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Amdocs Ltd. (NASDAQ:DOX)

Q4 2011 Earnings Call

November 8, 2011 5:00 PM ET

Executives

Liz Grausam – Vice President, Investor Relations

Eli Gelman – President and CEO

Tamar Rapaport Dagim – Chief Financial Officer

Analysts

Chris Koh – Stifel, Nicolaus

Ashwin Shirvaikar – Citi

Shaul Eyal – Oppenheimer & Co.

Lauren Choi – J.P. Morgan

Julio Quinteros – Goldman Sachs

Shyam Patil – Raymond James & Associates

Daniel Meron – RBC Capital Markets

David Kaplan – Barclays Capital

Will Power – Robert Baird

Arvind Ramnani – UBS

Jason Kupferberg – Jefferies

Damon Guirdham – Generation Investment Management

Scott Sutherland – Wedbush Securities

Operator

Please standby. Good day, everyone. And welcome to the Amdocs Fourth Quarter 2011 Earnings Release Conference Call. Today’s call is being recorded and webcast.

At this time, I would like to turn the call over to Liz Grausam, Vice President of Investor Relations for Amdocs. Please go ahead.

Liz Grausam

Thank you, Brandon. Before we begin, I would like to point out that during this call we will discuss certain financial information that is not prepared in accordance with GAAP. The company’s management uses its financial information and its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period.

Accordingly, management believes that isolating the effects of such events enable management and investors to consistently analyze the critical components and results of operations of the company’s business and to have a meaningful comparison to prior periods.

For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today’s earnings release, which will also be furnished to the SEC on a Form 6-K.

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 and such other risks as discussed in our earnings release today and at greater length in the company’s filings with the Securities and Exchange Commission, including in our annual report on Form 20-F for the fiscal year ended September 30, 2010 as filed on December 7, 2010 and in our quarterly reports that we filed on Form 6-K filings on February 8, 2011 and May 11, 2011 and August 8, 2011.

Amdocs may elect to update these forward-looking statements at some point in the future; however, the company specifically disclaims any obligation to do so.

Participating on the call today are Eli Gelman, President and Chief Executive Officer of Amdocs; and Tamar Rapaport Dagim, Chief Financial Officer. Following our prepared comments we’ll open the call to Q&A.

Last, I just wanted to extend a thank you to all of you who participated in our recent investor perception study. We received valuable feedback that we will incorporate into our IR planning for 2012.

With that, let me turn the call over to Eli Gelman.

Eli Gelman

Thank you, Liz, and good afternoon to everybody on the call. As I’m completing my first year back at Amdocs, I would like to share with you on this call my reflections on our progress and performance during fiscal year 2011 and set a stage for 2012.

If I could summarize fiscal year 2011 in one word, it would be progress. We started the year with handful of challenges and of course, many opportunities and we had concluded the year with positive strikes forward on multiple fronts. Let me share with you more color on the different aspects of our progress.

Internally, we invested significantly in accelerating the knowledge level of our employees and through that improving our ability to deliver to our customers. This was a critical and successful program that positions us well to deliver on our new transformation project. Strategically, as we had introduced at the Analyst Day in February, we advanced our vision on the CX around the future of data monetization and customer experience.

I believe we are yet again setting the pace for the industry with a combination of Amdocs and Bridgewater. We can now offer our customers a product roadmap that elegantly and robustly addresses the need to drive greater value from data services. And I can tell you that the early feedback on this transaction has been positive and far-reaching.

Also at our Analyst Day, I depicted several areas of the business that I called diamond in the rough. While we haven’t made progress on all fronts, we have made progress on several.

In particular, Europe has begun to turn around. I say that with some hesitation, given the recent events and macroeconomics outlook in Europe. However, we have recently been awarded influence of this in the territory that are quite exciting and large.

In both OSS and cable, we have achieved some product and some successes in 2011, though financially, the progress has still been relatively modest. We continue to review both of these areas as potential growth business in the years to come.

In Digital Services, we’re exploring new areas in content, mobile payment and machine-to-machine as market dynamics continue to evolve. I do not, however, see the space being a major contributor in the near-term.

From the customer delivery standpoint, while we started the year with some challenging and complex implementations, we were able to turn them into successes. These successes, along with other customers facing activities resulted in an improvement in our overall customer satisfaction level this year.

Last but -- last from sales perspective, in 2011 we won a few transformational deals with some of the largest global operators both new and existing customers of Amdocs. These types of products are so important for Amdocs because they do not only drive our business in the near-term, but represent the foundations of long-term and meaningful relationship with these operators along the years.

For example, during 2011 we won major BSS transformation program in the emerging markets in both APAC and CALA. While in the early stages we expect this relationship to evolve over the next several years with both the local operators and their parent holding company.

Even more recently in early fiscal year 2012, we were awarded a new transformation project at Globe Telecom in the Philippines, announced by the customer just today. In Europe, among many deals, we won two major BSS transformations with large royal operators.

And globally, we continue to win new business within our core customer base. Our long-term engagement model with our customers continues to drive new opportunities to expand our total footprint. This is true of our largest customers like AT&T and Sprint, as well as with our newer customers.

Looking ahead into 2012, we plan to focus closely on the implementation of these new projects. Many of which have been awarded to us recently. Most of these projects are currently in initial stages of scoping and design and we expect work to ramp up over the years. Naturally, we’re preparing our organization -- accordingly in order to support these deals.

Additionally, we expect to continue driving deal momentum over the course of 2012, especially in the emerging markets. Both APAC and CALA arrive with opportunities and I truly believe this is the time for Amdocs to strike.

