Amdocs Limited (Nasdaq: DOX) — FY2022 Form 20-F
Business context and reporting period. This is Amdocs’ annual report for the fiscal year ended September 30, 2022, prepared under U.S. GAAP. The company provides software and services, including managed services, to communications and media providers. The filing also reports unaudited fourth-quarter results for the three months ended September 30, 2022; it is not a standalone quarterly filing.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $4.577 billion | $4.289 billion | +6.7%; +8.1% excluding the stated FX impact |
| Operating income | $664.8 million | $598.7 million | +11.0% |
| Operating margin | 14.5% | 14.0% | +0.5 percentage points |
| Net income | $549.5 million | $688.4 million | -20.2% |
| Diluted EPS | $4.44 | $5.32 | -16.5% |
| Operating cash flow | $756.7 million | $925.8 million | Lower; FY2021 included a cash benefit from a T-Mobile strategic partnership |
| Free cash flow (non-GAAP) | $529.5 million | Not stated here | Operating cash flow less $227.2 million of net capital expenditures |
- Cost of revenue was $2.958 billion, or 64.6% of revenue, compared with 65.5% in FY2021; implied gross margin was 35.4%.
- R&D expense rose 13.3% to $354.7 million (7.8% of revenue); SG&A rose 8.5% to $528.6 million (11.5% of revenue).
- Net income and EPS declined chiefly because FY2021 included a $226.4 million gain from the OpenMarket divestiture. FY2022 included a further $10.0 million gain related to that sale.
- FY2022 interest and other expense, net, was $26.4 million, up from $10.8 million, primarily reflecting foreign-exchange losses and fair-value changes in minority equity investments.
- Revenue from managed services was $2.755 billion, up from $2.546 billion. North America revenue grew 11.1%; Europe declined 6.5%, primarily due to FX and the OpenMarket divestiture.
Fourth quarter
FY2022 Q4 revenue was $1.167 billion, operating income $171.7 million, net income $128.9 million, and diluted EPS $1.05. Compared with FY2021 Q4, revenue increased about 7.3%, operating income about 11.2%, net income about 4.4%, and diluted EPS rose from $0.97.
Liquidity, debt and capital allocation
- Cash, cash equivalents and short-term investments totaled $818.0 million at September 30, 2022, versus $965.6 million a year earlier. Current assets were $2.003 billion and current liabilities $1.253 billion.
- Long-term Senior Notes had $650 million principal outstanding, mature in June 2030, and bear fixed interest at 2.538%. The $500 million revolving facility, maturing March 2026, had no borrowings; the company reported compliance with its covenants.
- FY2022 cash uses included $508.5 million for share repurchases, $186.1 million for dividends, and $227.2 million for net capital expenditures. The company repurchased 6.48 million shares at an average $78.47 and had $490.1 million of remaining authorization.
- FY2022 dividends declared totaled $1.545 per share. A $0.395 quarterly dividend was approved for payment in January 2023; a proposed increase to $0.435 quarterly was subject to shareholder approval.
- Contractual obligations totaled $1.012 billion, including $654.8 million of long-term debt and accrued interest, $207.5 million of operating leases, and $141.5 million of purchase obligations.
Outlook, risks and unusual items
- Management describes demand drivers as customers’ cloud migration, 5G deployment, digital transformation, network modernization and managed-services needs. The filing excerpt does not provide a clear numerical FY2023 revenue or EPS guidance range.
- Remaining performance obligations were approximately $6.3 billion; the majority was expected to be recognized over the next three years. The company cautions that this is not comparable to its next-12-month backlog.
- Customer concentration is substantial: AT&T represented 26.8% of FY2022 revenue and T-Mobile 20.1%; the ten largest customers together accounted for about 70%. Loss or reduced spending by a major customer could materially affect results.
- Key risks include macroeconomic and communications-industry conditions, inflation and FX volatility, competition, project execution and revenue-estimation judgments, cybersecurity and data privacy, talent retention, acquisition integration, and geopolitical disruption. Amdocs reported a $16.7 million FY2022 foreign-exchange loss within interest and other expense, net.
- The company reported an ongoing dispute with a state-owned telecom enterprise in Ecuador involving claimed monetary damages; the outcome could not be reasonably estimated. It believes other legal contingencies are not expected to have a material adverse effect.
- Unrecognized tax benefits were $213.0 million at year-end; the company is under tax audits in multiple jurisdictions and cannot estimate their timing or outcome. FY2022 effective tax rate was 15.3%.
- The planned MYCOM-OSI acquisition was terminated after a prolonged UK regulatory review, with no payment by either party; management said the decision was not expected to affect guidance. Two immaterial technology acquisitions were completed in FY2022.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether future growth and margin performance are supported by recurring managed-services activity, given customer and project concentration.
- How much of reported growth reflects underlying demand versus FX movements, acquisitions, and divestitures.
- Cash-flow sustainability: FY2022 operating cash flow fell from FY2021, while buybacks, dividends, and campus investment remained significant uses of cash.
- Progress and expected costs from the new Israel campus, substantially complete at year-end, and any effects of the planned gradual exit from an Indian tax-incentive regime.
- Developments in the Ecuador dispute, tax audits and uncertain tax positions, and the company’s ability to manage cybersecurity, talent, and geopolitical risks.