -- Analyst

Yes, hi. Mat VanVliet in for Tom. Thanks for taking my question. I guess looking at some of the 5G trials and potential rollouts coming down the pike here, just curious at maybe what level of involvement or projects that you've been involved with here looking at that technology rollout and what part you could potentially play in line with some of the carriers?

Shuky Sheffer -- President and Chief Executive Officer

So, in 5G...So, everyone is trying to deploy a 5G. We have two angles to 5G. One is more like the network related activity. When you started to deploy 5G, you need capacity of fallout, optimization, planning, ready optimization, and many services that we've had for several years that you need when you deploy 5G. So, this is one area of growth in 5G deployment we identify and see an opportunity.

The other one and even more important -- there is no rationale of deploying 5G if you cannot monetize it. The ability to monetize 5G is only if you build a capacity or ability in your IT system to leverage the 5G.

I can give some examples. If you don't have the right charging and writing capabilities to support the new IoT, robotics, network slicing and all this new stuff that the 5G is offering, then you are not able to monetize it.

So, you roll the 5G rollout and deployment, and the other one to help our customers to monetize this investment in their support system to be able to monetize it for the new services that the 5G can offer.

Matthew VanVliet -- Stifel Financial -- Analyst

And then is there -- looking at other opportunities for sort of next-gen capabilities, have there been any -- or do you have any updates in terms of some of the ONAP projects that you had that you had released before? Are those progressing well? And what's maybe being altered or tweaked to make that a better program?

Shuky Sheffer -- President and Chief Executive Officer

So, related to NFV, I want to take a moment to explain, because I think NFV is only one part of our network offering. But regarding specifically to NFV or ONAP, we have a lot of points of contact. We mentioned some proof of concept in terms of project, like in Comcast and Telstra. So, while we see this proof of concept start it's a very small engagement. Many times the project can become more significant. There are many proof of concepts. It takes a little bit more time than we anticipated to turn into project as data still is moving to NFV. But we do have momentum with people trying this more and more.

NVF is one part of our broader network offering. Just to remind everyone that NFV is mainly around the virtualization of the network, but at same time we have a lot of services around the virtualization to inventory and ready optimization, transition to virtual network, hybrid network operation, service assurance, autonomous service assurance. So, there are many services around the network which we are now developing and successfully selling. In NFV, we are still waiting for the breakthrough, although there is some momentum mainly right now in many customers are trying this technology in POC.

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

Maybe just to add some clarity, we're already -- with all these early phase projects, et cetera, we're already making several tens of millions of dollars around it. And I continue to see growth from year to year. Of course, what we're looking for is that inflection point that will make it a business of hundreds of millions of dollars, and that will take some time, but we are still very bullish about this opportunity and believe that that, in conjunction with all the services that Shuky mentioned that are quite robust, we can get our network domain to be a very important part of the overall growth story.

Shuky Sheffer -- President and Chief Executive Officer

We plan to present it in maximal details on the Analysts Day on December 11, to show the broader service that we do around the NFV and all the other network-related services that we are offering today.

Matthew VanVliet -- Stifel Financial -- Analyst

Great, thank you.

Operator

As a reminder, ladies and gentlemen, if you'd like to ask a question at this time, that's * then 1. Our next question comes from the line of Will Power with Baird. Your line is now open.

William Power -- Robert W. Baird & Co. -- Analyst

Yes, great. Thank you. Yeah, I wanted to come back to North America just to make sure I'm clear. I guess given the comments around AT&T, is it the expectation that North America can in fact grow year over year, or does AT&T continue to pressure that And if you expect it to grow, is that cable? What are biggest drivers of potential North American growth outside of AT&T?

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

It can grow, but obviously the different permutations that will be there in terms of balance between the different accounts and the ramp up, we find exactly what the pace of the direction that we will see. I think the good news here is that we're seeing a broad base, the activity levels have been healthy, paid TV continued to be a growth driver. That we will be continuing to see second, third project within the same account we've penetrated. And we are continuously seeing monetization happening. We mentioned also a new win with US Cellular with digital monetization, so we are continuing to see also that as a driver of opportunities.

