Amdocs Limited — Fiscal 2020 Form 20-F
Business context and reporting period. Amdocs provides software and services to communications, cable, satellite, entertainment and media providers. The filing covers the fiscal year ended September 30, 2020; the requested Q4 period is the three months ended that date. Financial statements are prepared under U.S. GAAP in U.S. dollars.
Financial performance and liquidity
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Revenue | $4,169.0 million | $4,086.7 million |
| Operating income / margin | $594.8 million / 14.3% | $569.7 million / 13.9% |
| Net income / net margin | $497.8 million / 11.9% | $479.4 million / 11.7% |
| Diluted earnings per share | $3.71 | $3.47 |
| Cash from operations | $658.1 million | $656.4 million |
| Cash and short-term investments | $983.9 million | $471.6 million |
| Debt and short-term financing | $750.0 million | No borrowings reported |
Fiscal 2020 revenue increased 2.0% year over year. Managed services revenue grew to $2,398.7 million from $2,246.3 million and represented about 57.5% of total revenue. Cost of revenue rose faster than sales, increasing to 66.1% of revenue from 64.9%; management attributed this mainly to investments to ramp up new deals. Selling, general and administrative expense fell 6.9%, partly reflecting reduced travel and marketing costs during COVID-19 restrictions. Free cash flow, a non-GAAP measure defined as operating cash flow less net capital expenditures, was $452.6 million.
At year-end, total assets were $6,341.6 million and equity was $3,665.2 million. Current assets of $2,074.6 million compared with current liabilities of $1,216.2 million. The company reported $650 million of 2.538% senior notes due 2030 and a $100 million short-term loan. Cash and short-term investments exceeded reported borrowings by approximately $233.9 million.
Fourth-quarter results
Q4 revenue was $1,052.9 million, compared with $1,030.3 million in Q4 2019 (up approximately 2.2%). Operating income was $146.9 million versus $144.2 million; net income was $134.5 million versus $122.0 million; diluted EPS was $1.01 versus $0.90.
Material changes and developments
- Operating income rose 4.4% and diluted EPS rose 6.9% year over year. EPS benefited from higher net income and a lower diluted share count following repurchases.
- Operating cash flow was nearly flat year over year, while cash and short-term investments increased by $512.3 million, supported in part by debt issuance and financing proceeds.
- Fiscal 2020 investment spending included $205.5 million of net capital expenditures and $249.4 million of cash paid for business and intangible-asset acquisitions. The company acquired Openet in August 2020; total consideration for the year’s acquisitions and other intangible assets was approximately $291.5 million.
- Amdocs repurchased 5.7 million shares for $360.9 million at an average $63.66 per share and paid $164.1 million in dividends. The declared annual dividend per share increased to $1.2675 from $1.105.
- North America generated 65.3% of revenue, up from 63.2%; Europe remained 14.7%; the rest of the world declined to 20.0% from 22.1%. AT&T contributed 25.8% of revenue, versus 23.4% in 2019; the next-largest customer contributed 12.1%. The ten largest customers together represented approximately 65%.
Outlook, risks and unusual items
- The filing provides no specific quantified revenue or earnings guidance. Management said available cash, operating cash generation, credit facilities, loans, notes and capital-market access should provide sufficient resources for operations, campus construction, debt service, repurchases and dividends for at least the next fiscal year.
- Management’s strategic priorities include cloud migration, cloud-native offerings, 5G, digital transformation, managed services and continued R&D investment. It cautioned that managed-services engagements may be less profitable initially, with margins generally improving over time.
- COVID-19 created uncertainty around customer demand, project timing and scope, customers’ ability to pay, service delivery and employee effectiveness. Lower travel and selling costs benefited fiscal 2020 expenses, while the pandemic’s future effects remained uncertain.
- Customer concentration is a key exposure, particularly AT&T; customer consolidation, including the T-Mobile/Sprint merger, could affect future business. Other disclosed risks include competition, cybersecurity and data privacy, talent retention, foreign exchange, international operations and acquisition integration.
- The company is defending a dispute with a state-owned telecom enterprise in Ecuador involving terminated contracts and claimed monetary damages. It said the outcome could not be reasonably estimated. Routine legal contingencies were not expected to have a material adverse effect. A separate Oregon lawsuit was settled in 2018 for $50 million, with related fees paid in 2019.
- Fiscal 2020 included tax benefits from releases of tax reserves and deferred-tax-asset valuation allowances; the effective tax rate was 14.7%, down from 15.6%. Unrecognized tax benefits totaled $168.2 million, and their resolution timing is uncertain.
- After year-end, Amdocs agreed in November 2020 to sell OpenMarket for approximately $300 million in cash. The board also approved a quarterly dividend of $0.3275 and proposed an increase to $0.36, subject to shareholder approval.
Important facts for investors to verify
- Whether AT&T revenue concentration and the T-Mobile/Sprint merger affect renewals, project scope or future revenue.
- Whether new managed-services engagements achieve expected ramp-up efficiencies and margin improvement.
- How the Openet acquisition performs and whether the OpenMarket divestiture closes on the announced terms.
- Debt repayment and refinancing plans, cash deployment, and the sustainability of dividends and share repurchases.
- Developments in the Ecuador dispute and tax audits, including potential cash or earnings effects.
- Actual business effects of COVID-19 and progress in cloud, 5G and other strategic growth areas.