Over the next several years we believe major operators in the emerging markets would be making critical decisions on the other direction of their long-term IT system infrastructure. This is the result of the need to replace homegrown system that are no longer scalable and the increased focus on real customer experience.

Also in 2012, we plan to launch our digital – our Data Experience Solution, DES. With the combination assets of Amdocs and Bridgewater, we believe that the combination of our Turbo Charging technology with Bridgewater policy solution will place us well ahead of our competition in enabling real-time policy enforcement in charging for data services.

So all-in-all, when I look in the business trend over 2011 and into 2012 with Amdocs, we’re seeing healthy demand across a number of sectors. Our backlog and pipeline are increasing and are more diversified across geographies and customer types. This is critical to support the long-term growth of the company. Moreover, I feel that the company is well prepared to execute against these opportunities.

Now the microeconomic environment does cast a shadow in every executive’s mind, including my own. We have not yet seen micro concerns translate into weakness in our business.

Clearly, we will be more – we will be monitoring the macro picture and update you accordingly. But for now, for the time being, we did not plan for our business to deteriorate due to the economic outlook.

We did accelerate our buyback program this past quarter with the repurchase of $192 million worth of our ordinary shares. We now have purchased roughly 17% of our outstanding shares since April 2010 when we commenced our buyback program.

Turning to our forecast for the year, we currently expect our business outlook to drive roughly 5% to 6% revenue growth in 2012. Excluding future buyback activity, this revenue should translate to at least 10% to 12% EPS growth in fiscal year 2012.

Tamar will walk you through the mechanics of our guidance in much more greater details in a few minutes, as these are -- as there are many components of how we expect the year to unfold.

In summary, I feel pretty good about the progress we have made over the first -- my first year back at the company. Moreover, I believe these are -- there are still potential for even greater success ahead for Amdocs.

We have right assets -- we have the right assets and we have the right people in place. Most importantly, we have customers who are in need of our product and services, and appreciate the value we bring to this space.

With that, I will now turn the call over to Tamar.

Tamar Rapaport Dagim

Thank you, Eli. Fourth quarter revenue of $812 million was within our guidance range of $800 and $815 million. The acquisition of Bridgewater positively impacted revenue by approximately $7 million, while foreign currency movements negatively impacted revenue by approximately $4 million, each relative to the third fiscal quarter of 2011.

Neither the addition of Bridgewater nor the majority of the FX impact was included in our guidance. So excluding the net effects of those factors, we ended the quarter right around the midpoint of our range.

For the full fiscal year of 2011 revenue increased to $3.18 billion, up 6.5% from $2.98 billion during the year ago period. This included roughly 1.5% benefits from foreign exchange movement, so on a constant currency basis our growth was about 5%.

Moving on to profitability, our fiscal quarter, sorry, our fiscal fourth quarter non-GAAP operating margin was 16.5%, up 10 basis points sequentially from the third fiscal quarter and within our expected range of 16% to 17%. Non-GAAP EPS was $0.62 in Q4, compared to our guidance range of $0.58 to $0.64.

Below the operating line, net interest and other expense was negative $5.4 million in Q4, primarily driven by the significant levels of foreign exchange volatility during the quarter. This was at the upper end of the range of our expense expectations and remains a difficult line item to forecast with such sharp movements in the FX markets.

For forward-looking purposes, we continue to expect that net interest and other expense maybe negative in the range of $3 million quarterly, primarily due to foreign-currency fluctuations.

Free cash flow was $118 million in Q4. This was comprised of cash flow from operations of approximately $148 million, less $30 million in net capital expenditures and others. DSO of 64 days decreased quarter-over-quarter by three days.

Our total deferred revenue, both short and long-term was down $35 million sequentially, while total unbilled receivables were down $29 million compared to third quarter of 2011.

The change in deferred revenue was the result of normal business fluctuations. The reduction in unbilled receivable was primarily related to timing differences in invoicing and delivery milestones in the managed-services contract, as we discussed last quarter.

Turning to our cash position, our cash balance at the end of the fourth quarter was approximately $1.2 billion. However, this includes the benefit of $250 million that we drew down on our credit facility for short-term financing purposes during the quarter. We have since repaid the $250 million, which was only outstanding for several weeks. Our net cash therefore was $923 million on September 30th.

Our 12-month backlog, which includes anticipated revenue related to contracts, estimated revenue for managed services contract, letters of intent, maintenance and estimated ongoing support activities was $2.67 billion at the end of the third quarter, up $50 million sequentially. This includes the contribution from the acquisition of Bridgewater.

During the fourth quarter, as Eli indicated, equity market conditions provided us with good opportunity to accelerate our buyback activity. In Q4, we repurchased $192 million of our ordinary shares pursuant to our authorized share buyback program. As of September 30, we had approximately $687 million of remaining purchase authority under our current $1 billion authorization, which extends through February 2013.

Looking forward, we expect revenues to be within a range of $805 to $825 million for the first fiscal quarter of 2012. In this guidance, we have not assumed a significant foreign currency impact to sequential revenue positively or negatively.

Our revenue range is slightly wider than what we have had in the past several quarters due to greater level of new project activity.

We anticipate our non-GAAP operating margin in the first quarter to continue to be within the range of 16% to 17%. We anticipate that our non-GAAP tax rate will be in the range of 13% to 15% and we expect Q1 non-GAAP EPS to be in the range of $0.61 to $0.67.

Incorporated into this view is an expected average diluted share count of roughly 176 million shares in Q1 and the likelihood of negative net interest and other expense due to the effects from foreign exchange fluctuations. We excluded the impact of incremental future share buyback activity during the first quarter as the level of activity will depend on market conditions.

For fiscal 2012, we expect non-GAAP earnings per share growth of at least 10% to 12% and revenue growth of approximately 5% to 6% compared to fiscal 2011. As we prepare this guidance, we factored in the following.

