Amdocs Limited F3Q08 (Qtr End 06/30/08) Earnings Call Transcript

| About: Amdocs Ltd (DOX)
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Amdocs Limited (NYSE:DOX) F3Q08 Earnings Call July 23, 2008 5:00 PM ET

Executives

Thomas O’Brien – Vice President of Investor Relations

Dov Baharav - President and Chief Executive Officer

Tamar Rapaport-Dagim - Chief Financial Officer

Analysts

Sterling Auty - JP Morgan

Elizabeth Grausam - Goldman Sachs

Shyam Patil - Raymond James

Karl Keirstead - Kaufman Brothers

Ashwin Shirvaikar – Citigroup

Daniel Meron - RBC Capital Markets

Will Power - Robert W. Baird

Tom Roderick - Thomas Weisel Partners

Jason Kupferberg – UBS

Scott Sutherland - Wedbush Morgan Securities

Peter Jacobson - Brean Murray, Carret & Co.

Ted Jackson - Cantor Fitzgerald

Operator

Welcome to this Amdocs third quarter 2008 earnings release conference call. (Operator Instructions) At this time I will turn the call over to Tom O’Brien.

Thomas O’Brien

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 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 for the fiscal year ended September 30, 2007, as filed on December 3, 2007, and our Forms 6-K furnished on February 11, 2008, and May 6, 2008. 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 in the call today are Dov Baharav, President and Chief Executive Officer of Amdocs Management Limited, and Tamar Rapaport-Dagim, Chief Financial Officer. Following our prepared comments we will open the call to Q&A.

Now let me turn the call over to Dov Baharav.

Dov Baharav

We are pleased to report strong results for the third quarter of fiscal 2008 with revenue growing 15% to a record of $820 million, exceeding guidance. Non-GAAP earnings per share of $0.61 was at the high end of the guidance. We have seen momentum across the board and we feel good about the future at Amdocs.

So far we have seen little evidence of challenging economic conditions obviously affecting our customers’ buying decisions. We continue to see strong demand at this time but there are some macro economic uncertainties which may have an impact on our results in the future. We believe that we have incorporated this into our guidance for the fourth fiscal quarter and we believe that we are well positioned for future growth.

Our success in the third quarter was driven by a number of different factors. First, we continue to execute on large projects. This was our first full quarter of revenue for the AT&T managed services deal that we announced in January. At Sprint, we have completed an unprecedented conversion in terms of the timing and scope and we are now providing a solution for pre-paid and post-paid subscribers.

We see an [inaudible] billing support for our data centers. We will finish the conversion for the small wholesale activity at a later date. The fact that we can execute on such massive projects for service providers like AT&T and Sprint sets us apart from our competition and can drive new business opportunities for Amdocs.

Second, our diversified products and services offerings and our geographic reach allow Amdocs to serve customers of all sizes around the world and provide the right solutions to their telecom business needs. The wins that we had in Q3 illustrate these two points and validate the growth engine that is Amdocs.

We are continuing to show momentum in the broadband, cable, and satellite markets with remarkable wins for our OSS and mediation offers. One of these wins was the competitive displacement. We are achieving our goal of selling more than just billing through this market. Our acquisition of Jacob Rimell is helping us to drive this momentum. We are pleased with our results and our competitive position and expect continued growth in our broadband, cable, and satellite business.

We added a great tool, new model in North America this quarter for our recent release Amdoc CES Qpass 7.5. This truly unique release has been warmly received by the market. We are pushing hard to lever it. This activity as content and data continue to grow is significant for our customers.

We continue to grow in emerging markets as well, including sale of our Compact Convergience Suite to Bakcell of Azerbeijan and another large scale [carrier] in Eastern Europe. We believe that our success this quarter illustrates the strength and resiliency of our strategy. We have the offerings, experience, and track record to be selected by the largest service providers in the world to supply and support mission critical systems.

These kinds of customers are the bedrock of our business as we can generate more growth and recurring revenue in good economies and when times are more challenging. We continue to see growth and while we recognize there is still economic uncertainties, we believe we are on track for our best year ever.

And now I will turn the call over to Tamar for financial review.

