Amdocs F2Q07 (Qtr End 3/31/07) Earnings Call Transcript

Apr.26.07 | About: Amdocs Ltd (DOX)
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Amdocs Ltd (NASDAQ:DOX)

F2Q07 Earnings Call

April 26, 2007 5:00 pm ET

Executives

Dov Baharav - President and CEO

Ron Moskovitz - CFO

Eli Gelman - COO

Tom O’Brien - VP of Investor Relations

Analysts

Liz Grausam - Goldman Sachs

Will Power - Robert Baird

Tom Ernst - Deutsche Bank

Ashwin Shirvaikar - Citigroup

James Alexander - Jefferies & Company

Terry Wright - Wedbush Morgan

Marianne Wolk - Susquehanna

Daniel Meron - RBC Capital Markets

Sterling Auty - J.P. Morgan

Tal Liani - Merrill Lynch

Tom Roderick - Thomas Weisel Partners

Ben Abramovitz - ICAP Securities

Shaul Eyal - CIBC World Markets

Larry Berlin - First Analysis

Presentation

Operator

Welcome to the Amdocs Second Quarter 2007 Earnings Release Conference Call. Today's call is being recorded and webcast. At this time, I would like to turn the conference over to Tom O'Brien. Mr. O'Brien, please go ahead sir.

Tom O’Brien

Thank you, Glenn. I am Tom O’Brien, Vice President of Investors Relations for Amdocs. Before we begin, I will 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 this financial information in 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 enables 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 Form 6-K.

Also, this call includes information that constitutes forward-looking statements. 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, filed on December 13, 2006. And our Form 6-K furnished on February 07, 2007. Amdocs may elect to update these forward-looking statements at some point in future; however, the company specifically disclaims any obligation to do so.

Participating in the call today are Dov Baharav, President and Chief Executive Officer of Amdocs Management Limited; Eli Gelman, Executive Vice President and Chief Operating Officer; and Ron Moskovitz, Chief Financial Officer. Following Dov and Ron's comments, we'll open the call to Q&A.

Now, let me turn the call over Dov Baharav.

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Dov Baharav

Thank you, Tom. Good afternoon, ladies and gentlemen. We are pleased to report solid results for the second quarter of fiscal 2007. Revenue grew 18% to $706 million and non-GAAP earnings per share also grew 18%. Demand for our products and services is strong and service providers continue to focus on their customers.

The leading service providers are pursuing strategies including consolidation and convergence, while coping with intense competition. We have positioned Amdocs to be the partner of choice to this leading service provider, so, planning solutions that run from BSS to OSS.

This quarter is characterized by strengthening the relationship with our customers. So, our existing business remained strong.

Second, the way this quarter combined with existing business continued to drive our growth.

And third, while there are still some potential projects which are taking some time to close there are others which are closing and which will contribute to the revenue in 2007 and beyond.

On the delivery front, this was a great quarter. We met key milestones on number of very important projects and our delivery capability remains a competitive advantage while pursuing new deals. We continue to raise the bar in delivering complex projects effectively using our talented employees in teams around the globe.

We mentioned several wins in our earnings release today, including a managed services contract with AT&T. We have worked with AT&T for many years and have provided them with systems to support the wireless, wire line and direct route businesses.

It was our success in this effort, which builds the trust in Amdocs and let AT&T to award us the significant contract to support the legacy wireline ordering in OSS platform. The first of what hopefully can be more deals of this kind.

We also made important progress in OSS. Not only we continue to be impressive success of Cramer, we are enjoying new success in delivering services around our both platform, an area of our target market where a year ago, we were just getting started.

Looking ahead, we are confident that we can achieve our goals by continuing to maintain our strategic and operating focus. We know that there are uncertainties and challenges that must be overcome. And we believe that we are the best positioned company to succeed in this market. And we look forward to success in the second half of 2007 and beyond.

Let me now turn the call over to Ron Moskovitz for the financial review.

Ron Moskovitz

Thank you, Dov. Our second quarter revenue was $706.4 million representing growth of 18%.

Our non-GAAP EPS which excludes acquisition-related costs, restructuring charges and equity-based compensation expense, net of related tax effects, was up 18% to $0.52 per diluted share. GAAP EPS was $0.40 per diluted share.

I'll spend a minute now on a few P&L items.

Please note that I am referring to the results excluding acquisition-related items, restructuring charges and equity-based compensation expense.