First, our earnings per share outlook considers all buyback activities that has already been completed, but not future contributions as our activity level will be related to market conditions.

Second, as it relates to foreign exchange, the revenue outlook includes no material benefit or decrements from foreign exchange fluctuations. As for the FX effect on net interest and other expense, consistent with our Q1 outlook, we are factoring in the recurring quarterly expense a few million dollars into a full year EPS growth outlook. We want to make sure this is considered in consensus expectations given how volatile the FX markets have been.

Third, we expect organic revenue growth to be in the lower half of our long-term range of 4% to 6% in 2012. While our overall business activity levels remain healthy, we have developed kind of the contract reprising, which takes effect in Q2 2012.

This will produce some anticipated sequential weakness from Q1 to Q2 in both our revenue and margin progression. That was already factored into our thinking when we issued our long-term guidance range. Also we have to consider various scenarios around the pending AT&T and T-Mobile merger in our organic growth outlook.

Additionally, as Eli discussed earlier, we expect new project activity will ramp up over the course of the year due to the timing of recent unexpected wins.

Finally, we expect activity for 2012 non-GAAP operating margins to be within a range of 16% to 17% for the year. This outlook factors in the absorption of Bridgewater into Amdocs and the adjustments of Bell Canada.

With that, we can turn it back to the Operator to begin our question-and-answer session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We’ll take our first question from Tom Roderick with Stifel, Nicolaus.

Chris Koh – Stifel, Nicolaus

Hey, guys. Good afternoon. This is Chris Koh for Tom.

Eli Gelman

Hi, Chris.

Chris Koh – Stifel, Nicolaus

Hey, Eli. So quick question for you regarding your commentary on Europe and granted, I take what you said earlier in terms of people were kind of worrying about Europe. But I was just wondering if you could clarify, have you seen any impact at all in terms of pipeline or in terms of hesitation or anything that maybe hasn’t shown up in the numbers yet. And how would you characterize your outlook for like the EMEA region in 2012 relative to the other segments of the business?

Eli Gelman

Thanks, Chris. In terms of Europe in a way it’s bit timing because a couple of quarters ago we start looking at Europe as a growth engine because of the performance and since then we are enjoying a good momentum in Europe. And therefore it will be specially equity if the economy will turn south there and will slow our progress there.

But so far we did not see any hesitation of slowdown. The two projects that I talked about are transformation project there are must do to this period. It’s actually the only way they can execute their strategy.

But we have to take into consideration that they could change or atmosphere will change in the near future and that’s why we’re going to monitor it closely. But Europe for us seen any further notices as a growth engine and it’s -- we have a good momentum there.

Chris Koh – Stifel, Nicolaus

Okay.

Eli Gelman

In terms of APAC and CALA, it was a growth engine last year and we expect it to be a growth engine for us this year. That means it grows significantly faster than the rest of the company. On both CALA and APAC, so not the combination of them but either one of them by certain, obviously the combination of them.

Chris Koh – Stifel, Nicolaus

Got it. Great. Thank you. And just to clarify and sorry, if this was mentioned maybe a quarter or two ago, but in terms of the two deals in Europe that are transformational, were either of those won this quarter or were these from early in the year?

Eli Gelman

Earlier in the year.

Chris Koh – Stifel, Nicolaus

Earlier in the year. Okay. Thank you.

Eli Gelman

Thank you.

Operator

Our next question comes from Ashwin Shirvaikar with Citi.

Ashwin Shirvaikar – Citi

Thank you, guys. So in terms of your comment, Eli, when you said many new industry-leading projects, is this a lot of pilot project activity? Are these longer-term ramps that take multiple quarters, four to five quarters to ramp, any details you can provide around that?

Eli Gelman

We thought maybe, Ashwin, thank you for the question, a small point of issue, without really relating specifically to this deals, I would say the fact that we mentioned they are exciting a large means that they are not small or pilot.

In general, a project, a major transformation project in Amdocs will take several months, sometimes a couple of quarters to ramp up significantly. Because in the beginning you have all the award and negotiation of the contract, and scope and stuff like this, and then you have the scoping and design session, which is the most important component of actually what are you going to do in greater detail.

And only then we actually start deploying the program as in the team leaders that are going to execute the work where you see really the ramp-up of the work and the ramp-up of the percentage of completion therefore the recognition.

So these projects are usually, from the beginning to major delivery, probably will take more than a year and the reason why we have some hesitations because of the overall environment in the world. We don’t know if it will accelerate or executed as planned or maybe one of the customers would like to slowdown one of the phases or whatever. But we’re talking about a major transformation, not pilots.

Ashwin Shirvaikar – Citi

Okay. And again, on a demand perspective, are you seeing your emerging market clients adopt larger full scale industrial strength solutions or is it still to some extent a mix of add-ons and smaller solutions?

Eli Gelman

No. We see more and more transformation this in the emerging markets. In a way, you can think about as they are skipping a generation. They are going from a primarily prepaid land-grabbing mode to all the way to expanding the prospect component, expanding the customer service, call centers, stores, I mean, the whole nine yards that you would see in Europe or North America in their own flavor of course.

And in most cases we are placing either home grown or some standalone systems from our competitors are just running out of steam. So not all of the projects but many of the projects are real transformational projects in relatively sizable form.

Operator

And next we’ll go to Shaul Eyal with Oppenheimer & Co.

Shaul Eyal – Oppenheimer & Co.

Thank you. Hi. Good afternoon, guys. Two quick questions on my end.

Eli Gelman

Hi, Shaul.

Shaul Eyal – Oppenheimer & Co.