Tamar Rapaport-Dagim

Our first quarter revenue was $820.3 million representing growth of 16.2%. Our non-GAAP EPS, which excludes the acquisition-related costs and equity-based compensation expense, net of related tax effect, increased to $0.61 per diluted share. GAAP EPS was $0.46 per diluted share.

I will spend a minute now on a few P&L items. As we forecasted last quarter, license revenue increased in Q3. We expect an increase in license revenue again next quarter.

Operating margins were up slightly compared to Q2 as we continued to benefit from leverage on the operating expense lines. We expect to continue to see improvement in operating margins in Q4.

Other income decreased as expected in the quarter compared to Q2, primarily due to lower interest rates on our investment portfolio. The effective tax rate in Q3 was 13.3%, in line with our guidance of 13% to 15%.

Free cash flow in the quarter was $83 million. Included in the calculation of this number was approximately $32 million in net CapEx. We expect to see similar strong cash flow in the fourth quarter. DSO at the end of the quarter was 65 days, down slightly from last quarter.

The declined balance in deferred revenue was $188 million at the end of Q3 and [unpaid] accounts receivables was $36 million. We expect no changes in these accounts on a quarterly basis.

Our 12-month backlog which includes contracts, committed revenue for managed services contracts, letters of intent, maintenance and estimated ongoing support activities was $2.420 billion at the end of the quarter, an increase of $60 million from the second quarter.

During the quarter ended June 30, 2008, we used $50 million to repurchase approximately 1.6 million shares at an average price of $31.92 per share.

Looking forward our guidance for the fourth quarter of fiscal 2008 is for revenue of approximately $825 million to $835 million and non-GAAP EPS of $0.61 to $0.63 excluding the effect of acquisition related charges and excluding equity based compensation expense of approximately $0.06 to $0.07 per share net of the related tax effects. Diluted GAAP EPS is expected to be approximately $0.47 to $0.50 per share.

Our EPS guidance for Q4 is based on a fully diluted share count estimate of approximately 219 million shares. The forecast in share counts I just gave does not include the effect of any future share repurchases that we may conduct in the fourth quarter.

Now let me turn the call back to Dov.

Dov Baharav

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Sterling Auty - JP Morgan.

Sterling Auty - JP Morgan

You’ve shown us the momentum here in the business with the acceleration of the top line. How do you feel the environment looks as you head into the end of the fiscal year and into next year? Is there ample opportunity to keep the business momentum going?

Dov Baharav

Sterling, we feel that we have experienced more momentum in our business in this quarter and with the acceleration of our license revenue and maintenance. However, there are some uncertainties in the market which were incorporated in our guidance for Q4 which presents an additional increase in year-over-year. It’s going to be quite significant. And regarding the future, we feel that given all the growth engines that the company has in the managed services, in the OSS, in the cable and satellite, in the emerging market, we feel that we will experience growth in 2009.

Sterling Auty - JP Morgan

And the final question is on the margin front. Can you quantify for us, or give us an idea, how much of an impact the first full quarter of the MSSP on the new AT&T business had? And how does the leverage then, you mentioned impermanence in operating margins in the fourth quarter, where does the leverage come from? Is it on that part of the business or is it made up in other parts of the business?

Tamar Rapaport-Dagim

Without going into specific [details] of these deals, we see both strong discipline in terms of the different operating expense lines and our ability to plan that going forward, as well as continuation of different initiatives we have in the way we deliver the project that enable us to do it in a more efficient, taking into the leverage of the bottom line, both the efficient way of doing the project as well as where we actually allocate the sources of doing it, utilizing local centers we have around the world, we have built enough capability to have flexible location of work force. All of that is considered into the bottom line. It’s not necessarily any one unique reason that is generating that.

Operator

Your next question comes from Liz Grausam - Goldman Sachs.

Elizabeth Grausam - Goldman Sachs

You made some more comments on the macro environment than we’ve heard in past quarters. I just wanted to get a sense of the origin of those comments. Are you having conversations with customers now that feel a little bit more tentative, are you sensing that the executives at your customers are getting a little bit more tense about the outlook that caused you to make those comments? Or is it just a general risk clause, given where we are in the U.S. economy?

Dov Baharav

I would say the second one. We have notice almost no impact on our customer business and on our business with our customers. That is to say we have not seen any delay in any project, in any decision making world-wide. However, when you hear all the bad news from the financial crisis on one end and some warning from others, it is better we should be cautious and we should take it into consideration.