License revenue was up this quarter, due in part to strong OSS sales. Operator margin was 17.2% this quarter down 20 basis points from last quarter but slightly better than we expected.

R&D expense in the quarter decreased following the release of Amdoc 7 as some of these resources were moved to production support to affect knowledge transfer, these accounts for some of the reduction in service gross margin. Overall, we expect profitability in Q3 will be similar to Q2 level.

Improvements in profitability in some areas of our business are expected to be offset by margin pressure in the short-term related to the new-managed services deal with AT&T.

The effective tax rate in Q2 is relatively low at 13.5%. We expect that our non-GAAP effective tax rate for fiscal 2007 excluding the tax effect of acquisition-related cost, restructuring charges and equity-based compensation expense to be in the range of 13% to 15%. We believe that this range is sustainable going forward.

Free cash flow in this quarter was $58 million. Included this number was $33 million in net CapEx. Free cash flow this quarter was affected by the annual bonus payment to employees which are accrued throughout the yearend, primarily say in January.

DSO at the end of the quarter was 62 days, up from last quarter. Accounts receivable decreased slightly to $58 million this quarter.

Deferred revenue was $265 million this quarter, an increase of $63 million from last quarter. We expect to continue to see fluctuations in this balance as it can be impacted by the large advance payments from customers among other factors. We received some decrease in the deferred revenue balance next quarter.

Our 12 month backlog, which includes contract, committed revenue for managed services contracts, letters of intent, maintenance and estimated ongoing support activity, was $2,110 million at the end of the quarter, an increase of $20 million from the first quarter.

Looking forward, our guidance for the third quarter of the fiscal 2007 is for revenue of approximately $710 million to $720 million.

A non-GAAP EPS of $0.50 to $0.52 excluding the effect of acquisition-related charges and excluding equity-based compensation expense of approximately $0.05 to $0.06 per share, net of related tax effects.

Diluted GAAP EPS is expected to be approximately $0.38 to $0.41 per share. Our EPS guidance for Q3 is based on a fully diluted share count estimate of approximately 224 million shares.

For fiscal year 2007, our guidance is unchanged from what we gave last quarter with revenue of approximately $2.83 billion to $2.91 billion, a non-GAAP EPS in the range of $2.02 to $2.12, excluding the effect of acquisition-related charges, restructuring charges and excluding the effect of employee equity-based compensation expense of approximately $0.21 to $0.24 per share net of related tax effects.

Diluted GAAP EPS is expected to be approximately below $0.54 to $0.68 per share. Our fiscal 2007 guidance is based on the fully diluted share count estimate of approximately 224 million shares.

With that, let me turn it back to Dov.

Dov Baharav

Thank you, Ron. At this time let me open the call to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question will come from Liz Grausam with Goldman Sachs.

Liz Grausam - Goldman Sachs

Yes, thank you. Just looking back at the demand environment, clearly last quarter you were little bit more cautious, in this quarter it seems to stabilize a bit. But you still noted that there is some slippage where as you've seen also some signings. Can you kind of paint us a picture of how confident you're feeling about the demand outlook and specifically about the timing of contracts of your pipeline, now versus when you spoke to us in January?

Ron Moskovitz

Liz. Actually, what we are trying to convey is that we don't see any material change compared then to last quarter. So, the transformation in the industry occurs. And we believe that not only in the United States we will see demand careers transforming, but also in Europe and other places. But it takes more time that what we expected at the beginning of the year. But we if we compare this quarter to previous quarters, no changes, and we feel comfortable with the rate of wins that we have and with projection for the rest of the year.

Eli Gelman

And Liz let me just add to this. In terms of the question about the pipeline. The pipeline this quarter is strong or slightly stronger than last quarter actually. It comprises of a variety of opportunities from all different areas billing, mediation and CRM. So, service was managed services, which is a very strong indication of the strength of the pipeline because, if you remember that we just moved AT&T from the pipeline to the backlog this quarter. So, the fact that net result of it afterwards instead of very strong pipeline gives us the level of confidence that Dov mentioned regarding meeting Q3 and Q4 targets.

Liz Grausam - Goldman Sachs

Great. And then, as managed service, clearly you have the Sprint transaction, it's going to start to lose subscribers during the year, as well as now the AT&T major managed services program. Ron, maybe you can help us to think about the gross margin and the operating margin in the business as we move through Q3 and Q4, when Sprint start hitting prime time, that also you'll be investing in AT&T? And how we should think about the progression of profitability?

