Company Overview: Amdocs Limited is a provider of software and services for communications, entertainment and media industry service providers. The Company develops, implements and manages software and services associated with business support systems (BSS), operational support systems (OSS) and network operations to enable service providers to introduce new products and services, process orders, monetize data, support new business models and enhance their understanding of their customers. The Company's segment provides software products and services. Its services include strategic business consulting, systems integration and transformation, managed services and testing. Its managed services provide multi-year, flexible and tailored business processes and applications services, including application development and maintenance, information technology (IT) and infrastructure services, testing and professional services.


DOX Details

Amdocs Limited (NASDAQ: DOX), which is a leading provider of software and services to communications and media companies, has posted a decent first-quarter results for fiscal 2018 showing solid profitability while top line was slightly below expectations ($978 million, at the midpoint of the $960-$1,000 million guidance range). Various partnerships, acquisitions and expansion moves are expected to manage the shortfalls while providing good growth prospects. The group continues to log large deal wins and these include a major North American Pay TV deal and transformation deals in Asia and Europe.

Collaboration with Amazon Web Services: Amdocs Limited has lately collaborated with Amazon Web for AmdocsONE Launch, in an effort to improve the business agility of Communications Service Providers in a cloud-based environment. Amazon Web Services is a subsidiary of Amazon.com, Inc. The partnership is expected to enable DOX to develop solutions that would help the service providers to better adapt to the digital world in a cost-effective way. DOX has planned to launch AmdocsONE, which is an open, modular and integrated solution set with a rich set of capabilities built on cloud-native and microservices technologies and delivered with DevOps practices in order to bridge the digital divide. As per the research firm, Analysis Mason, more than 90% work of Communications Service Providers will run on cloud by 2022, which would require a smooth transition into an optimized hybrid cloud operational environment. Moreover, the group sees that Amazon Web Services would boost the easy access of AmdocsONE and enable the service providers to modernize their operations on an outsourced basis, thereby lowering costs. The group intends to use state-of-the-art technologies around open source, hyper-scale systems and elastic network scaling to form cloud-native environments for testing new offerings and disruptive business models. These, in turn, would lead to faster time to market and greater business agility for the service providers with simple, contextual and valuable customer interactions at every point of engagement across all channels. The group is also leveraging industry-specific best practices and methodologies, wherein AmdocsONE uses a low-risk approach for a series of short, business-defined projects with predictable cost and scope, while delivering a better business value. Further, with an open and modular structure, the group offers a great flexibility to the service providers to choose the modules that they want in order to bridge the gap between these new modules and their legacy systems.
 

Amdocs Digital Platform (Source: Company Reports)
 
Acquired Vubiquity & Expanded Media Footprint: A part of the group’s strategy focusses on expanding the media, and entertainment business. Accordingly, they finished the acquisition of a leading provider of digital content services and technology solutions, Vubiquity, Inc. This acquisition would benefit DOX's customers and end users globally by adding premium content capabilities such as licensing, processing and delivery to the company's portfolio. Moreover, the acquisition positions DOX at the center of growing convergence across the content community and video distributors globally. After the acquisition, DOX is poised to help communication service providers and content producers to expand and improve entertainment offerings. This is to boost higher revenues alongside gaining consumer insights from the evolving media market content consumption. The group is on track with regards to its global client base expansion by clinching long-term contracts and collaborating with major global telecommunication players.

New Products to expand the Media Business: The group had unveiled a digital customer management and commerce platform, Optima. Optima platform monetizes products and services and supports the full business lifecycle by targeting mid-sized communication businesses and digital firms. Moreover, DOX had earlier launched Amdocs Omni-Channel Experience integrated with Google’s mobile data application program interface. The new products are expected to expand the company’s top line. DOX is poised to grow on the back of robust sales, well-planned acquisitions and strategic investments.
Multi-year services contract with Globe Telecom: The group has signed a multi-year services contract with Globe Telecom, which is one of the Philippines’ largest telecommunications providers, for continuous enhancement of Globe Telecom’s operations. As per the agreement, Amdocs Intelligent Operations will assist Globe in managing third-party systems and cloud management solutions. This includes modernizing and running IT operations for multiple lines of businesses, including prepaid and postpaid mobile services, fixed-line broadband, and enterprise services.