Elizabeth Grausam - Goldman Sachs

And building on Sterling’s question around the pipeline, to keep the momentum, are you seeing opportunities similar to the size of the projects that you have going with Sprint and AT&T ongoing right now and do you see large, transformational deals in your pipeline and are they well-diversified globally or are the still concentrated in North America?

Dov Baharav

Our pipeline is quite strong with a variety of opportunities, including managed services, including a large transformational deal, and emerging markets on one end and in North American and the different areas and we see momentum in our OSS activity where there is a client need for our products and services. The cable and satellite activity presents another potential opportunity for us. In North America and in other places. So we are more optimistic now about the cable and satellite than a quarter ago. And also in the position activity of Amdocs, we see the momentum. So if I had to refer to what we’ve seen in the third quarter, we’ve seen slow momentum and substantial progress in our main growth engines, they’re looking forward. And the only thing we hope is that we won’t have an impact [from] the overall environment.

Operator

Your next question comes from Shyam Patil - Raymond James.

Shyam Patil - Raymond James

Could you talk a little bit about what drove the backlog increase this quarter? Was it mostly comprised of smaller deals?

Tamar Rapaport-Dagim

Actually it was a combination of both type of deals, the large and also small. As we said, we had several wins on the OSS side, we had a break-through win on the Qpass new 7.5 product version which accepted very well by the market. We continued to see new activities in emerging markets. We also had a contribution coming from the newly acquired entity Jacob Rimmel. That was around $20 million into the backlog. Taking aside that, we continue to see momentum across lines of businesses and geographies.

Shyam Patil - Raymond James

And then what are your expectations for CapEx this year? Are you bring them down a little from what you said previously? And then how should we think about that going forward?

Tamar Rapaport-Dagim

Looking into Q4 in terms of the CapEx, I expect it to be probably a bit higher than what we had this quarter but overall, year-over-year, the CapEx investment should be down this year versus 2007. Looking forward, as we said in the past, it is highly dependent on the type of managed service deals that we will sign. If we’re taking over all activity including data centers of the acquired CapEx investments, that’s going to impact and accelerate the CapEx. However, if it will just be the regular activities of supporting desk tops and IT equipment for the workforce [inaudible] that should go down again.

Operator

Your next question comes from Karl Keirstead - Kaufman Brothers.

Karl Keirstead - Kaufman Brothers

Question on the demand backdrop, in terms of CapEx budget, it seems the carriers are maintaining their CapEx but shifting their spending from their legacy fixed-line platforms to their wireless and growth initiatives. I’m curious where you’re seeing something similar in terms of spending on your software and services markets and perhaps you could talk a little bit about your exposure on the wireless fixed-line side, or the wire-line fixed-line side, and how comfortable you feel there.

Dov Baharav

I would say the development in the market and the shift of investment toward wireless and data, it can be played to our hand. The majority of our revenue is the wired phone made wireless. If you’re looking at the United States only, we serve AT&T Mobility, we serve Sprint, and we serve TMO. And in Canada it’s their three largest carriers there. So I would say the substantial momentum we see in data actually is creating a substantial benefit for us. So as we announced, we had this win of Qpass 7.5 with one of the carriers in North America that is presenting a very warm welcome to our new platform that might lead to substantial growth of our activity in this area, exactly where the need exists.

Secondly, regarding wire-line. The wiring industry in conforming. That is to say, instead of just sending the access line, their [inaudible] is sell a different play. We sell actually ITV and the broadband and then a variety of services and even to combine everything together we sell a triple/quadruple-play. And we serve it into the new worlds and we serve some other customers worldwide, providing this triple play. And that is, I would say, another source of growth for us, given the fact that wire-line companies will have to transform and move from television and phone services to this triple/quadruple-play. And our offering this dial market offering in this area and the unique customer experience system offerings that we have actually give us substantial advantage in this market.

Operator

Your next question comes from Ashwin Shirvaikar - Citigroup.

Ashwin Shirvaikar – Citigroup

With the loss to margins should we look for steady and modest margin improvement in the fourth quarter and also next year?

