Amdocs Reports Mixed 3Q

Amdocs Limited ( DOX - Analyst Report ) has declared its financial results for the third quarter of fiscal 2012, beating the Zacks Consensus Estimates. The company has increased its non-GAAP EPS forecast for fiscal 2012. Meanwhile, Amdocs’s business with its major client AT&T Inc. ( T - Analyst Report ) , though stabilized somewhat, has yet to reach its peak.

Initiation of Dividend

On July 31, 2012, at a special shareholders’ meeting the company’s shareholders approved the initiation of a $0.13 quarterly cash dividend program. The Board of Directors of Amdocs on August 1, 2012 approved this first dividend, which is payable on October 19, 2012 to shareholders of record at the close of business on September 30, 2012.

Third Quarter Results in Details

Quarterly net income, on a GAAP basis, was $98.7 million or 59 cents per share compared with net income of $91.8 million or 50 cents per share in the prior-year quarter. Adjusted (excluding special items) earnings per share stood at 64 cents in the reported quarter, beating the Zacks Consensus Estimate of 62 cents.

Quarterly total revenue came in at $808.8 million, representing 0.9% year-over-year growth, but was below the Zacks Consensus Estimate of $817.0 million.

Quarterly gross margin was 35.7% in the quarter compared with 34.9% in the year-ago quarter. Reported operating income was approximately $110.0 million, up 4.1% year over year. Operating margin was 13.6% versus 13.2% in the prior-year quarter.

At the end of the third quarter of fiscal 2012, total order backlog was $2,760 million compared with $2,725 million at the end of the previous quarter. In the reported quarter, Amdocs repurchased shares worth $122 million.

During the first nine month of fiscal 2012, Amdocs generated around $362.0 million in cash from operations compared with $387.9 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditure) in the first nine month of 2012 was $282.8 million compared with $307.8 million in the prior-year period.

At the end of the third quarter of fiscal 2012, Amdocs had approximately $894.1 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 Results

Service revenue was $774.4 million, up 0.27% year over year. License revenue was approximately $34.4 million, up 18.4% year over year. Customer Experience Systems revenue was $766.2 million, up 2.0% year over year. Directory revenue was $42.6 million, down 15.31% year over year. The company’s core Managed Services revenue was $426.8 million, up 11.1% year over year.

Geographically, North America generated $558.7 million, down 4.5% year over year; Europe generated $106.5 million, up 0.94% year over year; while the Rest of the World contributed the remaining $143.6 million, up 29.4% year over year. Revenue from the emerging markets came in at $101.7 million, showing annualized growth of 38.9%.

Future Financial Outlook

Management expects the revenue of the fourth quarter of fiscal 2012 to be in the range of $815 million - $835 million. EPS, on a GAAP basis, is expected between 54 cents - 62 cents. Moreover, non-GAAP EPS, including 5 cents - 6 cents per share of equity-based compensation expense, is projected in the range of 66 cents - 72 cents.

For fiscal 2012, Amdocs expects its total revenue to grow by approximately 3% - 3.5% year over year and its non-GAAP EPS to increase by at least 14% - 16% year over year.

Additionally, Amdocs recently announced that it has won a five-year managed service contract from TIM Brazil and will serve its Wireless, Wireline and Broadband segments.

Recommendation

We maintain our long-term Neutral recommendation on Amdocs. Currently, the shares of Amdocs have a Zacks #3 Rank, implying a short-term Hold rating.