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Third Quarter Results for Fiscal 2018
Jul 31, 2018
Record Quarterly Revenue Exceeding
Expects Fiscal 2018 GAAP Diluted EPS Growth Outlook of (3.0)%-0.0% YoY
Expects Fiscal 2018 Non-GAAP Diluted EPS Growth Outlook of 5.0%-7.0% YoY
Third Quarter Fiscal 2018 Highlights
- Revenue of
$1 billion , at the midpoint of the$990-$1,030 million guidance range adjusting for the negative impact from foreign currency movements of approximately$9 million relative to the second quarter of fiscal 2018. Revenue guidance had included a minimal sequential impact from foreign currency fluctuations - GAAP diluted EPS of
$0.64 , below the$0.71-$0.81 guidance range due to nonrecurring restructuring charges, net of tax effects - Non-GAAP diluted EPS of
$1.03 , at the midpoint of the$1.00-$1.06 guidance range - GAAP operating income of
$106 million ; GAAP operating margin of 10.5% - Non-GAAP operating income of
$174 million ; non-GAAP operating margin of 17.3% - Free cash flow of
$128 million , comprised of cash flow from operations of$164 million , less$36 million in net capital expenditures and other - Twelve-month backlog of
$3.33 billion , up$10 million sequentially - Quarterly cash dividend of
$0.25 per share, to be paid onOctober 19, 2018
"We are pleased to report a solid performance in our third fiscal quarter. Revenue exceeded
Gelman continued, “Q3 included positive developments relating to Network Functions Virtualization (NFV). First, we are today excited to announce that
Gelman concluded, “We enter the fourth fiscal quarter encouraged by our recent win rate, which remains strong and well balanced across our various business lines, recent acquisitions and operating regions. Naturally, we continue to monitor the many moving parts affecting our outlook, but with our record 12-month backlog and focus on execution we are on-track to deliver diluted non-GAAP earnings per share growth in the mid-to-high single digit range for the seventh consecutive year.”
Revenue
Revenue for the third fiscal quarter ended
Net Income and Earnings Per Share
The Company's GAAP net income for the third quarter of fiscal 2018 was
Returning Cash to Shareholders
- Quarterly Cash Dividend Program: On
July 31, 2018 , the Board approved the Company’s next quarterly cash dividend payment of$0.25 per share and setSeptember 28, 2018 as the record date for determining the shareholders entitled to receive the dividend, which will be payable onOctober 19, 2018 . - Share Repurchase Activity: Repurchased
$90 million of ordinary shares during the third quarter of fiscal 2018.
Twelve-month Backlog
Twelve-month backlog, which includes anticipated revenue related to contracts, estimated revenue from managed services contracts, letters of intent, maintenance and estimated on-going support activities, was
Fourth Quarter Fiscal 2018 Outlook
- Revenue of approximately
$980-$1,020 million , including a negative sequential impact from foreign currency fluctuations of approximately$5 million as compared to the third quarter of fiscal 2018 - Diluted GAAP EPS of approximately
$0.71-$0.79 . The impact on diluted GAAP EPS of the acquisitions during fiscal year 2018 is subject to finalization of the purchase price allocation and other acquisition-related costs. - Diluted non-GAAP EPS of approximately
$0.95-$1.01 , excluding amortization of purchased intangible assets and other acquisition-related costs and approximately$0.05-$0.07 per share of equity-based compensation expense, net of tax effects. Expected non-GAAP effective tax rate above the high-end of the annual target range of 13%-17% in the fourth quarter fiscal 2018
Full Year Fiscal 2018 Outlook
- Revenue growth of 2.2%-3.2% year-over-year as reported compared with previous guidance of 2.3%-4.3% year-over-year