Ron Moskovitz

As I alluded to previously, we expect some improvement of the profitability in several areas of the business including in Sprint given the conversion of the subscribers. However, this is going to be offset to some extent with the initial pressure that we have on the AT&T Managed Services deal.

Liz Grausam - Goldman Sachs

And when do you see that pressure in the year?

Ron Moskovitz

So, basically it will result with flat operating margin for Q3 and maybe in Q4, as well.

Liz Grausam - Goldman Sachs

Great, thank you.

Ron Moskovitz

Thank you, Liz.

Operator

Our next question is from Will Power with Robert Baird.

Will Power - Robert Baird

Yes. Thanks for taking the question. I wondered if you could perhaps update us on some of the international opportunities and particularly where we are on, some of the converging opportunities over at Vodafone? Thanks.

Eli Gelman

As you know Vodafone embarked on ADN managed services, applications are better than maintenance, Bill. Mainly, with IBM and EDS. IBM on the South European countries and EDS on the north part of it, and we are the primary partner for both EDS and IBM on their customer account bidding process. All in all, the plan is on target in terms of the rates of adding new carriers or what they call [op call] on to this master plan.

In parallel, we have new opportunities all around Vodafone. And these opportunities are not contradicting the ADN trends. We are talking about new wins that we had in the last couple of quarters. So, we progress in Vodafone in two avenues. One, is new wins that we have on recent applications. And second, the component is part of our alliance with IBM and with EDS on the ADN managed services deal.

Will Power - Robert Baird

Okay. Thank you.

Eli Gelman

Thank you

Operator

(Operator Instructions). We'll next go to Tom Ernst with Deutsche Bank.

Tom Ernst - Deutsche Bank

Good afternoon gentlemen. Thank you.

Dov Baharav

Good afternoon, Tom.

Tom Ernst - Deutsche Bank

Ron, question for you. The backlog growth this quarter was 1% up sequentially and Q2 revenue was approximately 2% growth. If we look at the guidance it implies a pretty big boost in Q4. I am curious does this have anything to do with the three delayed deals you mentioned in the last earnings call or is there some other sort of seasonal project that you said is seasonal?

Ron Moskovitz

As we said many times in the past, the nature of the backlog is fluctuating, and not necessarily correlating to the growth in each quarter. Overtime, given that we maintain similar level of visibility, we should see correlation, but as we had in many quarters in the past not necessarily in quarter-by-quarter basis, we see the same level of correlation and it depends on some pace of ordering and whether an order getting solid. The last deal is a quarter versus the first deal of the next quarter and so on. In the nature of the business that we are facing, we see this lumpiness.

Operator

Our next question will come from Ashwin Shirvaikar with Citigroup.

Ashwin Shirvaikar - Citigroup

Hi. Thanks for taking my question. Question is on margin levels. What kind of margin levels do you have as you move forward to try and offset the pressure from AT&T? If you could just go into the details of it?

Ron Moskovitz

When we look at the different levels of our business, basically we acquired a lot of companies and lot the businesses and investing on many growth engines. That put some pressure on the profitability on the short-term. The same case is the political to demand services deal. So, if we look at the core business that we had from previous to the old acquisitions we got through the 20% and we have specific targets, therefore each layer of our business to get to the 20%. It may take some time, and it doesn’t take into account some additional activities of the M&A that we can do in the future.

As for the statistics of managed service deals; overall, we target to get to managed services profitability, which is line with our corporate averages.

Eli Gelman

Ashwin, also regarding this deal, I want to add may be two comments. First of all, the gravity and the importance of this deal, we had a very short press release. But the idea that the telephone companies the heart of AT&T is outsourcing trends of systems that are mainstream and mission-critical to them. We are talking about the ordering, they might be solved.

Bell core system that was developed 30 years ago, and over the managed or they have to touch it for many-many years. The fact that they are outsourcing, these type of application, so Amdocs is a great indication to the trust that we have.

The second comment I would like to say in terms of [believers] and how we intend to grow the margins. Obviously, we are going to get 100 of people and we would move by part of this walk into lower jurisdiction and lower cost jurisdiction of Amdocs. We have some ideas and plans how to improve effectiveness of the people, and we may use as we usually do some creative software also to mechanize more things that were not mechanized before.

