Amdocs Misses, Guides Higher

Amdocs Limited (DOX - Analyst Report) declared its financial results for the first quarter of fiscal 2012, which fell below the Zacks Consensus Estimates. However, Amdocs provided a strong financial outlook for the rest of fiscal 2012. In a significant contract win, Amdocs recently extended its existing business agreement with Comcast Corp. (CMCSA - Analyst Report), the largest cable MSO in the U.S. The extension period is for multi year period, during which Amdocs will supply various products from its CES platform as Comcast is gradually shifting toward a large scale transformation.

However, major concern for Amdocs is the continuation of its business momentum with AT&T Inc. (T - Analyst Report) after the latter’s failed merger attempt with T-Mobile USA. AT&T is the largest customer of Amdcos. In the previous quarter, Amdocs’ business with AT&T was sluggish due to the cancellation of the proposed merger.

Quarterly net income, on a GAAP basis, was $92.7 million or 53 cents per share compared with a net income of $73.4 million or 38 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS stood at 58 cents in the reported quarter, a penny shy of the Zacks Consensus Estimate. Quarterly total revenue of approximately $807 million increased 4.1% year over year, but fell below the Zacks Consensus Estimate of $817 million.

Quarterly gross margin was 35.9% compared with 34.4% in the year-ago quarter. Reported operating income was approximately $109.1 million, up 24.5% year over year. Operating margin was 13.5% versus 11.3% in the prior-year quarter. At the end of the first quarter of fiscal 2012, total order backlog was $2,690 million compared with $2,670 million at the end of the previous quarter. In the reported quarter, Amdocs repurchased shares worth $140 million.

During the first quarter of fiscal 2012, Amdocs generated around $150 million in cash from operations compared with $162.3 million in the prior-year quarter. Free cash flow (cash flow from operations less capital expenditure) in the reported quarter was $121.6 million compared with $127 million in the prior-year quarter.

At the end of the first quarter of fiscal 2012, Amdocs had approximately $925 million in cash and marketable securities and no outstanding debt on its balance sheet compared with $1,173.5 million of cash and marketable securities and $250 million of outstanding debt at the end of fiscal 2011.

Segment Wise Results

Service revenue was $771.2 million, up 3.5% year over year. License revenue was approximately $35.8 million, up 19.7% year over year. Technologically, Customer Experience Systems revenue was $758 million, up 4.5% year over year. Directory revenue was $49 million, down 1.6% year over year. The company’s core Managed Services revenue was $419.7 million, up 13.1% year over year.

Geographically, North America generated $573.8 million, up 1.6% year over year; Europe generated $110.3 million, up 12.1% year over year; while the Rest of the World contributed the remaining $122.9 million, up 9.5% year over year. Revenue from the emerging markets came in at $82.5 million, up 21.7% year over year.

Future Financial Outlook

Management expects second quarter of fiscal 2012 revenue in the range of $800 million - $820 million. EPS, on a GAAP basis, is expected between 50 cents – 58 cents. Non-GAAP EPS, including 5 cents – 6 cents per share of equity-based compensation expense, is projected in the range of 62 cents – 68 cents.

For fiscal 2012, Amdocs expects its total revenue to grow by approximately 4%-5% year over year and its non-GAAP EPS to increase by at least 11%-13% year over year.

Recommendation

We maintain our long-term Neutral recommendation forAmdocs. Currently, Amdocshas a Zacks#3 Rank, implying a short-term Hold rating on the stock.