- Revenue growth of 1.7%-2.7% year-over-year on a constant currency basis compared with previous guidance of 1.3%-3.3% year-over-year
- Full year fiscal 2018 revenue guidance incorporates an expected positive impact from foreign currency fluctuations of about 0.5% year-over-year, compared with previous guidance for a positive impact of about 1.0%
- Expects GAAP diluted earnings per share growth of roughly (3.0)%-0.0% year-over-year compared with previous guidance of 0.0%-6.0%, primarily due to nonrecurring restructuring charges primarily associated with recently completed acquisitions and internal business realignment actions in
North America . The impact on diluted GAAP EPS of acquisition activity in fiscal year 2018 is subject to finalization of the purchase price allocation and other acquisition-related costs - Non-GAAP diluted earnings per share growth of roughly 5.0%-7.0% year-over-year compared with previous guidance of 4.0%-8.0%. Non-GAAP diluted earnings per share excludes amortization of purchased intangible assets and other acquisition-related costs, nonrecurring restructuring charges primarily associated with recently completed acquisitions and internal business realignment actions in
North America , and approximately$0.26-$0.28 per share of equity-based compensation expense, net of tax effects. Expected non-GAAP effective tax rate to remain within the same target range of 13%-17% for the full year fiscal 2018
Our fourth fiscal quarter 2018 and full year fiscal 2018 outlook takes into consideration the Company’s expectations regarding macro and industry specific risks and various uncertainties and certain assumptions that we will discuss on our earnings conference call. However,
Conference Call Details
Non-GAAP Financial Measures
This release includes non-GAAP diluted earnings per share and other non-GAAP financial measures, including free cash flow, non-GAAP cost of revenue, non-GAAP research and development, non-GAAP selling, general and administrative, non-GAAP operating income, non-GAAP operating margin, non-GAAP income taxes, non-GAAP effective tax rate, non-GAAP net income and non-GAAP diluted earnings per share growth. These non-GAAP measures exclude the following items:
- amortization of purchased intangible assets and other acquisition-related costs;
- changes in fair value of certain acquisition-related liabilities;
- nonrecurring restructuring charges;
- equity-based compensation expense; and
- tax effects.
These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles.
For its internal budgeting process and in monitoring the results of the business, Amdocs’ management uses financial statements that do not include amortization of purchased intangible assets and other acquisition-related costs, nonrecurring restructuring charges primarily associated with internal business realignment actions in
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This press release includes information that constitutes forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, including statements about Amdocs’ growth and business results in future quarters. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated. These risks include, but are not limited to, the effects of general economic conditions, Amdocs’ ability to grow in the business markets that it serves, Amdocs’ ability to successfully integrate acquired businesses, adverse effects of market competition, rapid technological shifts that may render the Company's products and services obsolete, potential loss of a major customer, our ability to develop long-term relationships with our customers, and risks associated with operating businesses in the international market.
Contact:
Head of Investor Relations
314-212-8328
E-mail: dox_info@amdocs.com
AMDOCS LIMITED
Consolidated Statements of Income