So, between the different components of this higher effectiveness and lower cost, we believe we can improve the margins on the specific deal.

Ashwin Shirvaikar - Citigroup

Okay, thank you.

Eli Gelman

Thank you, Ashwin.

Operator

Our next question is from James Alexander with Jefferies & Company.

James Alexander - Jefferies & Company

Good afternoon. Could you provide us with an update on the competitive environment? What are your thoughts upon the anniversary when Oracle acquired Portal. And I was just wondering if you're seeing them in a more significant way than what you have in the past?

Dov Baharav

Looking at our competitive landscape, we see Oracle, competitively okay. But I would say to a lesser extent than what we expected in the short-term. So, when Oracle bought Seibel they bought Portal and they inherited several competitive situation in many places. I would say that some [may] quite colossal failure of Portal, in several accounts they help us to actually gain advantage in the market. And I would say that looking at the last quarter, we didn't lose to the competition. And actually we feel that we are gaining momentum and maybe take some more time to get organized and to start competing with us. So, when we feel good about where we are right now.

James Alexander - Jefferies & Company

Great, thank you. And then, just one follow-up. Could you [talk from this] new AT&T deal contribute to report the backlog? And then, where do you see backlog going over the next quarter or two?

Ron Moskovitz

AT&T deal contributed to the backlog, the annual run rate of this business is tens of million of dollars a year. So, it is included and for the backlog, in the following quarter we are not capable of providing guidance for the backlog. We expect that all the time it will call into the growth of the business. And as we expect growth in Amdocs business in all fronts, we expect backlog to grow as well.

James Alexander - Jefferies & Company

Okay. Thank you.

Operator

Our next question is from Scott Sutherland with Wedbush Morgan.

Terry Wright - Wedbush Morgan

This is actually Terry Wright for Scott Sutherland. It seems like your guidance for the year you kept it the same which seems like it become a little bit more push to the second half. Can you talk a little bit about the levers that you have used to get to the mid point of that guidance?

Ron Moskovitz

We gave some guidance with the range, which includes several scenarios. Since we give a range, we don't commit to a certain point in to which. We will continue to executing our business, and our sales and our delivery and there might be several outcomes.

Terry Wright - Wedbush Morgan

But do you believe you have the projects as near with the new AT&T project in strength that the businesses in hand that you can get to that level today?

Dov Baharav

We cannot resist it was (inaudible) at this point or the other as we wanted to give more specific guidance with one number we would have done that.

Terry Wright - Wedbush Morgan

Okay, and then one follow-up. Somebody had mentioned earlier and about managed service margins. And you made a reference between about flat operating margins in Q3 and Q4. I just wanted to make sure I understood that statement. Could you clarify what you meant, I think, you are talking about Sprint and AT&T?

Ron Moskovitz

What I meant is that the AT&T deals and this is typically in our [net services] deals, at the beginning it create some pressure on the margins. So, this deal by itself creates some negative impact on the margins on the short-term. In other parts of the business, we expect to see margin improvement, and these two elements are going towards one another.

Terry Wright - Wedbush Morgan

Okay. So, for managed services, you see kind of the flat effect?

Ron Moskovitz

For all business, other than the AT&T that we are going to see increases of their profitability in the AT&T deal by itself is going to impact us negatively, in the next couple of quarters. Overall, we are going to see flat margins.

Terry Wright - Wedbush Morgan

Very good. Thank you.

Operator

Our next question is from Marianne Wolk with Susquehanna.

Marianne Wolk - Susquehanna

Thanks. The licenses were significantly higher than expected this quarter. When you give your guidance for next quarter, does that assume a similar level of licenses roughly 5% of your mix? Is this level a sustainable part of the guidance? Then I have a follow-up.

Ron Moskovitz

First of all, we are [see] with the growth of the licenses. This has to do with the strong sales and in particular a very good performance from our OSS division.

Looking forward that the next quarter we have several scenarios. Overall, we expect license to grow. I am not sure this is going to grow as a percentage of the revenue, but we surely expect to see some growth in that.

Marianne Wolk - Susquehanna

So, you are assuming sequentially growth there?

Ron Moskovitz

Yes.

