Amdocs Beats, Outlook Mixed

Amdocs Ltd. (DOX - Analyst Report) declared its financial results for the second quarter of fiscal 2012, beating the Zacks Consensus Estimates. However, Amdocs has reduced its previous revenue forecast for the rest of fiscal 2012. The 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 last couple of quarters, Amdocs’ business with AT&T was sluggish due to the cancellation of the proposed merger.

Initiation of Dividend

The Board of Directors of Amdocs has approved the initiation of a quarterly cash dividend program of $0.13 per share. The company will hold a special shareholders meeting on July 31, 2012 to approve the dividend. Shareholders’ approval will enable the company to pay its first dividend in the first quarter of fiscal 2013.

Second Quarter Results in Details

Quarterly net income, on a GAAP basis, was $101.9 million or 60 cents per share compared with a net income of $94.1 million or 50 cents per share in the prior-year quarter. Adjusted (excluding special items) EPS stood at 62 cents in the reported quarter, outpacing the Zacks Consensus Estimate of 59 cents. Quarterly total revenue of approximately $809 million inched up 2.5% year over year, exactly in line with the Zacks Consensus Estimate.

Quarterly gross margin was 35.9% compared with 34.9% in the year-ago quarter. Reported operating income was approximately $109.9 million, up 3.1% year over year. Operating margin was 13.6% versus 13.5% in the prior-year quarter. At the end of the second quarter of fiscal 2012, total order backlog was $2,725 million compared with $2,690 million at the end of the previous quarter. In the reported quarter, Amdocs repurchased shares worth $117 million.

During the first half of fiscal 2012, Amdocs generated around $224.5 million in cash from operations compared with $237.9 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditure) in the first half of 2012 was $174.3 million compared with $182.4 million in the prior-year period.

At the end of the second quarter of fiscal 2012, Amdocs had approximately $895.6 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 $782.7 million, up 3% year over year. License revenue was approximately $26.2 million, down 8.6% year over year. Technologically, Customer Experience Systems revenue was $758.9 million, up 2.9% year over year. Directory revenue was $50 million, down 3.3% year over year. The company’s core Managed Services revenue was $414.4 million, up 8.3% year over year.

Geographically, North America generated $563.2 million, down 5.9% year over year; Europe generated $111.8 million, up 15% year over year; while the Rest of the World contributed the remaining $133.9 million, up 43.5% year over year. Revenue from the emerging markets came in at $89.4 million, up 71.6% year over year.

Future Financial Outlook

Management expects third quarter of fiscal 2012 revenue to be in the range of $805 million - $825 million. EPS, on a GAAP basis, is expected between 52 cents – 60 cents. Non-GAAP EPS, including 5 cents – 6 cents per share of equity-based compensation expense, is projected in the range of 59 cents – 64 cents.

For fiscal 2012, Amdocs expects its total revenue to grow by approximately 2.5% -3.5% year over year and its non-GAAP EPS to increase by at least 12% -14% year over year.

Recommendation

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