Tamar Rapaport-Dagim

Looking at the fourth quarter, yes, we continue to see a modest improvement continuing. And I think it’s a bit too early to talk about 2009 as we’re going now internally from the bottom-up process of planning the ALP for 2009. But we are very focused on continuing this momentum. We have, just to remind you, managed to improve the bottom line productivity even though we took upon ourselves the large AT&T managed services and that put some false compression on the margin. So we see many, many other factors that not only mitigated that but overcome and generated the improvement trends that you are seeing.

Ashwin Shirvaikar – Citigroup

And with the last year pipeline, could you go into some detail about what’s in it? Do you have large managed services deals for example? Is it primarily now shifting to Europe or do you see pretty much broad-based demand?

Tamar Rapaport-Dagim

We see broad-based demand. We do see managed service deals within the pipeline, both in North America and outside, in other regions, as well as transformational deals and many different aspects, as Dov said before. Both on the OSS side, on the cable side. We continue to see through the pipeline the momentum in many emerging markets. So it’s quite, I would say, a very healthy pipeline in terms of its diversification.

Operator

Your next question comes from Daniel Meron - RBC Capital.

Daniel Meron - RBC Capital Markets

On Comcast, Dov, you referred to that you were growing a pipeline in the cable industry and you were comfortable with that. Just looking at the extended contract with CSG, can you just give us a little more color on your stance here?

Dov Baharav

As I said, we feel better regarding the cable and satellite LAN business for Amdocs in comparison to what we felt a quarter ago. And Comcast is a very important customer of Amdocs. We experienced expansion of our business with Comcast. Jacob Rimmel is a very important vendor of Comcast. We have made similar wins with Comcast so we have expanded our activity with Comcast. And I believe that Comcast retains their flexibility to standardize the way billing system in the years to come. And we believe that we have a superior offering and we, of course, we try to continue and build up our relationship with Comcast and we have a good feeling regarding it.

Operator

Your next question comes from Will Power - Robert Baird.

Will Power - Robert W. Baird

Sprint, with the conversion largely complete there, how should we expect revenue to trend there and how has the recent management changes impacted you, if at all?

Tamar Rapaport-Dagim

Overall we consider that we have a very strong relationship with the new management as well. The fact that we completed the conversion in a way it’s added a lot of subscribers to the systems that we are serving through. And a lot of the revenue that we are actually generating in Sprint is not related just to the managed services, pure baseline activity. There are a lot of ongoing developments and new requirements that are coming out that we are helping Sprint with, so we continue to generate healthy revenue streams from Sprint going forward. We are seeing new opportunities that we are trying to capture. I believe it is continuing to be a healthy relationship.

Will Power - Robert W. Baird

With the recently announced restructurings in China on the telecom side of things, any thoughts on how that might impact some of your early relationship either positively or negatively.

Dov Baharav

It should be very positive. That’s at least to what everyone says so. When they create free carriers, each one of them is wire-line and wireless which will provide a triple/quadruple-play and maybe without video. So it would be mostly based on wireless. And so it would create more competition in the Chinese market. However, the experience so far was that things are moving very slowly there and the competition is not as intense as it is in North American, for example. So we are cautious regarding the potential for revenue growth there as a result of it.

Operator

Your next question comes from Tom Roderick - Thomas Weisel Partners.

Tom Roderick - Thomas Weisel Partners

So Daniel just a couple of questions ago asked specifically about Comcast. But maybe just more generically speaking about your cable and satellite business, last quarter you had talked about some scoping projects that could potentially lead to transformation projects down the line. Can you offer us any update? Have those specific scoping projects progressed? Have they moved to a more advanced stage, still in scoping, or have they fallen out of the pipeline?

Dov Baharav

I would say that the reason for being so optimistic about the cable and satellite is due to the fact that we see progress everywhere, including the scoping projects that we were talking about, moving forward, and we feel good about it. The is an acquired need indicated in the cable and satellite industry to move forward. They are making substantial progress in the voice activity, they are determined to increase and improve their beta offering in the new services, and digital advertising and even transform their video offerings.

And I would say, more than that, the most successful are Verizon and AT&T holding out their IPTV offering, the more competition is created and as a result there is a high pressure for getting sophisticated systems that will support a sophisticated offering to enable the cable/satellite companies to be successful. And we see it not only in the United States, we see it in Canada. So we feel that we have the right offerings for these customers and we see their interest as a keen interest in our offering and is the basis for our optimism in this area.

