Amdocs Limited — FY2011 Form 20-F Summary
Reporting period: Fiscal year ended September 30, 2011; U.S. GAAP, U.S. dollars. Although the request identifies 2011 Q4, this is an annual filing. The filing also reports unaudited results for the quarter ended September 30, 2011. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Business context
Amdocs provides software and services, including business and operational support systems and managed services, principally to communications, media and entertainment providers. Customer experience systems generated 93.7% of FY2011 revenue. Managed-services revenue was approximately $1.52 billion, up from $1.40 billion in FY2010.
Key financial metrics
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $3,177.7 million | $2,984.2 million |
| Operating income / margin | $404.4 million / 12.7% | $410.4 million / 13.7% |
| Net income / margin | $346.7 million / 10.9% | $343.9 million / 11.5% |
| Diluted EPS | $1.86 | $1.69 |
| Cash from operating activities | $535.5 million | $685.2 million |
| Cash, cash equivalents and short-term investments | $1,173.5 million | $1,433.3 million |
Revenue increased 6.5%; operating income declined 1.5%, while net income rose 0.8%. Service revenue was $3,058.5 million, or 96.2% of revenue; license revenue was $119.2 million. Cost of license and service increased to 65.1% of revenue from 63.9%, pressuring operating margin. The effective tax rate rose to 12.4% from 10.7%.
At September 30, 2011, Amdocs had $250 million drawn on its $500 million revolving credit facility; the borrowing was repaid in October 2011. It also had $1.02 million of convertible notes outstanding, due 2024, and $1.1 million in lease obligations. The company reported $923 million in cash, cash equivalents and short-term investments, net of short-term debt. Shareholders’ equity was $3,023.3 million. FY2011 capital expenditures, net, were $109.8 million.
FY2011 fourth quarter: Revenue was $812.2 million, operating income $104.6 million, net income $87.4 million, and diluted EPS $0.49. Compared with FY2010 Q4, revenue increased from $762.2 million and operating income from $102.9 million, while net income decreased from $94.7 million; diluted EPS was $0.49 versus $0.48.
Material changes and notable items
- Customer experience systems revenue increased 7.3% to $2,978.3 million; directory revenue declined 4.6% to $199.4 million.
- Operating cash flow fell to $535.5 million from $685.2 million. The company attributed the lower year-end liquidity mainly to $624.2 million of share repurchases, acquisitions and capital expenditures.
- Amdocs repurchased 21.9 million shares for $624.2 million, at an average $28.53 per share. Remaining repurchase authorization at year-end was $687.1 million. Reduced share count contributed to higher diluted EPS.
- The company acquired Bridgewater Systems, adding policy management and network control products. The filing describes acquisitions in FY2011 as individually and collectively not material, while recording $103.6 million of Bridgewater-related goodwill.
- AT&T accounted for 29% of revenue, unchanged from FY2010. Bell Canada and Sprint Nextel each represented approximately 10% or more of FY2011 revenue. The ten largest customers together accounted for approximately 73% of revenue.
- Revenue growth was supported mainly by existing and new managed-services arrangements. Higher implementation costs, employee training and foreign-exchange impacts contributed to increased service costs.
Outlook, risks and contingencies
- The filing provides no quantified FY2012 revenue, earnings or margin guidance. Management expected cash balances, operating cash generation and credit lines to fund operational needs for at least the next fiscal year; FY2012 capital spending was expected to be internally financed and primarily for computer equipment.
- Amdocs planned additional Amdocs CES 8 releases during 2012, with future product work focused on network monetization and customer experience.
- A scheduled Bell Canada contract price reduction was expected to negatively affect revenue in FY2012. Customer concentration, particularly dependence on AT&T, remains a significant risk.
- Other disclosed risks include communications-sector spending and economic conditions, competition, project timing and execution, customer credit, foreign exchange, acquisition integration, talent retention, cybersecurity and system outages, and political conditions affecting operations in Israel and other regions.
- Unrecognized tax benefits were $132.9 million; resolution timing was uncertain. The company reported various ordinary-course legal proceedings but did not expect their resolution to materially affect its financial position, results or cash flows. It reported no off-balance-sheet arrangements.
- Cash-flow disclosure requires reconciliation: the cash-flow statement reports $163.0 million of net cash paid for acquisitions, while the liquidity discussion cites $146.7 million. Investors should verify the difference against the underlying statements and notes.
Most important facts for investors to verify
- Whether managed-services growth and margins can offset the FY2011 decline in operating margin and operating cash flow.
- The expected revenue and profitability impact of the Bell Canada price reduction and continued concentration in a few large customers.
- Cash deployment, including remaining share-repurchase authority, acquisition spending, and the company’s post-repayment revolving-credit position.
- The acquisition cash-use discrepancy and Bridgewater’s subsequent integration and performance.
- Potential changes in tax benefits and the ultimate resolution of the $132.9 million in unrecognized tax benefits.