(in thousands, except per share data)
Three months ended | Nine months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||
Revenue | $ | 1,002,198 | $ | 966,695 | $ | 2,972,249 | $ | 2,887,431 | |||||
Operating expenses: | |||||||||||||
Cost of revenue | 650,569 | 628,640 | 1,940,353 | 1,871,211 | |||||||||
Research and development | 72,729 | 67,118 | 205,832 | 194,411 | |||||||||
Selling, general and administrative | 116,396 | 113,997 | 355,263 | 352,541 | |||||||||
Amortization of purchased intangible assets and other | 26,929 | 27,028 | 81,256 | 83,982 | |||||||||
Restructuring charges | 30,057 | - | 30,057 | - | |||||||||
896,680 | 836,783 | 2,612,761 | 2,502,145 | ||||||||||
Operating income | 105,518 | 129,912 | 359,488 | 385,286 | |||||||||
Interest and other (expense) income, net | (3,212) | 1,152 | (3,330) | (2,079) | |||||||||
Income before income taxes | 102,306 | 131,064 | 356,158 | 383,207 | |||||||||
Income taxes | 10,776 | 11,800 | 46,028 | 53,590 | |||||||||
Net income | $ | 91,530 | $ | 119,264 | $ | 310,130 | $ | 329,617 | |||||
Basic earnings per share | $ | 0.64 | $ | 0.82 | $ | 2.17 | $ | 2.25 | |||||
Diluted earnings per share | $ | 0.64 | $ | 0.81 | $ | 2.15 | $ | 2.23 | |||||
Basic weighted average number of shares outstanding | 141,972 | 145,904 | 142,982 | 146,439 | |||||||||
Diluted weighted average number of shares outstanding | 143,196 | 147,259 | 144,320 | 147,865 | |||||||||
Cash dividends declared per share | $ | 0.250 | $ | 0.220 | $ | 0.720 | $ | 0.635 | |||||
Selected Financial Metrics
(in thousands, except per share data)
Three months ended | Nine months ended | |||||||||||||
June 30, | June 30, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||
Revenue | $ | 1,002,198 | $ | 966,695 | $ | 2,972,249 | $ | 2,887,431 | ||||||
Non-GAAP operating income | 173,590 | 167,193 | 514,414 | 497,275 | ||||||||||
Non-GAAP net income | 147,547 | 150,440 | 439,363 | 423,171 | ||||||||||
Non-GAAP diluted earnings per share | $ | 1.03 | $ | 1.02 | $ | 3.04 | $ | 2.86 | ||||||
Diluted weighted average number of shares outstanding | 143,196 | 147,259 | 144,320 | 147,865 | ||||||||||
Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP
(in thousands)
Three months ended June 30, 2018 |
|||||||||||||||
Reconciliation items | |||||||||||||||
GAAP | Amortization of purchased intangible assets and other | Equity based compensation expense | Changes in fair value of certain acquisition-related liabilities | Restructuring charges | Tax effect | Non-GAAP | |||||||||
Operating expenses: | |||||||||||||||
Cost of revenue | $ | 650,569 | - | $ | (5,074) | $ | (572) | $ | - | $ | - | $ | 644,923 | ||
Research and development | 72,729 | - | (1,071) | - | - | - | 71,658 | ||||||||
Selling, general and administrative | 116,396 | - | (4,369) | - | - | - | 112,027 | ||||||||
Amortization of purchased intangible assets and other | 26,929 | (26,929) | - | - | - | - | - | ||||||||
Restructuring charges | 30,057 | - | - | - | (30,057) | - | - | ||||||||
Total operating expenses | 896,680 | (26,929) | (10,514) | (572) | (30,057) | - | 828,608 | ||||||||
Operating income | 105,518 | 26,929 | 10,514 | 572 | 30,057 | - | 173,590 | ||||||||
Income taxes | 10,776 | - | - | - | - | 12,055 | 22,831 | ||||||||
Net income | $ | 91,530 | $ | 26,929 | $ | 10,514 | $ | 572 | $ | 30,057 | $ | (12,055) | $ | 147,547 | |
Three months ended June 30, 2017 |
|||||||||||
Reconciliation items | |||||||||||
GAAP | Amortization of purchased intangible assets and other |
Equity based compensation expense |
Tax effect | Non-GAAP | |||||||
Operating expenses: | |||||||||||
Cost of revenue | $ | 628,640 | $ | - | $ | (4,763) | $ | - | $ | 623,877 | |
Research and development | 67,118 | - | (914) | - | 66,204 | ||||||
Selling, general and administrative | 113,997 | - | (4,576) | - | 109,421 | ||||||