Tamar, what are the operating margins kind of range that you’re forecasting for fiscal 2012?

Tamar Rapaport Dagim

We’re forecasting for a range of 16% to 17% and that’s also considering the re-pricing at Bell that we mentioned that is scheduled to happen in Q2, as well as the absorption of Bridgewater into our numbers, so all of that has been factored into this range.

Shaul Eyal – Oppenheimer & Co.

Got it. Eli, question for you. I think back in late 2008 early 2009, given the prior crisis you were not with the company at that time. And in a way Amdocs could be observed more as a lagging indicator of kind of what has happened within the industry. Basically after everybody has already kind of pre-announced and kind of had to set their expectations for the full year, given some macro issues at that time.

Also given major foreign exchange fluctuations that thing, goodness we are not seeing nowadays in the current kind of uncertainty that kind of plagued the name. Do you think in any way it’s a little different than what you guys are seeing right now out there?

Eli Gelman

Well, Shaul, to tell you the truth I don’t know. I think in 2008, 2009 we were fairly -- we were victim of the same trends that you’ve seen all around the world. Maybe we’re lagging one quarter whatever. So I don’t think this is the situation today.

But that’s the reason why we put very clearly some caution in our wording that we are going to follow-up and monitor the situation very closely. We’re sharing with you the best we know.

But so far we don’t see major, we have expectation of the business all the time, things coming up and things going down. But we could not attribute it right now to any economic crisis nor in Europe neither in U.S. or in any other place.

So right now we don’t see major effect of this. But if deterioration in Europe will accelerate and T-Mobile, AT&T will never happen and the economic situation in CALA for some reason will slowdown, I can assure it will affect us eventually. We’re not immune or walking out of -- in other space.

Shaul Eyal – Oppenheimer & Co.

Yeah. That’s fair enough. And if I just make quick final one, Tamar, what was kind of the backup contribution from Bridgewater this quarter, if you have this number?

Tamar Rapaport Dagim

Within this quarter a positive momentum both in the addition of Bridgewater, as well as organic business contributing into backlog increase. At the same time, we had some negative impact of foreign currencies on our backlog for around $10 million. So I would say that all-in-all the backlog increase that’s reflected in good business momentum we’re seeing all around.

And another thing to note is we’ve seen both the backlog and pipeline diversify more and more both geographically and additional of new customers, such as Globe, that was mentioned by Eli before and Philippines and other customers.

So again, specifically this quarter Globe just announced wording the deal. It is not signed and it’s not yet in the backlog, but I’m just giving it as an example of the kind of diversity we are seeing now going into the backlog numbers as well.

Operator

And next we’ll move to Lauren Choi with J.P. Morgan.

Lauren Choi – J.P. Morgan

Hey, guys. This is Lauren for Sterling. I had a question on, again, I guess organic growth rate for 2012. You guys talked about 4% to 5%. I think at the Analyst Day, obviously your long-term is more 4% to 6%. I’m just kind of curious I think at the Analyst Day you talked about four growth drivers and then some inhibitors?

Was there anything outside of just the macro environment that maybe was a little below what you were thinking or just more conservatism in certain areas like OSS or emerging markets or trajectory that didn’t fall into what you guys were thought -- thinking early in March.

Tamar Rapaport Dagim

I would say there are many moving parts of course. Actually, we talked about both emerging -- from geographical point of view both emerging markets, as well as Europe as being growth drivers for us. So that’s working well. Cable and OSS we see some success indicators but financially we don’t see it firing up yet.

And overall, I’m trying to compare to what we said at the Analyst Day. First of all, the Analyst Day we did say 4% to 6%. There was a reason for the 4% and re-pricing at Bell was one of the events we knew about and factored in, into this range.

I would say on top of that, it’s a matter of also timing of how you ramp up. We talked about large last project coming in, it’s not working like a Swiss clock, so it’s something that has to be ramped up.

We talked about the scoping phase. We are preparing, obviously, both internally and with the customers those transformational programs. I would say the one thing, that this probably happened between January, sorry, February and now, is the AT&T, T-Mobile timeline that is being prolonged.

We know there are some challenges in terms of the regulators approving this deal and that’s, we ran different scenarios into the specific numbers of fiscal ‘12 and had to take that into consideration.

Lauren Choi – J.P. Morgan

Okay. That makes sense. And just one follow-up, I think your fiscal year, I’m just curious, do you have those numbers for your top three customers, percentages and then, I guess your top 10 customers, as well as your OSS and general services? Are you guys talking about shooting anyway, broadband cable and satellite tracing you guys said that...

Tamar Rapaport Dagim

Yeah. We talked about, yeah, we actually, we plan to indicate the top three customers in our 20-F. There isn’t any big surprises there, overall, the top three together, they have grown this year. Naturally, not all of them are moving in the same direction every year.

In terms of the top 10 customers, we continue to see good momentum of new names coming into this list, also in terms of our forward looking and I’m talking about diversification as being same. I think we see clearly also new names coming into our top 10 customer lists.

We’d say that, in addition, with respect to cable, the annual percentage of cable revenue out of total 11%. So we’re, I don’t see yet the good momentum we had this year in terms of completing some important production milestones and some progress we’ve made with customers, this is something we expect to have future impact. It’s not reflected yet in the 11% that we’ve seen.

Operator

And we’ll go next to Julio Quinteros with Goldman Sachs.

Julio Quinteros – Goldman Sachs

Great. I wanted to just check a couple of quick things. So in terms of the sequential expectation for Bell Canada, could you just walk back through that? It sounded like you have obviously had factored in the re-pricing, but I didn’t catch all of the details on what you expected in the one quarter to second quarter, Q-over-Q expectations for the revenue impact there?

