Amdocs Limited — FY2018 Form 20-F
Business context and reporting period. This is Amdocs’ annual report for the fiscal year ended September 30, 2018, not a standalone quarterly filing. Amdocs supplies software and services, including managed services, primarily to communications, entertainment and media providers. Nearly all revenue came from amdocsONE offerings. Financial statements are prepared under U.S. GAAP and audited by Ernst & Young, which issued unqualified opinions on the financial statements and internal control over financial reporting.
Key financial metrics
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Revenue | $3,974.8 million | $3,867.2 million | Up 2.8% |
| Operating income / margin | $428.3 million / 10.8% | $517.3 million / 13.4% | Down 17.2% |
| Net income / margin | $354.4 million / 8.9% | $436.8 million / 11.3% | Down 18.9% |
| Diluted EPS | $2.47 | $2.96 | Down 16.6% |
| Operating cash flow | $557.2 million | $636.1 million | Down $78.9 million |
| Cash, equivalents and short-term investments | $519.2 million | $979.6 million | Down $460.4 million |
- Q4 FY2018: Revenue was $1,002.6 million, operating income $68.8 million, net income $44.3 million and diluted EPS $0.31. Q4 FY2017 figures were $979.7 million, $132.0 million, $107.2 million and $0.73, respectively.
- FY2018 cost of revenue was 65.3% of revenue versus 64.8% in FY2017. R&D was 7.0% versus 6.7%; SG&A was 12.1% versus 12.2%.
- Current assets were $1,720.7 million and current liabilities $1,295.0 million at year-end. Total liabilities were $1,855.8 million; equity was $3,492.0 million.
- No borrowings were outstanding under the $500 million revolving credit facility at year-end; the facility matures in December 2022. The company reported $53.9 million of letters of credit and bank guarantees.
Material changes and notable items
- Revenue growth was slower than FY2017’s 4.0%; the increase was driven mainly by Europe and, to a lesser extent, the rest of the world. North America represented 64.2% of revenue, down from 65.9%, in part because of lower AT&T activity.
- AT&T accounted for 27% of FY2018 revenue, down from 33%; the ten largest significant customers together accounted for approximately 66%, versus 71%.
- Operating income and earnings fell despite revenue growth, primarily because FY2018 included $85.1 million of non-recurring charges. These included $55.0 million for a legal settlement and related costs and $30.1 million of restructuring charges. The $50 million settlement payment was made in November 2018.
- Cash declined amid $419.2 million of share repurchases, $355.1 million of net acquisition payments, $231.1 million of capital expenditures and $134.3 million of dividends, partly offset by operating cash flow. Amdocs acquired Vubiquity, projekt202 and UXP Systems for an aggregate $355.1 million in cash.
- FY2018 included 6.3 million shares repurchased at an average $66.14 per share. Remaining authorization under the November 2017 plan was approximately $637.1 million.
- FY2018 dividends declared totaled $0.97 per share. In November 2018, the board approved a $0.25 quarterly dividend and proposed increasing it to $0.285, subject to shareholder approval.
Outlook, commentary and risks
- No specific FY2019 revenue or EPS guidance is provided in the supplied filing text. Management expected directory-systems revenue to continue declining in FY2019.
- Management said it expected available cash, operating cash generation and credit lines to fund operations and shareholder returns for at least the next fiscal year. It planned to return most normalized free cash flow in FY2019, before Israel campus capital expenditures and the legal settlement payment, subject to business conditions and acquisition needs.
- The company estimated approximately $350 million of net investment over four years for its new Israel campus; about $50 million was incurred in FY2018 and about $50 million was expected in FY2019.
- Principal disclosed risks include customer concentration and potential reductions in AT&T business; communications-industry competition, consolidation and spending pressures; execution and integration of acquisitions; project timing and margin variability; cybersecurity, privacy and service interruptions; foreign-exchange exposure; tax uncertainty; and an unresolved dispute with a state-owned telecom enterprise in Ecuador. The potential outcome of the Ecuador dispute could not be reasonably estimated.
- The effective tax rate was 15.9%, compared with 14.8% in FY2017. The filing notes uncertainty from tax-law changes, audits and $187.6 million of unrecognized tax benefits.
Important facts for investors to verify
- Whether revenue growth and operating margins recover, particularly after the FY2018 one-off charges, and how much of the Q4 earnings decline reflects those items.
- AT&T trends and customer concentration, including the level and timing of work from the largest customers.
- Cash conversion and liquidity after acquisitions, repurchases, dividends, campus investment and the settlement payment; confirm planned shareholder returns against actual cash generation.
- Progress integrating the FY2018 acquisitions and any effect on revenue, margins, goodwill and contingent acquisition liabilities.
- Developments in the Ecuador dispute, tax audits and unrecognized tax benefits, and the execution and cost of the Israel campus project.