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Amdocs Limited Reports First Quarter Fiscal 2019 Results

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Press Release – Amdocs Limited (NASDAQ: DOX) recently reported operating results for the three months ended December 31, 2018.

First Quarter Fiscal 2019 Highlights

  • Revenue of $1,012 million, slightly above the midpoint of the $990-$1,030 million guidance range including a negative impact from foreign currency movements of approximately $4 million relative to the fourth quarter of fiscal 2018 and also relative to our first quarter guidance
  • GAAP diluted EPS of $0.72, above the midpoint of the $0.67-$0.75 guidance range
  • Non-GAAP diluted EPS of $0.98, at the midpoint of the $0.95-$1.01 guidance range
  • GAAP operating income of $133 million; GAAP operating margin of 13.2%
  • Non-GAAP operating income of $175 million; non-GAAP operating margin of 17.3%
  • Quarterly free cash flow of $72 million, comprised of cash flow from operations of $110 million, less $37 million in net capital expenditures and other, and normalized free cash flow of $136 million, excluding non-recurring payments of $55 million incurred to settle a previously disclosed long-running legal dispute, payments for previously expensed restructuring charges of $7 million and net capital expenditures related to the new campus development of $2 million
  • Twelve-month backlog of $3.37 billion, up $10 million sequentially
  • The board of directors approved a quarterly cash dividend at the new increased rate of $0.285 per share, as approved at the January 2019 annual general meeting of shareholders, to be paid on April 19, 2019

Revenue

Revenue for the first fiscal quarter ended December 31, 2018 was $1,012 million, up $9.5 million sequentially from the fourth fiscal quarter of 2018 and up 3.5% as compared to last year’s first fiscal quarter. Revenue for the first fiscal quarter of 2019 includes a negative impact from foreign currency movements of approximately $4 million relative to the fourth quarter of fiscal 2018 and versus guidance.

Net Income and Earnings Per Share

The Company’s GAAP net income for the first quarter of fiscal 2019 was $101.7 million, or $0.72 per diluted share, compared to GAAP net income of $116.9 million, or $0.80 per diluted share, in the prior fiscal year’s first quarter. Net income on a non-GAAP basis was $137.8 million, or $0.98 per diluted share, compared to non-GAAP net income of $154.5 million, or $1.06 per diluted share, in the first quarter of fiscal 2018. Non-GAAP net income excludes amortization of purchased intangible assets and other acquisition-related costs, changes in certain acquisitions related liabilities measured at fair value, and equity-based compensation expenses of $12.1 million, net of related tax effects, in the first quarter of fiscal 2019.

Returning Cash to Shareholders

Quarterly Cash Dividend Program: On February 5, 2019, the Board approved the Company’s next quarterly cash dividend payment of $0.285 per share and set March 29, 2019 as the record date for determining the shareholders entitled to receive the dividend, which will be payable on April 19, 2019.

Share Repurchase Activity: Repurchased $99 million of ordinary shares during the first quarter of fiscal 2019.

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 $3.37 billion at the end of the first quarter of fiscal 2019, up $10 million from the end of the prior quarter.

Second Quarter Fiscal 2019 Outlook
— Revenue of approximately $995-$1,035 million, assuming an immaterial sequential impact from foreign currency fluctuations as compared to the first quarter of fiscal 2019
— GAAP diluted EPS of approximately $0.75-$0.83
— Non-GAAP diluted EPS of approximately $1.00-$1.06, excluding amortization of purchased intangible assets and other acquisition-related costs, changes in certain acquisitions related liabilities measured at fair value, and approximately $0.05-$0.07 per share of equity-based compensation expense, net of related tax effects.

Full Year Fiscal 2019 Outlook
— Expects revenue growth of 0.5%-4.5% year-over-year on a reported basis as compared with 1.0%-5.0% year-over-year previously
— Reiterates revenue growth of 2.0%-6.0% year-over-year on a constant currency basis
— Full year fiscal 2019 revenue guidance incorporates an expected negative impact from foreign currency fluctuations of about 1.5% year-over-year as compared with a negative impact of about 1.0% year-over-year previously
— Reiterates GAAP diluted earnings per share growth of roughly 29.0%-38.0% year-over-year
— Reiterates non-GAAP diluted earnings per share growth of roughly 3.0%-7.0% year-over-year, excluding amortization of purchased intangible assets and other acquisition-related costs, changes in certain acquisitions related liabilities measured at fair value, and approximately $0.22-$0.28 per share of equity-based compensation expense, net of related tax effects

Our second fiscal quarter 2019 and full year fiscal 2019 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, Amdocs notes market dynamics continue to shift rapidly and that it cannot predict all possible outcomes, including those resulting from T-Mobile’s proposed merger with Sprint, or from other current and potential customer consolidation activity.

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 certain acquisition-related liabilities measured at fair value;
non-recurring and unusual charges;
equity-based compensation expense; and
tax effects related to the above.

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. Amdocs believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with Amdocs’ results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Amdocs’ results of operations in conjunction with the corresponding GAAP measures.

Amdocs believes that the presentation of non-GAAP diluted earnings per share and other 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 when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations, as well as the net amount of cash generated by its business operations after taking into account capital spending required to maintain or expand the business.

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, changes in certain acquisition-related liabilities measured at fair value, non-recurring and unusual charges, equity-based compensation expense and related tax effects. Amdocs’ management also uses the foregoing non-GAAP financial measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Amdocs. In addition, Amdocs believes that significant groups of investors exclude these items in reviewing its results and those of its competitors, because the amounts of the items between companies can vary greatly depending on the assumptions used by an individual company in determining the amounts of the items.

Amdocs further believes that, where the adjustments used in calculating non-GAAP diluted earnings per share are based on specific, identified amounts that impact different line items in the Consolidated Statements of Income (including cost of revenue, research and development, selling, general and administrative, operating income, income taxes and net income), it is useful to investors to understand how these specific line items in the Consolidated Statements of Income are affected by these adjustments. Please refer to the Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP tables below.