Tamar Rapaport Dagim

The re-pricing is taking effect in Q2. We’ve took that into consideration in building the numbers for the year, since it’s something…

Julio Quinteros – Goldman Sachs

Yeah.

Tamar Rapaport Dagim

… we mentioned that in the Analyst Day, but since it’s now coming closer, we didn’t want to wait for the Q2 guidance in order to remind you guys that this is part of the planning of the year and it’s something we’re taking into consideration and preparing for that in the numbers we’ve guided for. So, I don’t think there’s much to say beyond that.

Julio Quinteros – Goldman Sachs

Sure. Okay. That makes sense. I just wanted to make sure I got that. And then the second part of that in terms of margins, is there also a similar type of sequential impact to margins or is it just on the revenue side?

Tamar Rapaport Dagim

It’s both in revenue and margins.

Julio Quinteros – Goldman Sachs

Okay. Got it. And then you made some comments associated to the AT&T and T-Mobile impact. What exactly did you mean by that?

Eli Gelman

Well, we basically factored several scenarios of AT&T, T-Mobile and we’re still within these factors. But the longer the decision has been prolonged, you would expect it to affect the companies, especially I would say T-Mobile because they’re in a much less clear situation.

So what we are saying is that part of the scenarios we are actually seeing already, which was the delayed decision. We hope it will be resolved because it’s better for us that these two companies can get back together and get the help from us in executing this act. Obviously, when you prolong it, most people tend not to do things rather than to jump and be more active.

Operator

And next we’ll hear from Shyam Patil with Raymond James & Associates.

Shyam Patil – Raymond James & Associates

Hi. Thank you. On the Bell Canada re-pricing, do you guys expect to offset the pricing pressure with increases in scope and what are you guys aiming for in terms of the time period for extension?

Tamar Rapaport Dagim

The extension itself was already signed and executed late 2009. However, there was already built into the contract some re-pricing mechanisms throughout the year. The extension was through 2017, and we factored that obviously into the long-term guidance range that we gave, because that was already on the table when we did the guidance for the long-term.

When we’re looking in terms of additional scope, we’re working with Bell Canada on an ongoing basis, so it’s not just, you come to negotiate the contract and then you go home for seven years.

It’s an ongoing relationship, new business activity has been won and we are continuing to work with Bell Canada on other opportunities where we feel we can bring value. So I don’t want to portrait just the mechanical re-pricing and this is where the relationship stands. There is a lot of new activity and actually just recently, additional activity that has been extended there.

Shyam Patil – Raymond James & Associates

Okay. Thanks. And then just on Europe, as that becoming a growth engine again for the company? Can you talk about in your guidance for assumptions around growth in Europe, how much of that expected revenue is in backlog, perhaps the coverage ratio for Europe just given your concerns there? Thank you.

Tamar Rapaport Dagim

So as you know we’re not going into this kind of granularity and I think it will portrait too much of a technical picture because when we build the guidance for the year with this many ups and downs and different scenarios, so even to point out the several scenario in terms of this granularity will be I think misleading.

The way we looked at Europe, first of all, we have seen already an increase in activity. Secondly, we have been awarded with additional new wins. So some of it is in the backlog already, but some of it is not and we are going through scoping right now which is going to be translated shortly after into the full scope of the project.

So the momentum is there, it’s not just kind of high level discussions. It’s very concrete work either design phase or at the beginning of development in some of those phases. But obviously the numbers include also future potential activities that we are working on.

But given the safe, we think in general given the sales cycle in Amdocs, which are relatively long, meaning longer than one year typically, when we start the year, even looking on things that are not in the backlog, we should have pretty good idea of what are those things we’re expecting to close during the year in order to bake that into the guidance.

Operator

Next we’ll move on to Daniel Meron with RBC Capital Markets.

Daniel Meron – RBC Capital Markets

Hi, Eli and Tamar. Congratulations...

Eli Gelman

Hi, Daniel.

Daniel Meron – RBC Capital Markets

… on the execution. Hey.

Tamar Rapaport Dagim

Hey, Daniel.

Daniel Meron – RBC Capital Markets

Sure. So a couple of questions, first of all, Eli, can you provide with a little bit more color on the dollar beat that you have with customers? Is there -- what are the things that are driving the decisions to upgrade or do some of these changes into their systems?

Is the nature more transformational as you indicated in some deals? Is it tactical, mix of both and what’s the main driver for the overall movement? Is it more company-specific or carrier-specific or something that is more of an industry trend right now?

Eli Gelman

Well, I think it’s – it will be difficult to – it’s a very good question, Daniel, but I think it will be very difficult for me to give you a full answer. I’ll try to touch upon several points and maybe we can augment it some other time.

It varies from geography to geography and from customer to customer, you can see, I’ll give you few examples. On the OSS, for example, most of the more mature carriers are going into LTE implementation. When they do an LTE implementation, we’re talking about hundreds and thousands of new devices that need to implement in the network and that’s usually an OSS-driven project for us.

In APAC and in the CALA, we’re talking about, as I mentioned in my script, we’re talking about situation that they are moving from pure prepaid into prepaid and postpaid, sometimes convergence, even offering the home grown systems of some of our competitors and grown systems, ran out of steam and they have to turn into new engine.

When they put more energy and more focus on customer experience, it means they need more of our [CM], our customer management applications whether – would be Web services or store applications or CRM for the CSR. And then you have some transformation on that because of M&A’s because companies are merging, breaking up and other reasons.

So I would say that it’s hard to say that there is one driver. Luckily or smartly, we are equipped with all the different vehicles to address the different scenarios of the carriers. And we obviously, they are doing it for growth, for efficiency or for merging or just the new technology, they come to us and that’s how we actually gain momentum in the business.