Amortization of purchased intangible assets and other | 27,028 | (27,028) | - | - | - | ||||||
Total operating expenses | 836,783 | (27,028) | (10,253) | - | 799,502 | ||||||
Operating income | 129,912 | 27,028 | 10,253 | - | 167,193 | ||||||
Income taxes | 11,800 | - | - | 6,105 | 17,905 | ||||||
Net income | $ | 119,264 | $ | 27,028 | $ | 10,253 | $ | (6,105) | $ | 150,440 | |
Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP
(in thousands)
Nine months ended June 30, 2018 |
||||||||||||||||||||
Reconciliation items | ||||||||||||||||||||
GAAP | Amortization of purchased intangible assets and other |
Equity based compensation expense | Changes in fair value of certain acquisition-related liabilities | Restructuring charges |
Tax effect | Non-GAAP | ||||||||||||||
Operating expenses: | ||||||||||||||||||||
Cost of revenue | $ | 1,940,353 | $ | - | $ | (14,502) | $ | (9,033) | $ | - | $ | - | $ | 1,916,818 | ||||||
Research and development | 205,832 | - | (2,664) | - | - | - | 203,168 | |||||||||||||
Selling, general and administrative | 355,263 | - | (17,414) | - | - | - | 337,849 | |||||||||||||
Amortization of purchased intangible assets and other | 81,256 | (81,256) | - | - | - | - | - | |||||||||||||
Restructuring charges | 30,057 | - | - | - | (30,057) | - | - | |||||||||||||
Total operating expenses | 2,612,761 | (81,256) | (34,580) | (9,033) | (30,057) | - | 2,457,835 | |||||||||||||
Operating income | 359,488 | 81,256 | 34,580 | 9,033 | 30,057 | - | 514,414 | |||||||||||||
Income taxes | 46,028 | - | - | - | - | 25,693 | 71,721 | |||||||||||||
Net income | $ | 310,130 | $ | 81,256 | $ | 34,580 | $ | 9,033 | $ | 30,057 | $ | (25,693) | $ | 439,363 | ||||||
Nine months ended June 30, 2017 |
|||||||||||||||
Reconciliation items | |||||||||||||||
GAAP | Amortization of purchased intangible assets and other |
Equity based compensation expense | Changes in fair value of certain acquisition-related liabilities | Tax effect |
Non-GAAP | ||||||||||
Operating expenses: | |||||||||||||||
Cost of revenue | $ | 1,871,211 | $ | - | $ | (14,734) | $ | 6,691 | $ | - | $ | 1,863,168 | |||
Research and development | 194,411 | - | (2,714) | - | - | 191,697 | |||||||||
Selling, general and administrative | 352,541 | - | (17,250) | - | - | 335,291 | |||||||||
Amortization of purchased intangible assets and other |
83,982 | (83,982) | - | - | - | - | |||||||||
Total operating expenses | 2,502,145 | (83,982) | (34,698) | 6,691 | - | 2,390,156 | |||||||||
Operating income | 385,286 | 83,982 | 34,698 | (6,691) | - | 497,275 | |||||||||
Income taxes | 53,590 | - | - | - | 18,435 | 72,025 | |||||||||
Net income | $ | 329,617 | $ | 83,982 | $ | 34,698 | $ | (6,691) | $ | (18,435) | $ | 423,171 | |||
Condensed Consolidated Balance Sheets
(in thousands)
As of | ||||||
June 30, 2018 |
September 30, 2017 |
|||||
ASSETS | ||||||
Current assets | ||||||
Cash, cash equivalents and short-term interest-bearing investments | $ | 561,041 | $ | 979,608 | ||
Accounts receivable, net, including unbilled of $248,938 and $229,695, respectively | 982,213 | 865,068 | ||||
Prepaid expenses and other current assets | 236,988 | 203,810 | ||||
Total current assets | 1,780,242 | 2,048,486 | ||||
Property and equipment, net | 476,126 | 355,685 | ||||
Goodwill and other intangible assets, net | 2,751,266 | 2,398,535 | ||||
Other noncurrent assets | 435,834 | 476,674 | ||||
Total assets | $ | 5,443,468 | $ | 5,279,380 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities | ||||||
Accounts payable, accruals and other | 1,176,102 | 1,059,855 | ||||
Deferred revenue | 142,655 | 113,091 | ||||
Total current liabilities | 1,318,757 | 1,172,946 | ||||
Other noncurrent liabilities | 561,842 | 532,364 | ||||
Total Amdocs Limited Shareholders’ equity | 3,519,706 | 3,574,070 | ||||