Tom Roderick - Thomas Weisel Partners

Tamar, could you recap the effect of currency on the quarter and then just offer us a sense of how the company [audio cut off].

Tamar Rapaport-Dagim

I will try to answer the first part of the question. Regarding foreign currency impact, as always, our policy is to remain neutral as much as possible to foreign currency fluctuations and that is done through an extensive hedging program which was successful. The proof of the matter is that we have no impact, overall, on the different fluctuations in the currencies in which we operate. I would say that even though we continue to see volatility in currencies around the world, we continue this hedging program going forward and hopefully that will continue to be effective, as well as our overall planning that takes into consideration that item, as well as items such as wage increases and things like that.

Operator

Your next question comes from Jason Kupferberg - UBS.

Jason Kupferberg – UBS

Nice activity the second straight quarter of top-line upside and a higher outlook. I wanted to get a sense of, in this quarter specifically, what some of the key sources of the revenue upside versus your guidance was. Was it a bunch of small items, were there a couple of large contracts that ramped a bit faster than you thought? Any color there would be great.

Tamar Rapaport-Dagim

It was actually a combination of many items, not any one big item that accelerated where we thought it would be. As we said, we saw very nice wins. You can see, some of it converted into backlog, some of it already in fact is a revenue recognized within the quarter. So a combination of the different items, not any one unique.

Jason Kupferberg – UBS

Tamar, I think you said we should expect fourth quarter of free cash flow to be similar to third quarter. If that’s the case, it looks like, on a full-year basis, if I look at the free cash flow to non-GAAP net income ration, you would be up maybe a couple of ticks year-over-year versus fiscal 2007. But how should we think about the normalized relationship between those two, going forward, based on how you think about your CapEx profile and your working capital profile?

Tamar Rapaport-Dagim

When we do it internally we actually take a bottom-up approach because it’s hard to take a normalized statistical approach given the large size of deals we are planning, especially around managed services. So when we go into such deals, each one with a unique structure, one of the things we’re looking at obviously, is what the cash investment is required to be but also when we plan for the facility we take that into consideration as the cost of capital. It’s hard to take that and convert it into a normalized ratio. So we may see from time to time differences in terms of the timing of where we actually collect the cash on long-term agreements versus the deliverables we are providing. Overall, looking at Q4, I believe that we will see a free cash flow at least as strong as Q3.

Operator

Your next question comes from Scott Sutherland - Wedbush.

Scott Sutherland - Wedbush Morgan Securities

You talked about another quarter of momentum in your software and licensing business. Can you talk about if that’s going to be OSS or CRM. What are you seeing in CRM because I know you might draw some exposure to other verticals there?

Dov Baharav

As I said, we are seeing momentum in OSS, in emerging markets, in our cable and satellite, and when you talk about the emerging markets for example, and CRM and RPN is part of that activity. And in this regard we have made wins in Eastern Europe and some emerging markets, so we see strong activity in this regard. And now I would say actually that the activity there is not monolithic, there are some differences between activity in the service and the [inaudible] which is maybe now where we see more activity in this regard. And any activity that is related to the digital access. So I would say that probably CRM would continue to be a very strong part of our activity, generating a lot of revenue and actually creating the basis for us to maybe move forward with the growth engines that I mentioned.

Scott Sutherland - Wedbush Morgan Securities

You talked about some opportunities in markets like China. Could you talk about some of the other brick markets, Russia, India, Brazil? I know you deal in India. Russia, you were working at Svyazinvest, there’s not much that’s been talked about that lately. Can you give an update on some of those bigger emerging markets out there? And if you have a percentage for managed services that would be great.

Dov Baharav

When we are looking at the emerging markets we feel encouraged given, I would say, a variety of successes in different countries. Not necessarily only the brick. So we found out that we can generate a nice business not in the brick. And there are countries like Viet Nam with 18 million people, and there are countries like Indonesia with 220 million people. And then Malaysia, and in South American there are many other countries. So, yes. Brazil is 180 million people but so are many other countries in Latin and South America. So I would say that our success in the third quarter was activity not so much in the brick.