Daniel Meron – RBC Capital Markets

Okay. That’s very helpful. And Tamar, can you provide us with a little bit of sense on ways the impact on Bridgewater on revenue and EPS into next year? You alluded to that a little bit in your prepared remarks. If you can just give us a little bit of a sense on how you guys factor that into your projections one way or the other?

Tamar Rapaport Dagim

The way we look at it is to try, I know that you guys want to follow and understand the organic growth rate. But I want to articulate first of all the reality and to put it into context.

The bottom line answer is about 1% to 1.5% in topline is expected from the network monetization solution, which is contributed by Bridgewater policy and other assets. Actually, it’s all going to be fully integrated with our Turbo Charging architecture and other revenue management assets in order to come to market with the full digital experience systems.

So I think that the challenge is, is that we are integrating the -- the challenge from a financial point of view is that we’re integrating these acquired assets very quickly into Amdocs.

The sale is already – the sales people are already integrated fully within our regular customer facing organization and spread globally into our divisions that operating the company from R&D perspective, the Bridgewater team is now part of building the new integrated solution.

So it’s becoming pretty much difficult to track it separately. Yeah, obviously, well, coming into the year with some backlog coming from Bridgewater and some expectations to continue and sell their products, there also on a standalone basis, but over timing I would say quickly. So it will be much more difficult to track it.

And therefore I don’t think we are going now to state every quarter specifically how much is coming from Bridgewater and I’m sure that by 2013 if you ask me that question I will not even have a clue how to answer.

Eli Gelman

Just to maybe to add a comment, it is true that financially it will be – it’s a challenging thing to distinguish between the organic and the non-organic. But actually this is exactly the best indication that this move was very strategic and very well-fit into our strategy.

The fact that actually owned the new project as we are pitching right now with the Bridgewater assets combined some of our Amdocs product, some Bridgewater product and a lot of services around it, and some consultation and consulting work. So very quickly becomes just another engine in our center.

Operator

And next we’ll hear from David Kaplan with Barclays Capital.

David Kaplan – Barclays Capital

Hi, everyone. If you can do me a favor and talk a little bit about emerging markets, the types of products you’re seeing there as the carriers become more developed from a development perspective?

And the second question I have, just very quickly, on the buyback, exactly where are you? I know you mentioned the 17% of the shares that you purchased -- repurchased. But where are you exactly on the planned buyback and what are your plans going forward for those buybacks?

Eli Gelman

So, David, maybe let me try to take the first question about the emerging markets. As a matter of fact, the more we get involved with the larger transformation and the larger carriers in the emerging market both in CALA and in APAC, what we see is very similar needs. There’s no special needs but every similar needs to the ones that we see in Western Europe and in the U.S. today.

So the same Version 8.1 that we are probably getting out of our shop in the next few weeks probably will be the version that we’ll implement in CALA and in the APAC in the New Year, in the near future.

So and the reason being is because they need phosphate and prepaid, and sometimes they need in convert mode, we’re talking about in some areas very large carriers. We are talking about carriers in APAC and in CALA that have over 50 million subscribers, sometimes more. So it’s definitely a big size, European or even close to half the size of AT&T.

So and then we’re talking about functionality that they need. So maybe they don’t need as much right now self-service, but the more they will try to drive customer experience and the more they sell smartphones, you actually find out that they want to have some kind of CRM on a smartphone, which is also a demand by some for American and Canadian customers. So, altogether, I think, if you want it in one line, it’s very similar for the converge -- similar services if you are selling all around the world. On the buyback...

Tamar Rapaport Dagim

On the buyback we are now executing on $1 billion authorization. We would actually use that for September 30 around $310 million. So we are free to use the remaining $690 million through February 2013 and we plan to do so.

Eli Gelman

So the 17% is what we consumed so far from the previous plan of $700 plus $300 something from the new plan, from the $1 billion? So that is 17% and addition $600 whatever, 80, 90 is the remaining of the $1 billion plan.

David Kaplan – Barclays Capital

Okay. And that’s through 2013, yeah?

Eli Gelman

Yeah.

David Kaplan – Barclays Capital

Okay. Great. Thanks.

Eli Gelman

Thank you, David.

Operator

Next we’ll hear from Will Power with Robert Baird.

Will Power – Robert Baird

Great. Thanks for taking the question. So a couple of questions, I guess the first one on North America, you’ve got some headwinds in 2012 you alluded to from, I guess, Bell Canada delays at T-Mobile. So as you think about North America in total, is that still a market you expect can grow year-over-year in 2012 or do you think that maybe ends up down a little bit? That’s the first question.

Eli Gelman

No. North America should continue to grow, maybe, not at the same pace because of the headwinds that you might just mentioned. Some of these headwinds in some -- in certain situations can turn into a tailwind, so we don’t know yet. But right now, we see it growing not in the same pace as before. But this is a growth engine for us. We have new projects, some from new customers.

This is the new buying incentives in the same carriers because you know they are added in Verizon. We have a very strong penetration in many major carriers in North America. But even with them we see new project and new buying incentive buying from us. And then on top of it we have cable North America that will continue to grow. It will be growth as well.

Will Power – Robert Baird

Okay. Okay. And then my second question, you talked about some of the developing market success that you’re seeing out there. Can you talk a little bit about what the competitive environment looks like in those developing markets? Is it more difficult than perhaps in some of your developed markets from a pricing perspective?

Are you seeing Huawei, ZTE, companies like that more often? And what does that kind of mean for margins that we should expect from some of those developing market opportunities?

Eli Gelman

So these are very good questions. And first of all we see everybody in the emerging markets trying at least to beat us, so far with little success. So that will be their Oracle of the world and Huawei of the world and others. And in terms of pricing, yeah, there are some companies in the world that are bidding very, very low in order to gain the business.