Noncontrolling interests | 43,163 | - | ||||
Total equity | $ | 3,562,869 | $ | 3,574,070 | ||
Total liabilities and equity | $ | 5,443,468 | $ | 5,279,380 | ||
Consolidated Statements of Cash Flows
(in thousands)
Nine months ended June 30, | ||||||
2018 | 2017 | |||||
Cash Flow from Operating Activities: | ||||||
Net income | $ | 310,130 | $ | 329,617 | ||
Reconciliation of net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 157,421 | 163,533 | ||||
Equity-based compensation expense | 34,580 | 34,698 | ||||
Deferred income taxes | 7,947 | 7,201 | ||||
Excess tax benefit from equity-based compensation | - | (3,716) | ||||
Loss (gain) from short-term interest-bearing investments | 1,324 | (144) | ||||
Net changes in operating assets and liabilities, net of amounts acquired: | ||||||
Accounts receivable | (81,690) | (73,033) | ||||
Prepaid expenses and other current assets | (21,796) | (1,258) | ||||
Other noncurrent assets | 2,006 | (60,949) | ||||
Accounts payable, accrued expenses and accrued personnel | 42,374 | 75,178 | ||||
Deferred revenue | 21,221 | (38,817) | ||||
Income taxes payable | (15,428) | (7,726) | ||||
Other noncurrent liabilities | (16,189) | 12,520 | ||||
Net cash provided by operating activities | 441,900 | 437,104 | ||||
Cash Flow from Investing Activities: | ||||||
Purchase of property and equipment | (197,253) | (98,565) | ||||
Proceeds from sale of short-term interest-bearing investments | 302,949 | 218,395 | ||||
Purchase of short-term interest-bearing investments | (76,037) | (218,772) | ||||
Net cash paid for acquisitions | (352,599) | - | ||||
Other | (2,414) | (10,022) | ||||
Net cash used in investing activities | (325,354) | (108,964) | ||||
Cash Flow from Financing Activities: | ||||||
Borrowings under financing arrangements | 120,000 | 200,000 | ||||
Payments under financing arrangements | (120,000) | (400,000) | ||||
Repurchase of shares | (329,593) | (250,231) | ||||
Proceeds from employee stock options exercised | 76,236 | 75,763 | ||||
Payments of dividends | (98,929) | (89,522) | ||||
Investment by noncontrolling interests, net | 47,013 | - | ||||
Excess tax benefit from equity-based compensation and other | - | 3,716 | ||||
Other | (323) | - | ||||
Net cash used in financing activities | (305,596) | (460,274) | ||||
Net decrease in cash and cash equivalents | (189,050) | (132,134) | ||||
Cash and cash equivalents at beginning of period | 649,611 | 768,660 | ||||
Cash and cash equivalents at end of period | $ | 460,561 | $ | 636,526 | ||
Supplementary Information
(in millions)
Three months ended | |||||||||||||||
June 30, 2018 |
March 31, 2018 |
December 31, 2017 |
September 30, 2017 |
June 30, 2017 |
|||||||||||
North America | $ | 644.8 | $ | 624.2 | $ | 643.0 | $ | 644.1 | $ | 637.9 | |||||
Europe | 139.3 | 148.6 | 133.7 | 129.8 | 125.2 | ||||||||||
Rest of the World | 218.1 | 219.5 | 201.0 | 205.8 | 203.6 | ||||||||||
Total Revenue | $ | 1,002.2 | $ | 992.3 | $ | 977.7 | $ | 979.7 | $ | 966.7 |
Three months ended | ||||||||||||||||
June 30, 2018 |
March 31, 2018 |
December 31, 2017 |
September 30, 2017 |
June 30, 2017 |
||||||||||||
Managed Services Revenue | $ | 515.0 | $ | 508.9 | $ | 518.7 | $ | 503.8 | $ | 496.3 |
Three months ended | |||||||||||||||
June 30, 2018 |
March 31, 2018 |
December 31, 2017 |
September 30, 2017 |
June 30, 2017 |
|||||||||||
Customer Experience Systems |
991.0 | 980.7 | 965.9 | 967.7 | 954.8 | ||||||||||
Directory | 11.2 | 11.6 | 11.8 | 12.0 | 11.9 | ||||||||||
Total Revenue | $ | 1,002.2 | $ | 992.3 | $ | 977.7 | $ | 979.7 | $ | 966.7 |
As of | |||||||||||||||
June 30, 2018 |
March 31, 2018 |
December 31, 2017 |
September 30, 2017 |
June 30, 2017 |
|||||||||||
12-Month Backlog | $ | 3,330 | $ | 3,320 | $ | 3,260 | $ | 3,250 | $ | 3,220 | |||||