Yes we had success in India and we continue to do good business in Russia. We have good business in Brazil. But what actually encourages us is actually success in the other countries. And the potential there is substantial and we are able to leverage our assets, our different quotas. Because we have the [Imview] which is the Compact Convergience Billing that enjoys high demand by small operators in different countries. Our CES 7.5 gets a lot of demand for the larger carrier in many countries. And our ability to provide the full solution is also highly appreciated. So, we feel that the emerging market is picking up speed and we see some more momentum there.

Tamar Rapaport-Dagim

Addressing your second question about managed services, it is approximately 40% of total revenue.

Operator

Your next question comes from Peter Jacobson - Brean Murray.

Peter Jacobson - Brean Murray, Carret & Co.

Can you provide the share of revenue that was Qpass-related and how has that trended and how do you expect it to trend over the next year or so?

Dov Baharav

Well, Qpass is a very good part of our offering in our ace division, the advertising continental payment, which is a division that will lead growth in digital access. And I would say that the wins that we have lately, that we just announced with Qpass 7.5 is quite encouraging given the courses that we went through and we are going through with several large carriers where they compare our offering to what is in the market place and they found our offering by far more advance and actually addressing the future needs. So as result of it we feel that we have very good offerings, we see growth in activity, growth in the revenue and we expect acceleration of the growth in 2009. Given the fact that this is the place where service providers will enjoy from revenue growth.

Peter Jacobson - Brean Murray, Carret & Co.

But no percentages on that?

Dov Baharav

I’m afraid I don’t have that here.

Operator

Your next question comes from Ted Jackson - Cantor Fitzgerald.

Ted Jackson - Cantor Fitzgerald

I missed what you said CapEx was in the quarter.

Tamar Rapaport-Dagim

It was $32 million, net.

Ted Jackson - Cantor Fitzgerald

And could you tell me what depreciation and operating cash flow were in the quarter?

Tamar Rapaport-Dagim

Operating cash flow was $115 million, depreciation was $20+ million, I don’t remember the exact amount right now.

Ted Jackson - Cantor Fitzgerald

And could you tell me what percentage of revenue came out of publishing?

Tamar Rapaport-Dagim

It’s a short 10%.

Operator

We have a follow-up question from Sterling Auty - JP Morgan.

Sterling Auty – JP Morgan

So on Sprint, now that you’ve completed the conversion on the big project, does that mean the September will be the first full quarter than you get full revenue contribution on the things that are tied directly to subscribers?

Tamar Rapaport-Dagim

Yes, but I would like to remind, there is a sliding scale pricing that is related to the subscriber account, so on the one hand additional subscribers do not add linearly to the revenue that we are making as well as the fact that with diluting subscribers we are not [inaudible] as well. So I wouldn’t expect any large sensitivity to the number of subscribers and the edges.

Sterling Auty – JP Morgan

And you talked about emerging markets North America. I’m just curious and if you did say it I missed it. Could you give some commentary around some of the larger carriers in the European theater, the Vodafones, the Deutsche Telekoms and such. We’ve seen back and forth in terms of possible activity levels, maybe some big transformation deals out of some of them. What are your thoughts here around the opportunities on those types of carriers?

Dov Baharav

We have a quite good operation in Western Europe. We do not see, in Western Europe, the same transformation pace as we see in North America or the same level of opportunities we see in the emerging markets. And so there I would say we are looking forward to Q4 and maybe the coming two quarters we see quite stable activity with, I would say, growth but it is not one of the growth engines we mentioned before. The cable/satellite, the emerging markets. And the managed services. Now, Europe was included, it is true. In Europe we see substantial activity and we enjoy very nice wins and very nice healthy growth of the bills of the service providers and there I would say we enjoy a capital lift in our growth.

Operator

Your last question is from Daniel Meron - RBC.

Daniel Meron - RBC Capital Markets

First of all, I’m calling on Sterling’s question. Can you give us a sense on the breakdown regionally?

Tamar Rapaport-Dagim

It’s around 14% rest of the world, around 16% in Europe, and 70% in North America.

Operator

At this time we will turn our call back to our speakers.

Thomas O'Brien

At this time this includes the third quarter conference call. Thank you very much for attending and good night.

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