Marianne Wolk - Susquehanna

Okay. And my follow-up is with regard to Sprint. Is there any way to convey to us the kind of momentum you are having, you can bring subscriber. Some of your competitors are indicating that it really hasn't been any momentum in the conversion side yet. And sort of suggesting that you're still in the test stage. So, is there any way you could describe to us the kind of success that you are having at this point on the strengths of contract?

Eli Gelman

Yeah, it's quite simple, these stories are all completely wrong. We are on target in terms of the delivery. We converted subscribers and we are converting as we speak, and on target for higher rates than planned.

Marianne Wolk - Susquehanna

Let me convey whether or not we are still doing sort of 100,000 here or there whether you are into the millions yet?

Eli Gelman

It's in the millions, but the numbers you have out screened.

Marianne Wolk - Susquehanna

Okay, thanks very much. Wait one last quick question on the tax rate. Last quarter you said the 13.5% rate was due to a reversal. Are these reversals that permanent, how is it that you were able to extend that within course of this year? And should we assume 13.5% is also for fiscal '08?

Dov Baharav

Actually, what we saw in this quarter is a reduction of the tax rate which is only a very little to do with some reversal of a provisions on. We see, I would say a permanent reduction of tax rate within some range of between 13% to 15%, which is lower than what we used to see in the past. We believe that this range is going to be sustainable for 2008, not necessarily just 13.5 but within this range of 13 to 15. However, in terms of different quarters, we are going to see some fluctuations given the new accounting standards that evolving in the task accounting front.

Operator

Our next question is then from Daniel Meron with RBC Capital Markets. Daniel your line is open.

Daniel Meron - RBC Capital Markets

Thank you, hi guys. Congrats on continued execution. Yeah, can you hear me now?

Dov Baharav

Yes

Daniel Meron - RBC Capital Markets

Hello?

Dov Baharav

Yes Daniel, we hear you very well.

Daniel Meron - RBC Capital Markets

Thank you. So, congrats again. Okay, congrats on continued execution. Can you give us a sense on the progress you're making in the cable section at the time you launched Amdoc 7. One part of that was obviously, the offering to the cable companies. What are we seeing there, how is the progress in IPTV in general affecting how fast these guys are moving to deploy your solution?

Dov Baharav

We are very pleased with our progress in the cable, what we call broadband cable and satellite business. We enjoy warm welcome by different operators. We see effectiveness to offering. And we enjoy several wins, expansion of existing activity, conversion of new subscribers, so, moving new subscriber from system of other vendors to our systems. So, increasing our relative shares there, expanding the rationality that we provide through the carriers and I would say quite advance discussion regarding a more meaningful and sizeable deals with these guys. Now let me feel is that the cable industry is moving to the quadruple play. They are moving towards a new era where they will have to offer a complex offering of voice, data, games, video maybe advertising everything combined on an IP modem. And that will require capable, flexible, agile systems. This will enable them to create intentional customer experience. Now, the IP TV progress--

Daniel Meron - RBC Capital Markets

And what--

Ron Moskovitz

Excuse me yes. And let me say that the progress in the IP TV of AT&T and Verizon is actually creating a certainty that the overall market in the United States is moving towards a several large players, that each one of them is providing a quadruple play and it will actually create the need by everyone to be equipped with agile, integrated customer management system that will create the right customer experience.

Operator

And our next question is from Sterling Auty with J.P. Morgan

Sterling Auty - J.P. Morgan

Yes, thanks. I wasn't clear in terms of the new AT&T contracts that you have. When does that actually began and when you answered the question on whether it was in backlog or not, I wasn't clear whether it was, and if so, how much of a full years worth of contribution went into backlog.

Dov Baharav

It's going to start later in this year. We didn't communicate a specific date. The contract is included in the backlog for, I would say not the entire 12 months, but I would say most of it.

Sterling Auty - J.P. Morgan

Okay, and in terms of follow-up, if we go all the way back to the questions on kind of the environment, on one hand your saying, you are trying to communicate that there hasn't been a material change in the environment from what you talked about back in January. On the other hand you are talking about an improving pipeline and still kind of uncertain as to of, how could anyone doubting that big transformation deals are happening but taking longer to make those decisions right. I still feel like a bit fuzzy as to, are we still in a sluggish environment and we should only expect these deals here and there and longer spaces between them, or are we actually starting to see a little bit of steady improvement with the 18 key contracts being the first step.

