Amdocs' 4Q EPS Beats Estimates

Amdocs Limited’s ( DOX - Analyst Report ) fourth quarter fiscal 2012 adjusted earnings per share (excluding special items) stood at 66 cents, beating the Zacks Consensus Estimate of 64 cents. The impressive outcome was primarily based on the stabilization of Amdocs’s business with its major client AT&T Inc. ( T - Analyst Report ) to some extent and the continuous double-digit growth in the emerging markets. The company has increased its Non-GAAP earnings per share forecast for the first quarter of fiscal 2013 and has authorized a repurchase plan of $500 million of ordinary shares without any expiry date.

Extension of Sprint Contract

Amdocs announced that it has extended its managed service contract with Sprint-Nextel Corp. ( S - Analyst Report ) till 2021 and has also added Virgin Mobile branded subscribers to its platform. The deal is envisioned to provide solid revenue visibility in North America over the long haul. Similar deals with Globe of Philippines, TIM Brazil in Latin America and the recently announced business support service deal with Russia’s VimpelCom will further enhance the growth prospect of the company in the emerging markets.

Fourth Quarter Results in Details

Quarterly net income, on a GAAP basis, was $98.0 million or 60 cents per share compared with a net income of $87.4 million or 49 cents per share in the prior-year quarter. Quarterly total revenue came in at $822.1 million, up 1.2% year over year, but it marginally missed the Zacks Consensus Estimate of $824 million.

Amdocs posted gross margin of 35.6% in the quarter against 35.3% in the year-ago quarter. Reported operating income was approximately $113.5 million, up 8.6% year over year. Again, operating margin was 13.8% against 12.9% in the prior-year quarter. At the end of the fourth quarter of fiscal 2012, total order backlog was $2,790 million compared with $2,760 million at the end of the previous quarter. In the reported quarter, Amdocs repurchased shares worth $106 million.

During fiscal 2012, Amdocs generated around $514.1 million in cash from operations compared with $535.5 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditure) at the end of fiscal 2012 stood at $392.0 million compared with $425.7 million at the end of fiscal 2011.

At the end of fiscal 2012, Amdocs had approximately $1,118.2 million in cash and marketable securities and $200 million of 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 $798.1 million, up 2.24% year over year. License revenue was approximately $24.0 million, down 24% year over year. Technologically, Customer Experience Systems revenue was $783.1 million, up 4.9% year over year. Directory revenue was $39.0 million, showing an 18.1% yearly drop. The company’s core Managed Services revenue came in at $423.7 million, up 10.1% year over year.

Geographically, North America generated $570.4 million, down 2.5% year over year; Europe generated $113.1 million, up 10.9% year over year; while the rest of the world contributed the remaining $138.6 million, up 10.8% year over year. Revenue from the emerging markets came in at $99.9 million, showing an annualized growth of 25.7%.

Financial Outlook

Management expects the first quarter fiscal 2012 revenues to be in the range of $810 -840 million. Earnings per share, on a GAAP basis, are expected between 54–64 cents. Moreover, non-GAAP earnings per share, including 6–7 cents per share of equity-based compensation expense, are projected in the range of 68–74 cents.

For fiscal 2013, Amdocs expects its total revenue to grow by approximately 2–5% year over year and its non-GAAP earnings per share to increase by at least 5–8% year over year.

Recommendation

We maintain our long-term Neutral recommendation on Amdocs Ltd. Currently, the company retains a Zacks#3 Rank, implying a short-term Hold rating.