Shuky Sheffer -- President and Chief Executive Officer

 Another trend is that you see that all the paid TV customers are now going wireless. Obviously we have a good offering in this domain.

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

And also the different activities that we mentioned around the network software-related and service-related activities we can offer are very relevant, as those kinds of investments are happening across North America. So, will it end up in a material growth? Yet to be seen in terms of how those drivers translate into pace of revenue and completion, but in terms of just an indication, a significant part, for example, of the growth of the 12-month backlog this quarter came from activity, signing new deals in North America.

William Power -- Robert W. Baird & Co. -- Analyst

Okay. And then, Shuky, just strategically as you look longer term for Amdocs, what are kind of the key areas you'd left to see the company invest in for future growth opportunities, both from an organic standpoint. And I'd be curious if there was any color on how you're thinking about M&A, where are the areas you might want to invest there, and maybe what does the pipeline generally look like on that front? Thanks.

Shuky Sheffer -- President and Chief Executive Officer

So, generally speaking, I see three main goals for Amdocs, and, as I mentioned, we are going to talk much more broadly on this on Analyst Day, but all our customers are doing one shape or other digital transformation. And I think we are totally capable to deliver the best solution in the market in digital data. This is true, by the way, in all regions, to North America, to Europe, to APEC, to Latin America. Everywhere is going digital, and I think that we have the right tools and offers.

But the way that we augmented last year is a very important, very prominent position like UXP to support this digital transformation. So, this trend is happening, and obviously we are very well positioned.

The other one is when we talk about media. So, with the acquisition of Vubiquity and also the acquisition that we have [inaudible] and Vubiquity, I think we have a good solution for the media. And all our customers, in one way or the other, videos through OTT or any other paid TV offering need these services, so I believe this will be another growth engine for us.

MSO in general and all the cable and paid TV, as Tamar mentioned, was a very solid growth engine for us, and we believe it will continue to be so. This is something that traditionally was in North America. We'll see it will happen in Europe, too. Because over there we see a lot of consolidation in between the paid TV, Comcast bought Sky. So, there is some activity in this domain, but the majority of the activity is in North America and surprisingly in APEC. So, we see this continuing to be a very solid growth engine for us.

Network and all network-related activities accelerated by 5G would be another area that we believe we will see growth in the future. And overall, I am only four weeks in the job. We are looking at additional growth engines for the company. We are conducting with the company a very solid view about what's going on in the industry and what will be other areas for Amdocs to compete and be relevant.

M&A is always something. It's a tool that -- Tamar mentioned it's a something we will do if we think it's relevant to our offering or relevant to the market conditions. So, we will do this if necessary, sampling the technology that we don't have or cloud services or whatever it would be. So, all the time we are looking, what is relevant for us and what could be added value to our offers.

This is, as I said, I'm going to share -- the whole management team is going to share in much more detail our strategy for 2019 and looking forward for the next three years in our Analyst Day.

William Power -- Robert W. Baird & Co. -- Analyst

Great. Thank you.

Operator

I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Smith for closing remarks.

Matthew Edward Smith -- Head of Investor Relations

Thank you, Liz. And thank you everyone for joining us this evening. We look forward to hearing from you in the coming days. And if you do have any additional questions, please give us a call at the Investor Relations line. Have a great evening. And with that, we'll conclude the call. Thanks.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone have a great.

Duration: 43 minutes

Call participants:

Matthew Edward Smith -- Head of Investor Relations

Shuky Sheffer -- President and Chief Executive Officer

Tamar Rapaport-Dagim -- Chief Financial and Operating Officer

Shaul Eyal -- Oppenheimer & Co. -- Analyst

Ashwin Shirvaikar -- Citigroup Research -- Analyst

Jackson Ader -- JPMorgan Chase & Co. -- Analyst

Matthew VanVliet -- Stifel Financial -- Analyst

William Power -- Robert W. Baird & Co. -- Analyst

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