Dov Baharav

I agree with you that we had some contradicting messages from the market and we see a lot of opportunities in all areas, and we have a very diverse offering to the market in the billing, in the CRM, in the OSS, in mitigation, in managed services, in consulting, in many geographies, in low ARPU markets and in the high ARPU markets. So overall we've seen more opportunities. However the base of transformation and the number of signed deals that we have seen in this quarter are above the same pace that we have seen in last quarter. So overall looking backwards, we cannot say that there is a substantial improvement.

Looking forward, there are many opportunities and, [you will see now] how fast we'll been able to convert their prospect to win contracts.

Ron Moskovitz

And maybe to escalate, when you look at the pipeline, not all of the pipeline has to do with very large headline deals. We have a lot of opportunities in various geographies in OSS, in content, in many areas and in smaller deals and larger deals.

Eli Gelman

And Sterling, it seems that prediction is very hard and the fact that the pipeline is growing, is indication that there is a strong demand for our product and services. The phase of transforming pipeline to backlog is really hard to determine and therefore we end up with giving you range. That's part of then one of the main reasons why we give our range because that there is fluctuation and the pace is that you can actually find is this.

Sterling Auty - J.P. Morgan

That's helps a lot. Just one last quick one will be on QPass. That is one of the new areas, you talk about OSS but can you just give us some color on the experience with QPass in the quarter. If you can give us quantitatively that's great, or at least qualitatively.

Dov Baharav

We are pleased with the performance of QPass as with growth. We enjoy a very nice growth. The activity in this area is growing. We believe that the growth that can be achieved in this area is much higher. And we are focusing this based how we can take the QPass activity that is relatively to overall activities model, and how we can use it as the cornerstone in order to build a substantial revenue generating activity and just let me remind you that in this area, this is the main growth area for the ARPU for wireless companies. They expect to see increase in the digital advertising for wireless companies and many additional services regarding mobile TV and gaming and other and music. So we see here huge growth and our focus will be how we turn QPass to be just the beginning of a substantial portion of our business.

Sterling Auty - J.P. Morgan

Great, thank you very much.

Dov Baharav

Thank you.

Eli Gelman

Thank you, Sterling.

Operator

And our next question is from Tal Liani with Merrill Lynch.

Tal Liani - Merrill Lynch

Hi, I have one question on operating margins. You have this 20% target and when I look at your margins, '06, it was very, very good year for you in terms of contract. EBIT margins went up from 17.3 at the end of '05 to 18.3 and now again we are at the 17.2, 17.4 kind of level and is going to stay flat as you said. So when you look at your pipeline, obviously some of the contracts you're referring to are again very big contacts, especially if they are Managed Services that require upfront investments. So, if in the past we saw that you're going to get to 20% target sooner, is there a risk that actually even in '08 you may not be able to get to the 20% level given what you know about your pipeline? And then how long will it take you to get to this level? Thanks.

Dov Baharav

Thank you for the questions, Tal. First of all we didn't commit say to 20%, within 2008. We believe that the fundamentals of our business are as such that in any life of the business that we deal with, we can get to the 20% however when we combine the organic activity of the company, with some acquisitions and some investment in new growth areas, we compromise the margins of the company in order to accelerate the profit of the company. So if we grow organically and not do anything which is outside of a normal course of business, we believe that we are on track to get to the 20%. And frankly, any time that we do something which is outside [of way] to invest in new areas and we are going to see this pressure as we see it in 2007.

Tal Liani - Merrill Lynch

So you are trying to say given your pipeline that we shouldn't model at least in '08 the following year? Because we know now '07 how it's going to behave from your guidance. Would it prudent not to model 20% even by the end of '08? Assuming everything goes, assuming the good case scenario that your revenues grow because you are winning all this yields?

Ron Moskovitz

I would say it's too early to not to put 20% into '08. We expect to see growth in margin in '08, but I wouldn't rush, I would say it might be linear growth rather than (inaudible).

Tal Liani - Merrill Lynch

Alright. In other question I have not related at all and I know that you are probably very limited to what you can say about it but every now and then we hear about sort of serious bid to Amdocs, sort of somebody is looking to buy Amdocs by whether it's SAP, every day you have new name. What I wanted to hear is from your point of view from the managers' point of view? What is your view of you being an acquisition target? I know that you always say never say never, but realistically do you think that Amdocs will be sold or in the process of being sold? Do you need that? Do you need to be part of a big organization or actually totally the opposite?

