Amdocs Limited (Nasdaq: DOX) — FY2021 Form 20-F
Reporting period: Fiscal year ended September 30, 2021. The filing is an annual report, not a standalone Q4 filing; it also provides unaudited quarterly results, including the September 2021 quarter. Figures are in U.S. dollars.
Business context and reporting period
Amdocs provides software and services primarily to communications and media service providers. It operates as one reportable segment. Management identifies customer digital transformation, cloud migration, 5G deployment, and demand for operational efficiency as key business drivers. Managed services are a significant, recurring part of the business.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $4.289 billion | $4.169 billion |
| Operating income | $598.7 million | $594.8 million |
| Operating margin | 14.0% | 14.3% |
| Net income | $688.4 million | $497.8 million |
| Diluted EPS | $5.32 | $3.71 |
| Cash from operating activities | $925.8 million | $658.1 million |
| Free cash flow (non-GAAP) | $715.4 million | Not stated here |
- Revenue rose 2.9%; management attributed the increase mainly to managed services, including managed transformations. Growth included a positive 1.1% foreign-exchange effect; acquisitions contributed, while the OpenMarket divestiture reduced revenue.
- Cost of revenue was 65.5% of revenue versus 66.1% in FY2020. Operating margin declined as research and development and selling, general and administrative expenses increased.
- Net income included a $226.4 million pretax gain on the OpenMarket sale. Diluted EPS increased by $1.61, of which $1.44 was attributed to the after-tax sale gain; reported profit growth therefore substantially reflects a nonrecurring item.
- Managed-services revenue was $2.546 billion, compared with $2.399 billion in FY2020. Remaining performance obligations were approximately $6.7 billion; most were expected to be recognized over the next three years, but this measure is not comparable to the company’s next-12-month backlog.
- At September 30, 2021, cash, cash equivalents and short-term interest-bearing investments totaled $965.6 million, down from $983.9 million. Total assets were $6.512 billion and total liabilities were $2.877 billion.
- Outstanding debt was $650 million in senior notes, due 2030 and bearing fixed interest of 2.538%; the $500 million revolving credit facility had no borrowings and was extended to March 2026. The company reported compliance with financial covenants.
- FY2021 cash uses included $680.0 million of share repurchases, $177.5 million of dividend payments and $210.4 million of net capital expenditures. The company reported $998.5 million remaining repurchase authorization at year-end.
Q4 results and changes versus comparable periods
For the quarter ended September 30, 2021, revenue was $1.087 billion, operating income was $154.3 million, net income was $123.5 million and diluted EPS was $0.97. In the September 2020 quarter, the corresponding figures were $1.053 billion, $146.9 million, $134.5 million and $1.01. Thus, quarterly revenue and operating income increased, while net income and diluted EPS decreased.
Year over year, FY2021 revenue increased 2.9% and operating income increased 0.7%, while operating margin fell 0.3 percentage points. Operating cash flow increased by $267.7 million. The increase in annual net income and EPS was mainly driven by the OpenMarket disposal gain, rather than a comparable increase in operating income.
Outlook, management commentary, risks and unusual items
- No specific numeric revenue, earnings or margin guidance is provided in the supplied filing text. Management expects continued industry focus on cloud, 5G, digital services and efficiency, and states it believes available cash, operating cash generation, credit facilities and capital-market access can meet needs for at least the next fiscal year.
- Management released Amdocs CES21, a cloud-native, microservices-based customer experience suite, and said it is increasing investment in cloud offerings, 5G, network innovation and digital products. It notes that R&D investments may take years to generate significant revenue, if at all.
- Customer concentration is high: AT&T represented 25% of FY2021 revenue and T-Mobile US 19%; the ten largest customers represented approximately 69%. Loss or reduced spending by a major customer could materially affect results.
- Key disclosed risks include COVID-19-related economic disruption, communications-industry competition and consolidation, project timing and execution, cybersecurity and data privacy, vendor and hardware supply disruptions, hiring and retention, foreign exchange, international operations, acquisitions, and changes in tax rules.
- Unrecognized tax benefits were $195.2 million at year-end; the timing and outcome of tax audits are uncertain. The company also disclosed a continuing dispute with a state-owned telecom enterprise in Ecuador involving claimed monetary damages; it cannot reasonably estimate the outcome. Two federal securities lawsuits filed in 2021 were voluntarily dismissed without prejudice, with no other litigation concerning those allegations pending.
- The OpenMarket sale closed in December 2020 for approximately $300 million in cash and generated the $226.4 million pretax gain. FY2021 included three technology acquisitions for approximately $101.9 million net cash consideration, plus contingent consideration.
- Ernst & Young issued unqualified audit opinions on the financial statements and internal control over financial reporting. The auditor identified project revenue estimation and uncertain tax positions as critical audit matters.
Important facts for investors to verify
- Underlying earnings and operating trends excluding the OpenMarket gain, including the drivers of the lower operating margin.
- Customer exposure, particularly the AT&T and T-Mobile relationships, contract terms and renewal outlook.
- Conversion and timing of the $6.7 billion of remaining performance obligations into revenue and cash flow.
- Cash generation after capital expenditures, dividends and repurchases, and the company’s intended use of remaining repurchase authorization.
- Developments in the Ecuador dispute, tax audits and unrecognized tax benefits, and any material cybersecurity or supplier disruption.