Amdocs Limited — FY2013 Form 20-F
Reporting period: Fiscal year ended September 30, 2013. The filing is an annual report, not a standalone Q4 filing; selected fiscal Q4 results are included below. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Business context
Amdocs provides software, implementation, and managed services to communications, media, and entertainment service providers. Its offerings include business and operational support systems, network control and optimization, and digital services. Managed services are a significant source of recurring revenue.
Financial highlights
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $3,345.9 million | $3,246.9 million | +3.0% |
| Operating income | $481.6 million | $442.5 million | +8.8% |
| Net income | $412.4 million | $391.4 million | +5.4% |
| Diluted EPS | $2.53 | $2.31 | +9.5% |
| Operating margin | 14.4% | 13.6% | +0.8 percentage points |
| Net margin | 12.3% | 12.1% | +0.2 percentage points |
| Operating cash flow | $670.5 million | $514.1 million | +$156.5 million |
Service revenue rose 4.4% to $3,264.2 million, while license revenue fell 32.2% to $81.6 million. Cost of license and service was 64.8% of revenue versus 64.2% in FY2012, lowering gross margin on those costs by 0.6 percentage points. The effective tax rate increased to 13.3% from 11.4%. FY2013 diluted EPS benefited from lower weighted-average shares following repurchases.
Fiscal Q4 2013: Revenue was $845.2 million, operating income $122.9 million, net income $89.0 million, and diluted EPS $0.54. Revenue was up from $822.1 million in Q4 FY2012. Q4 net income was below Q3 FY2013’s $119.6 million; the filing’s quarterly table does not explain that quarter-to-quarter decline.
Liquidity, debt, and capital returns
- Cash, cash equivalents, and short-term investments totaled $1,326.4 million at September 30, 2013; short-term financing arrangements were $200 million. Management reported cash net of short-term debt of approximately $1.13 billion.
- Operating cash flow was $670.5 million. Capital expenditures, net, were $106.7 million; net cash paid for Actix was $112.4 million.
- The company had a $500 million five-year revolving credit facility and was compliant with its covenants. It borrowed $200 million in September 2013 and repaid it in October 2013. Only $1.02 million of convertible notes remained outstanding, due 2024.
- FY2013 share repurchases were 10.4 million shares for $367.1 million, at an average $35.38 per share; $335.9 million of authorization remained at year-end. Dividends declared were $0.52 per share and cash dividend payments were $84.0 million.
Material changes and management outlook
- Growth was led by North America, including increased activity for AT&T; lower European activity reflected the ramp-down of transformation projects. Directory systems revenue declined 11.3% to $160.2 million amid market weakness and lower discretionary spending.
- Customer experience systems revenue increased 3.9% to $3,185.6 million and represented 95.2% of total revenue. Managed-services revenue was approximately $1.70 billion, compared with $1.68 billion in FY2012.
- Management highlighted the launch of Amdocs CES 9 and investment in integrated customer, network, and data-monetization offerings. Actix, a mobile network optimization provider, was acquired in FY2013 for $112.4 million net of cash.
- After year-end, Amdocs agreed to acquire substantially all of Celcite’s assets for approximately $129 million in cash, subject to closing conditions and possible performance-based additional consideration. The company expected fiscal 2014 capital expenditures to be financed internally. The filing provides no specific revenue or earnings guidance.
- Management’s long-term capital-return guideline was to retain roughly half of free cash flow for growth and return the other half through repurchases and dividends. A proposed quarterly dividend increase to $0.155 per share was subject to shareholder approval.
Risks, contingencies, and unusual items
- Customer concentration is significant: AT&T contributed 28% of FY2013 revenue, and the ten largest significant customers contributed approximately 70%. Customer budgets, project timing, and contract terms can affect results.
- Other principal risks include intense competition, project execution and revenue-estimation uncertainty, economic and telecom-industry conditions, foreign exchange, cybersecurity and service interruptions, acquisition integration, talent retention, and political conditions in Israel and other operating regions.
- Unrecognized tax benefits totaled $130.4 million; timing of resolution is uncertain. The company noted tax-benefit exposure in India and Israel. FY2013 included a $29.8 million tax benefit from expiration of statutes of limitations, while enacted tax-law changes generated $14.7 million of deferred tax expense.
- Legal proceedings arose in the ordinary course; management did not expect them to have a material adverse effect. No goodwill or long-lived-asset impairment was recorded in FY2013. The prior-year comparison included a gain on sale of investments, contributing to higher FY2013 interest and other expense.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls as of year-end.
Key facts for investors to verify
- Whether the 3.0% annual revenue growth and margin improvement persisted after FY2013, given the decline in license revenue and softer European and directory markets.
- AT&T’s subsequent revenue contribution and the broader concentration among the ten largest customers.
- Cash generation, working-capital movements, and the sustainability of buybacks and dividends, including approval and payment of the proposed dividend increase.
- Integration, costs, and expected returns from Actix and the proposed Celcite acquisition.
- Resolution of tax audits and unrecognized tax benefits, and continued eligibility for regional tax incentives.