Dov Baharav

Hey Carl, let me tell you that I and all the management and the Board of Directors, we like where we are. We like the activity of the company. We think that we are equipped very well to be competitive in this market, regarding our suite of products, regarding our services, regarding our consulting, regarding our market position and we like where we are. And we think that we bring and we will bring great revenue to our shareholders.

Tal Liani - Merrill Lynch

Great. Thank you.

Ron Moskovitz

Thank you, Carl.

Operator

Our next question is from Tom Roderick with Thomas Weisel Partners.

Tom Roderick - Thomas Weisel Partners

Hi guys good afternoon. A question I am going to ask is on adoption of the cable market, but can you talk a little bit about the roadmap of Amdocs 7? What sort of releases should we look for next in the roadmap to drive some deeper adoptions in cable and then in terms of how you get there, how are you trying to approach the market today knowing that big share gains aren't really up for grabs, up until 2008 and beyond?

Dov Baharav

Well, Tom, first of all in terms of Amdocs 7 you need to know that we feel very comfortably encouraged by the rates and the effectiveness of the market to Amdocs 7. As a matter of fact other than specific exceptions, Amdocs 7 is the only component that we sell in the market today and we have several significant wins on Amdocs 7.

As for the future we do not invest in Amdocs 8 or in Amdocs 7.5, based on the current view that we see of the market by and large. We go through a process of analyzing what the market would need six months, 12 months and 18 months down the road. And we are trying to make sure that we are ahead of the curve, that's the advantage of Amdocs and that's we are going to do.

So, just to give you an idea, we came up with new product which is enterprise product catalog and integrating these type of components into Amdocs 7 probably will create new version either minor or major one.

So, we have many plans in the pipeline and we are trying to be heading the curve all the time. That's why our customers like to buy products from us because in a way we are anticipating where the market is going and what needs to be done.

In many cases, we are doing it with one or two better customers, so we are avoiding the risk of developing new versions in Ivory Towers and [assume ]as we know better than what the market needs, which for sometime part of the competitor's approach. We usually develop things that are coming as a result of speaking to our customers, and analyzing what would they need in 6 to 18 months.

Tom Roderick - Thomas Weisel Partners

Great thanks, and may be just one more question if I could here; you announced I apologize, if this has already been asked. But you announced a relationship that was deeper than the one you already had with IBM during the quarter, which seems pretty strategic given that IBM is a deeper partner at Vodafone these days. Can you talk a little bit about what the deeper partnership of IBM really means? Does that have any immediate ramifications on the Vodafone contracts. Thanks.

Dov Baharav

Thank you, Tom. As you know, that we have had a good relationship with IBM for quite sometime now probably three years or more. Any new release is actually an IBM Class I competitor these days. And the new agreement or the renewed agreement that we have with IBM, that we recently announced, make sure that we have much more planning and much more going to market strategy with IBM.

That is to say that we go to region-by-region, we try to analyze the situation in different places and we try to see which are the bids that we are going to bid with IBM in some cases. Sometimes many cases we do not bid with them. But on those that we do, we have early process to identify those, to setup the team and to follow-up on it on a regular basis between our executives and IBM partners on the ground.

So today, for example we have very good relation with IBM on the Telstra deal for example. On the Vodafone deal, as you mentioned, and in quite a few other deals. And some of them are in early stages, some of them are in the latter stages. All-in-all, it means that we act on both sides, not as an exclusive partner but as a preferred partner. And we believe it represents a win-win and win partnership on both ends.

Tom Roderick - Thomas Weisel Partners

Great, that's great. Thank you very much.

Dov Baharav

Thank you, Tom.

Operator

Our next question comes is from Ben Abramovitz with ICAP Securities.

Ben Abramovitz - ICAP Securities

Dov Baharav

Good evening.

Ben Abramovitz - ICAP Securities

Good evening guys. Just wanted to focus for a minute on your acquisition of SigValue, in the quarter. How much it contributed to revenue in the quarter? How much it contributed to the tick-up in backlog? And maybe on the deferred revenue side, how much you thick value contributed?

Dov Baharav

The contribution was very little, slightly above $1 million in revenue for the quarter and to backlog, I would say almost none.

Ben Abramovitz - ICAP Securities

None to backlog?

Dov Baharav

Yes.

Ben Abramovitz - ICAP Securities

Deferred revenue that I am assuming as well?