We never won businesses because we are the lowest in the industry. We are definitely the best, but not the lowest in terms of price. And I think that so far we show to our customers and potential customers that the value we bring and the little risk that they have going with us. Talking about major transformations, this can break a company if it’s done not in the appropriate way. We are really crossing a Rubicon here.

So I think between the value that we bring and experience we bring and the low risk, these are values before we get into the product. Then when we get into the product, obviously we have the best rate in the world. So the only reason we have is some companies would say, okay, but the other competitor is good enough. Of course Amdocs is better, but it’s good enough.

We didn’t see so far as a leading indicator. In other words, even the emerging market companies they want the best because they know they are going into price issue in their mind. And therefore they want to be quick with the best product possible.

So, yeah, we do see some irrational behavior from time-to-time. We’ve always seen that throughout the year. And yet there are companies that have deeper pockets than us. But so far I think that we are playing the value and the overall cost effectiveness of our solution in a good way.

Operator

Next we’ll hear from Arvind Ramnani with UBS.

Arvind Ramnani – UBS

Hi. Thanks for taking my question. Just a couple of quick questions, I mean, for fiscal - for your next quarter, your lower-end of the guidance is indicative of revenue contraction. I mean, you mentioned some of it is due to kind of new deal activity but are you being a little bit conservative here? Or do you see some sort of -- kind of weakness?

Tamar Rapaport Dagim

Actually, what we talked about is the fact that we are seeing good momentum in terms of the business. Many of these projects they are yet to impact into the massive development in terms of the cycle of the project. As Eli mentioned, really establishing the scoping phase, which is a thinner in terms of its revenue recognition but very critical in terms of the design and the right scope of the activity that we will let that are going to execute.

So it’s not an indication in any way about the business health or anything else. It’s more of a timing issue that we see here. We decided to extend -- sorry to expand the range of Q1 from 15 to 20 just to make sure we are taking room also for some more volatility coming from project related revenue. But there is nothing more to it other than just the physics fact.

Arvind Ramnani – UBS

Okay. And the second thing is in terms of cash, I mean you certainly have kind of more in the bank to basically buy back shares. Do you think you might kind of shift that strategy a little bit if you find some kind of acquisition targets? Or kind of the share buyback is kind of critical to your strategy?

Eli Gelman

No, the buyback is one component of our strategy. It’s not the only one for sure. We believe in M&A. We just did one, we just completed one with Bridgewater but it’s not the end of it and we have a good history of M&A. On the other hand, the good thing is that we don’t have to.

So we can have the time and do M&As that are fitting our strategy. We’re not pressed for that in terms of the promise to the market that it has been built into our guidance. It’s not. So we will continue doing M&A and we are having our eyes open in many, many directions.

But we believe we can do both so that’s why we are actually executing capital structure discipline with a buyback and with the M&As. And right now we don’t think that we should do either/or, we should actually do both.

Arvind Ramnani – UBS

Excellent. Thank you.

Eli Gelman

Thank you.

Operator

Our next question comes from Jason Kupferberg with Jefferies.

Jason Kupferberg – Jefferies

Hey, thanks, guys. I wanted to make sure I have the numbers right on Bridgewater. Can you remind us what the annual revenue run rate was on that prior to when you acquired Bridgewater?

Tamar Rapaport Dagim

Actually, Bridgewater was going downwards through the recent quarters prior to the acquisition. So they tracked at about 21, I think for calendar Q1 then 20 and then 15. So the June quarter, we consolidated in our Q4, half the quarter and you need to remember it’s a product company, so it’s usually back-end loaded within the quarter, so I don’t think you should assume linearity into the $7 million.

And so if you -- depending what you take, if you take the 15, then do a haircut on that given purchase accounting implications, because some of the deferred revenue that was part of the Bridgewater standalone financial are not something we can recognize after the acquisition, you should take a haircut on the 60 annualized in a meaningful way.

Jason Kupferberg – Jefferies

Okay. Yeah. I guess that’s where I was going with it because the 1% or 1.5% on your fiscal ‘11 base would mean, what, like $30 million to $45 million or so? So that’s the haircut against the 60?

Tamar Rapaport Dagim

Yeah.

Jason Kupferberg – Jefferies

Okay.

Eli Gelman

Good calculation, Jason.

Jason Kupferberg – Jefferies

Okay. My calculator is working well. And then just a follow-up on Bridgewater. When do you guys think it will be accretive to EPS either on a GAAP or a non-GAAP basis?

Tamar Rapaport Dagim

I can say soon, but again, then we get into the problem, can we really carve it out over time? Given the synergy and the full integration approach we have, it will be very hard to track it after a quarter or two.

Jason Kupferberg – Jefferies

Yeah.

Tamar Rapaport Dagim

And it’s smaller, I mean, it’s not something that we are going to now be really focused on doing the technical effort around trying to isolate and carve out numbers for something that is really blended into the company.

Jason Kupferberg – Jefferies

Okay. And just last one for me, in fiscal ‘12, what do you expect the relative growth roughly of Managed Services versus the rest of the business to look like?

Tamar Rapaport Dagim

It’s been hard to tell, because we will need to see how those projects are translating into Managed Services. I would say, roughly speaking, mainly projects will drive growth of fiscal ‘12, especially given the Bell Canada re-pricing that is obviously putting pressure on the managed services related revenue.

But we do see very encouraging signs where several of the customers with whom we want transformation projects are discussing with us already managed services at the relatively early phase, which is obviously a very good momentum in terms of building visibility beyond -- we’re building the matter to the transformations and then we’re building the ongoing oxygen and food for the years to come to the managed services discussions.

