Amdocs Misses, Outlook Strong - Analyst Blog

Yesterday, after market close, Amdocs Limited (DOX) declared financial results for the first quarter of fiscal 2011 that were slightly below our expectations. However, Amdocs has given a solid financial outlook for the ensuing second quarter attributable to healthy demand trend.

Quarterly net income, on a GAAP basis was $73.4 million or 38 cents per share compared to a net income of $88.4 million or 43 cents per share in the prior-year quarter. However, first quarter of fiscal 2011 adjusted (excluding special items) EPS of 47 cents was a penny short of the Zacks Consensus Estimate.

Quarterly total revenue of $775.2 million was up 6.9% year over year and was also above the Zacks Consensus Estimate of $770 million. Revenue was positively impacted by $6 million sequentially due to favorable movement of foreign currency exchange rate.

Cost of sales in the first quarter of fiscal 2011 was $508.8 million, up 10% year over year. Gross margin in the same quarter was 34.4% compared to 36.2% in the year-ago quarter. Quarterly operating income was $87.6 million, down 1.2% year over year.

At the end of the first quarter of fiscal 2011, total order backlog was $2,560 million compared to $2,525 million at the end of the pervious quarter. Last April, the Board of Directors of Amdocs authorized a $700 million share buyback plan. In the reported quarter, the company repurchased $113 million worth of shares.

During the first quarter of fiscal 2011, Amdocs generated $162.3 million of cash from operations compared to $193.5 million in the year-ago quarter. Free cash flow (cash flow from operations less capital expenditure) in the reported quarter was $127 million compared to $169.9 million in the prior-year quarter.

At the end of the first quarter of fiscal 2011, Amdocs had approximately $1,251.6 million of cash and marketable securities and no outstanding debt on its balance sheet compared to $1,433.3 million of cash and marketable securities and $200 million of outstanding debt at the end of fiscal 2010.

Segment Wise Results

Service revenue was $745.3 million, up 6.4% year over year. License revenue was $29.9 million, up 23.8% year over year. Technologically, Customer Experience revenue was $725.4 million, up 6.9% year over year. Systems Directory revenue was $49.8 million, up 7.3% year over year.

Geographically, North America generated $564.6 million, up 3.1% year over year; Europe generated $98.4 million, up 9.9% year over year; and Rest of  the World generated the remaining $112.2 million, up 27.9% year over year.

Financial Outlook

Management is expecting second quarter of fiscal 2011 revenue to be within the range of $775 million - $790 million. Its mid-point of $782.5 million is slightly above the current Zacks Consensus Estimate of $779 million.

EPS, on a GAAP basis, is expected to be within the range of 43 cents – 51 cents. Non-GAAP EPS, excluding 3 cents – 4 cents per share of equity based compensation expense will be within the range of 53 cents – 60 cents.

Recommendation

Major competitors of Amdocs are Convergys Corp. (CVG) and Comverse Technology. We maintain our long-term Neutral recommendation for Amdocs. Currently it is a short-term Zacks #3 Rank (Hold) stock.

 
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