Amdocs Diversifies Into Emerging Markets to Offset Its Dependence on a Weaker AT&T

The company's results were right on target: $809 million in revenues, 2.5% higher than the same quarter last year.

Israeli billing services provider Amdocs had good news for investors when it published its latest quarterly financial report last Wednesday: The company will begin distributing cash dividends for the first time ever this year. The board of directors approved a quarterly dividend distribution schedule beginning with a $0.13 per share payout during its first fiscal quarter for 2013, which falls out in the last three months of 2012, if approved at the general shareholders' meeting. Amdocs has a September fiscal year end, so the report released last week for the quarter ending in March represents its second quarter of 2012.

The company's results were right on target: $809 million in revenues, 2.5% higher than the same quarter last year. The company's own forecast was in the range of $800 million to $820 million, while analysts projected revenues of $810 million. Moderate growth is expected to continue this quarter too, with the company forecasting revenues between $805 million and $825 million. All revenues are derived from services provided to clients, except for 3% to 5% that come from licensing agreements.

Adjusted operating profits totaled $134 million for a 16.6% operating margin, as opposed to $128 million in the equivalent quarter last year, representing 16.2% of turnover. Adjusted non-GAAP earnings for the quarter totaled $115 million, or $0.67 per share, against $111 million expected by the market and a 4% improvement compared with last year's parallel quarter.

Amdocs forecasts current quarter earnings of $0.64 to $0.70 based on its 12-month order backlog totaling $2.72 billion. The forecast includes expected revenues from contracts - including outsourcing contracts - statements of intent, maintenance services and regular future support services.

The relatively tepid forecast remains clouded by a slowdown in expenditures by U.S. telecom giant AT&T, due to the calling off of its merger with T-Mobile USA. "Our forecast of revenues from AT&T until the end of the 2012 fiscal year was adjusted downward due to changes in the customer's priorities for information technology," noted CEO Eli Gelman. "This weakness overshadows very good performance in all other fields, but we expect more rapid revenue growth in the second half of the year."

According to the company's updated forecast for the entire year, adjusted net income per share will grow at least 12% to 14%, a slight improvement over the previous forecast calling for 11% to 13% growth.

"Our performance in the second quarter of the fiscal year reflects continued momentum in dealings in emerging markets and brisk business activity in Europe, partly offset by a slow recovery in AT&T expenditures," said Gelman. "Our presence in emerging markets continues to strengthen as we win more influential transformation projects in Southeast Asia and Latin America. We see continuing demand in Europe for all areas of our product. Our performance with most North American customers matched our expectations."

Gelman hinted in his statement to several new contracts recently announced by Amdocs. The company is raising its profile in emerging markets while strengthening its position in Europe, partly to soften its dependence on AT&T. This includes a multi-year contract with Globe Telecom, one of the leading providers of fixed-line, cellular and broadband communications services in the Philippines.

Amdocs will also supply Ecuador's national communications provider Corporacion Nacional de Telecomunicaciones (CNT ) with an integrated business support system (BSS ) and operating support system (OSS ) solution. Amdocs is also expanding activities with Vodaphone Group, one of its main European customers, and has signed a licensing agreement and a contract with Vodaphone Netherlands on a project to replace its BBS systems.