Jason Kupferberg – Jefferies

Okay. Understood. Thank you, guys.

Eli Gelman

Thank you, Jason.

Operator

Next we’ll hear from Damon Guirdham with Generation Investment Management.

Damon Guirdham – Generation Investment Management

Hi. Just one final question on the Bridgewater stuff and then one on competition and you’re obviously understand, Eli, your point about this having skirted very neatly strategically, but with the 35 to 40 guidance it’s more than five times revenues, which is obviously a very different multiple from what you trade on.

Is that because maybe your expectations have shifted down a little since the deal? Or is it that you really felt that this strategically was worth such a large premium relative to your end multiple?

Tamar Rapaport Dagim

So, Damon, just to make sure we’re looking at the same numbers. On a net basis, we acquired Bridgewater -- I mean net of cash for about $145 million, $150 million.

Damon Guirdham – Generation Investment Management

Actually, it’s more like $200 million.

Tamar Rapaport Dagim

Yeah. That was the full value, but…

Eli Gelman

No, this was the full value, but they had a lot of cash.

Tamar Rapaport Dagim

Yeah. Bridgewater has a lot of cash on its balance sheet. So the enterprise value was more like $150 million so.

Eli Gelman

$145 million, yeah.

Tamar Rapaport Dagim

The multiple is a bit different -- than or much different than what you mentioned. And I think the essence of the deal was definitely what kind of incremental value Bridgewater can bring to us rather than what was their business on a standalone basis. We wouldn’t buy Bridgewater for its business on a standalone basis.

This is merely the platform in terms of the knowledge of the people, the assets that they have, the technology and the standing of the market needs in order for us to build, together, the solution that we feel the market is really looking for.

Eli Gelman

Not to mention that they are settling into a different buying incentive over and over for our customers, which is pure in and the network people and we usually sell into IT and finance and marketing.

Damon Guirdham – Generation Investment Management

Got you. And on the competition side, I mean historically you guys have always really referenced historical people that you felt you had potentially the long-term threat to you leadership in the industry or had the potential there. Would it be fair to say that some of the network vendors obviously with Ericsson buying Telcordia with Huawei making a very big finish, we’re hearing about them winning serious business in Europe now in the BSS side. How can network guides become more serious competitors over the last 12 or 24 months? Or is it still Oracle that you feel the biggest threat over the longer term?

Eli Gelman

Well, first of all, I hate to mention that we like competition. It keeps ourselves sharp and then alert and especially we like it better even when we win. And recently we won a lot against this competitor just mentioned. To your specific questions, I doubt that the network company can become an enterprise software company.

It’s almost as hard as if I were to tell you that we are going to develop space stations or high-frequency, high-speed bridges in the near future. I think if you are fully look at us in a very strange eye, rightfully so. Its two different disciplines, the fact that both are using software is almost a coincidence.

So you don’t go to an eye doctor to take off your foot and the same thing goes here. We are the only company that exists almost 30 years doing one thing, this and others for telecom.

And, yeah, given the time and money, if they will do all the right things in 20 years they will become our competitors but I don’t think in the next 24 months or 12 months they will become major provider in this industry.

I think this is a number one reason why we’re actually gaining momentum against these competitors. Often single net, these are sales companies. They have a lot of money, they can spend a lot of money or even throw money at it and we are very, very awake and wide awake and trying to anticipate their moves.

But if you ask me from the engineering standpoint, I don’t think they will become major, that network companies would become major competitors anytime soon. It’s very difficult to do what we do and it’s not -- and we are not so much experts on telecom per say. We are experts on customer-experience systems that has been implemented in their most needing industry which is telecom. It’s a very big difference.

Operator

And we have time for one final question. Next we’ll hear from Scott Sutherland with Wedbush Securities.

Scott Sutherland – Wedbush Securities

Great. Thank you. And thank you for taking my questions here at last.

Tamar Rapaport Dagim

Hi, Scott.

Eli Gelman

Hi, Scott.

Scott Sutherland – Wedbush Securities

Hi. First of all, when we go back to Europe, some have mentioned kind of seeing some more macro-economic decks and slowdown out there and you’re seeing some more opportunities out there. Would you say that this is just some of those diamonds you didn’t pursue in the past that you’re starting and probably that’s allowing you to see some opportunities there where others may not be, or are you starting to see some share gains there as you go after it more aggressively?

Eli Gelman

We’re seeing some success on hard work that we have done in recent quarters and recent years. It’s no magic. With the right product, we pursue the right opportunities and we see success.

Scott Sutherland – Wedbush Securities

Second question I had. You mentioned with opportunities of moving to areas like M2M and obviously carriers you’re mentioning all types of connective devices beyond phones and smartphones.

Some of these devices obviously are going to have much lower ARPU or pricing per month. How do your systems scale down to that type of pricing, or do you think you need acquisitions to be able to address that type of market?

Eli Gelman

No, we don’t need an acquisition. If we choose to do one, it would be just to accelerate our market share. And in terms of the product, it’s probably a scaled-down version of our full stake. In some components that we wrapped up recently and some new code that we wrote for that.

So it’s a different, completely different cost structure of the publication and the implementation of it that allow us to offer it in a way that can be relevant to a much lower ARPU and much lower EBIT probably on the Machine-to-Machine sector.

Scott Sutherland – Wedbush Securities

Okay. Great. Thank you.

Eli Gelman

Thank you very much.

Operator

And I would like to turn the call back over to Ms. Grausam for any additional or closing remarks.

Liz Grausam

Thank you very much for participating on our call today. We look forward to chatting with you in the days and weeks ahead. Take care.

Operator

That does conclude today’s call. Thank you all for your participation.

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