Dov Baharav

None.

Ben Abramovitz - ICAP Securities

Okay. And then on the cable integration side. On the cable side of the business, in terms of getting the billing component integrated with some of your CRM components, you talked about it moving towards middle of the year in terms of getting it integrated, where do that stand?

Dov Baharav

We are on target in sense of [replying] to integrated CRM to the cable enabled billing components as planed. But then, let me just go back to the other question of SigValue and just address the strategic importance of this acquisition. As we all know, most of the growth in the log is happening in the low ARPU regions these days. If you look at Vodafone, the growth of the mature market is very modest, very-very modest actually and then most of the growth comes from the emerging markets, and that's the phenomenon we see all over the place.

SigValue is a phenomenal technology, that allow us to offer mainly prepaid but may be some postpaid in some cases offerings in shrink-wrapped software, in some services but does not require a lot of services and to sell it to the low-tier and low ARPU areas. And this is a strategic value for us. And in the future, obviously we will be able to in some cases and in some areas to augment this SigValue components with other Amdocs components.

But for the short-term, it gives us a great vehicle to get into regions that we're not part of Amdocs territory before. And we are very encouraged from the result that we've seen in the short times that SigValue has been under the arms of Amdocs. By joining Amdocs, SigValue got lot of credibility in terms of delivery abilities, in terms of technology. And as a result, we see a good moment and hopefully in the next few quarters we will be able to break some news around winds in this area.

Ben Abramovitz - ICAP Securities

Thank you.

Dov Baharav

Thank you Ben.

Operator

And our next question is from Shaul Eyal with CIBC World Markets.

Shaul Eyal - CIBC World Markets

Thank you hi guys good afternoon. Two quick housekeeping. Ron, any foreign exchange impact this quarter?

Ron Moskovitz

No, nothing material. There was some but nothing material. Overall, we have some hedging and there were some things that offset one another. So, there is nothing to report about.

Shaul Eyal - CIBC World Markets

Fair enough. With respect to the upcoming AT&T contracts, will you go through some from the selective hiring and do you start ramping off down the road?

Ron Moskovitz

I would say, mostly people that we get from AT&T or with some subcontract. So, it doesn’t require some hiring from our city at this point.

Shaul Eyal - CIBC World Markets

Got it. What was the recent headcounts as you entered in the quarter?

Ron Moskovitz

Of the company?

Shaul Eyal - CIBC World Markets

Yeah.

Ron Moskovitz

It’s around 16 half 8,000 people.

Shaul Eyal - CIBC World Markets

All right. Thank you very much.

Ron Moskovitz

Thank you.

Operator

Our next question is from Larry Berlin, First Analysis.

Larry Berlin - First Analysis

Hi guys on the clean up factors. First of all what percentage of revenue came from managed services in the quarter?

Ron Moskovitz

It is somewhere between 35% to 40%.

Larry Berlin - First Analysis

Okay. Can you give us a normal geographic breakdown? We haven't done that in a while?

Ron Moskovitz

In geographic breakdown, we have 67% in North America, 27% in Europe and 10% in the rest of the world.

Larry Berlin - First Analysis

Okay. What was depreciation and amortization?

Ron Moskovitz

Depreciation and amortization let me check up on this. I have got that handy. It's overall $41 million, depreciation and amortization.

Larry Berlin - First Analysis

Okay. Then lastly normally, Dov, you say, how many total wins you had in a quarter and you skipped that one this time.

Dov Baharav

Yeah, actually and fairly it would not, by mistake. What is happening is, for quite sometime we are dealing this dilemma. Part of the reason we think that it's becoming less and less meaningful, is because we have a lot of numbers of small deals on their insight. Now we give value to some smaller components, in some cases with the OSS and as a matter of fact the actual number is becoming less and less meaningful. And we've told that actually the guidance is a better indication for where the business is going. For this specific quarter, the numbers were higher than last quarter, but again the number per se of wins does not mean as much and therefore we did not use it.

Larry Berlin - First Analysis

Okay. Well, look forward to seeing you next week. Thanks a lot.

Dov Baharav

Thank you.

Ron Moskovitz

Thank you.

Operator

And with that, this does conclude today's question-and-answer session. I would like to turn the conference back to management for closing comments.

Ron Moskovitz

Great, thank you. On behalf of the company thank you to everyone for attending the call, this concludes the call.

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