Opportunity in target markets: The group sees positive market dynamics from North American customers who could create long-term opportunities to support its strategic initiatives. In North America, the convergence of wireless and Pay TV are major drivers. Dish Network is strengthening their focus on emerging wireless business while T-Mobile is entering the Pay TV market with layer 3. As per the Europe performance, the group delivered another quarter of solid growth as they focused on project execution and the conversion of new digital modernization awards. Moreover, Three Ireland, a subsidiary of Hutchison selected Amdocs’ artificial intelligence advanced analytics and machine learning platform that would offer a personalized and proactive customer experience as part of the digital transformation journey. The group now sees Europe to be on track to grow faster than the corporate average in fiscal 2018. In Thailand, the group has been successful in the transformation program for True Corporation which would enable them to support consumers and enterprise customers on a single multiplex platform. In Philippines, PLDT and its wireless subsidiary, Smart Communications, signed a new $300 million managed transformation agreement with the group. This seven-year contract is a major win for the group strengthening presence in the Philippines market as well as support customer activities in Manila and across Southeast Asia region.
 

Segment-wise Quarterly Revenue (Source: Company Reports)
 
Capital Management: The group enhanced their quarterly dividend by 13.6% to 25 cents per share. Amdocs expects to deliver total return to shareholders in mid to single high digits for the seventh consecutive year in fiscal 2018. The company had repurchased $120 million of ordinary shares during the first quarter of FY18. The cash balance was over $966 million as at the end of the first fiscal quarter while free cash flow reached $113 million during the quarter. This includes cash flow from operations of over $165 million, less $52 million in net capital expenditures and other. This also includes over $13 million from the multi-year development of their new campus in Israel. Free cash flow was roughly $126 million in the first fiscal quarter, normalizing for this capital expenditure.

Future Guidance: The group forecasts the revenues in the range of $960-$1,000 million and adjusted earnings per share (EPS) in the range of 91 cents to 97 cents in second-quarter fiscal 2018. The impact on GAAP EPS will be unknown till the company completes the purchase price allocation. DOX expects to incur acquisition-related expenses related to operating adjustments, restructuring charges and other buyout-related costs. Additionally, for FY 18, DOX expects the revenue growth in the range of 0.0%-4.0% year-over-year as reported and (1.0%)-3.0% year-over-year on a constant currency basis. The Non-GAAP diluted earnings per share growth is expected to be approximately in the range of 4.0%-8.0% year-over-year, excluding amortization of purchased intangible assets and other acquisition-related costs and approximately $0.25-$0.29 per share of equity-based compensation expense, net of related tax effects.
 

12-month backlog (Source: Company Reports)
 
Stock Recommendation: The shares of Amdocs have risen 9.92% in the last one year, as at March 07, 2018. With strategic acquisitions and collaborations, DOX has evolved as a unique vendor providing both end-to-end business support solutions and operating support solutions to the carrier marketplace. The company continues to enhance the shareholders' wealth by continuously repurchasing shares and paying regular dividends to its shareholders. DOX’s twelve-month backlog was strong at $3.26 billion at the end of the first quarter of FY18 (that includes expected revenue related to contracts, estimated revenue from managed services contracts, letters of intent, maintenance and estimated on-going support activities) which is a rise of $10 million from the end of the prior quarter. The group’s advanced technologies, project execution strength and capability to delivering customer value, are all adding to their high win rate across all the regions, including the rest of the world. The group’s return on equity is also above the industry average. Given the aforementioned, we put a “Buy” on the stock at the current price of $67.24
 

DOX Daily Chart (Source: Thomson Reuters)

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