Amdocs Limited — FY2019 Form 20-F Summary
Business context and reporting period
Amdocs provides software and services to communications, cable, satellite, entertainment and media service providers. This annual report covers the fiscal year ended September 30, 2019, with unaudited quarterly results including the three months ended September 30, 2019. Financial statements are consolidated, prepared under U.S. GAAP and presented in U.S. dollars.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $4,086.7 million | $3,974.8 million |
| Operating income / margin | $569.7 million / 13.9% | $428.3 million / 10.8% |
| Net income / net margin | $479.4 million / 11.7% | $354.4 million / 8.9% |
| Diluted EPS | $3.47 | $2.47 |
| Operating cash flow | $656.4 million | $557.2 million |
| Capital expenditures, net | $128.1 million | $231.1 million |
- Revenue grew 2.8% year over year, or 4.1% excluding an approximately 1.3% negative foreign-exchange impact. Managed-services revenue increased to $2,246.3 million from $2,051.6 million.
- Reported free cash flow, a non-GAAP measure, was $528.3 million; normalized free cash flow was $613.5 million. Management defines these as operating cash flow less capital expenditures, with specified adjustments for normalized free cash flow.
- Cash, cash equivalents and short-term investments totaled $471.6 million at year-end, down from $519.2 million. Current assets were $1,675.6 million and current liabilities $1,207.9 million. Total assets were $5,292.8 million and equity $3,542.5 million.
- No borrowings were outstanding under the $500 million revolving credit facility at year-end; the facility matures in December 2022. The filing reports no long-term debt balance in the presented balance sheet data. Letters of credit and bank guarantees totaled $91.3 million.
- FY2019 dividend declared per share was $1.105. The company repurchased approximately 6.7 million shares for $398.1 million, at an average price of $59.79 per share.
Fourth-quarter results and changes versus prior periods
For Q4 FY2019, revenue was $1,030.3 million, operating income $144.2 million, net income $122.0 million and diluted EPS $0.90. Q4 FY2018 figures were $1,002.6 million, $68.8 million, $44.3 million and $0.31, respectively.
For the full year, operating income rose 33.0% and net income rose 35.3%. The improvement reflects revenue growth outpacing expense growth and the absence of FY2018 non-recurring charges of $85.1 million, which included a $55 million legal settlement and restructuring charges of approximately $30.1 million. FY2019 operating margin was 13.9%, compared with 10.8% in FY2018. AT&T remained the largest customer but represented 23% of FY2019 revenue, down from 27% in FY2018; the top ten significant customers accounted for approximately 65%.
Outlook, commentary, risks and unusual items
- Management planned to return roughly 100% of FY2020 normalized free cash flow to shareholders through repurchases and dividends, subject to financial performance, liquidity, acquisition activity and market conditions. This is a capital-return plan, not earnings or revenue guidance; the filing text does not provide clear FY2020 revenue or EPS guidance.
- The board approved a new $800 million share-repurchase authorization in November 2019. It also proposed increasing the quarterly dividend to $0.3275, subject to shareholder approval; the approved near-term quarterly payment remained $0.285 per share.
- The company expected to invest up to $120 million in FY2020 toward its new Israeli campus. Total net investment was estimated at up to $350 million over four to five years; the future construction obligation was not included in the contractual-obligations table.
- Key risks include customer concentration and potential telecom-sector consolidation, competition and pricing pressure, project timing and estimation, foreign-exchange movements, cybersecurity and service disruptions, talent retention, acquisition integration, privacy regulation and tax uncertainty. AT&T’s declining revenue share is material to monitor.
- A dispute with a state-owned telecom enterprise in Ecuador includes claimed monetary damages; Amdocs said it could not reasonably estimate the outcome. The Oregon lawsuit was settled and dismissed, with the $50 million settlement and $5 million of related legal and other fees paid in FY2019, after being accrued in FY2018.
- Unrecognized tax benefits were $169.3 million at year-end, with related accrued interest and penalties of $31.1 million. Adoption of the lease standard on October 1, 2019 was expected to add approximately $260–$310 million to reported assets and liabilities, with no material expected effect on income or cash flow.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether managed-services growth and the $5.5 billion of remaining performance obligations translate into revenue and margins as expected; the filing says most of those obligations are expected to be recognized over three years.
- Whether earnings growth persists after accounting for the FY2018 one-time charges, and how much of FY2019’s improvement reflects underlying operations versus share-count reduction from repurchases.
- AT&T and top-customer exposure, including the trajectory of AT&T revenue and the effect of customer mergers or spending changes.
- Cash conversion, planned shareholder returns, campus spending and the company’s capacity to fund them while preserving liquidity.
- Developments in the Ecuador dispute, tax audits and uncertain tax positions, and the actual balance-sheet effect of lease-standard adoption.