Amdocs Limited — FY2012 Form 20-F
Reporting period: Fiscal year ended September 30, 2012. This is an annual report, not a standalone quarterly filing; it also reports results for the fourth quarter ended September 30, 2012. Financial statements are consolidated, prepared under U.S. GAAP, and stated in U.S. dollars.
Business context
Amdocs provides software and services, including customer experience systems, billing, customer management, operational support, network control and managed services, primarily to communications, media and entertainment providers. Customer experience systems generated 94.4% of FY2012 revenue. Managed-services revenue was approximately $1.68 billion, up from $1.52 billion in FY2011.
Key financial metrics
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $3,246.9 million | $3,177.7 million |
| Operating income / margin | $442.5 million / 13.6% | $404.4 million / 12.7% |
| Net income / net margin | $391.4 million / 12.1% | $346.7 million / 10.9% |
| Diluted EPS | $2.31 | $1.86 |
| Cash provided by operations | $514.1 million | $535.5 million |
| Capital expenditures, net | $122.1 million | $109.8 million |
At September 30, 2012, cash, cash equivalents and short-term investments totaled $1,118.2 million; after $200 million of short-term borrowings, cash net of short-term debt was $918.2 million. The $200 million revolving-facility draw was repaid in October 2012. Amdocs had a $500 million five-year revolving credit facility and reported compliance with its covenants. Long-term obligations included $1.02 million of convertible notes and minimal capital leases. Total assets were $4,645.2 million and shareholders’ equity was $3,033.2 million.
Liquidity included $2,041.1 million of current assets and $1,065.6 million of current liabilities. The filing reports $67.2 million of outstanding letters of credit and bank guarantees. Contractual obligations totaled $487.8 million, including leases, pension funding and purchase obligations; the table includes the $200 million borrowing subsequently repaid.
Material changes versus comparable periods
- FY2012 revenue grew 2.2%, with growth from Europe, emerging markets and the new network-control offering partly offset by slower AT&T spending, Bell Canada contractual price reductions and foreign-exchange effects.
- Customer experience systems revenue rose 3.0% to $3,066.2 million; directory systems revenue fell 9.4% to $180.7 million, primarily reflecting weaker managed-services activity in that market.
- Cost of license and service declined to 64.2% of revenue from 65.1%, which management attributed mainly to operating efficiencies and process improvements. R&D rose 9.1% to $242.1 million, and SG&A rose 3.7% to $424.7 million.
- Operating income increased 9.4% and net income increased 12.9%. Lower amortization and a decline in net interest and other expense supported results; the latter included a $6.3 million gain on sale of Amdocs’ remaining minority interest in Longshine.
- Operating cash flow decreased 4.0%. Cash use included $484.6 million of share repurchases and $122.1 million of net capital expenditures.
- In Q4 FY2012, revenue was $822.1 million versus $812.2 million in Q4 FY2011; operating income was $113.5 million versus $104.6 million, and net income was $98.0 million versus $87.4 million.
Outlook, risks and unusual items
- The filing provides no specific FY2013 revenue or earnings guidance. Management expected FY2013 capital expenditures to be funded internally and said existing cash, operating cash generation and credit lines should cover operational needs, repurchases and dividends for at least the next fiscal year.
- Management described demand drivers including data growth, connected devices and service-provider transformation, while noting uncertain economic conditions, industry competition and customer cost controls. Amdocs planned continued investment in product development, including its next CES 9 portfolio release.
- Customer concentration is significant: AT&T represented 26% of FY2012 revenue, Sprint Nextel 10%, and the ten largest customers approximately 69%. The loss or reduced spending of a major customer could materially affect results.
- Foreign-exchange exposure, project timing and cost-estimation judgments, customer credit, talent retention, acquisitions and integration, cybersecurity/system interruptions, intellectual-property claims, geopolitical conditions and changes to tax incentives are among the disclosed risks.
- Unrecognized tax benefits were $133.9 million, including accrued interest and penalties; the timing and outcome of tax audits are uncertain. The company said ordinary-course legal proceedings were not expected to have a material adverse effect. It reported no off-balance-sheet arrangements and no goodwill or long-lived-asset impairment in FY2012.
- Shareholders approved a quarterly dividend program at $0.13 per share. The first payment, $21.1 million, occurred after year-end in October 2012. A new $500 million share-repurchase authorization was adopted in November 2012.
Important facts for investors to verify
- Whether customer concentration, particularly AT&T exposure and customer spending trends, has changed since FY2012.
- Whether managed-services growth and margin progression offset weakness in directory systems and modest overall revenue growth.
- Cash conversion and working-capital trends: receivables rose to $687.2 million, including unbilled receivables of $130.7 million.
- Actual use of the November 2012 repurchase authorization, dividend sustainability, and capital allocation relative to management’s stated free-cash-flow framework.
- Developments in tax audits, the $133.9 million unrecognized-tax-benefit balance, and continued eligibility for foreign tax incentives.
- Subsequent operating performance and delivery of CES 9; the filing does not provide quantified FY2013 revenue or EPS guidance.