Amdocs (NASDAQ: DOX) reported Q2 EPS of $1.13, in-line with the analyst estimate of $1.13. Revenue for the quarter came in at $1.05 billion versus the consensus estimate of $1.04 billion.

Second Quarter Fiscal 2021 Highlights

• Revenue of $1,049 million, above the midpoint of the $1,015-$1,055 million guidance range; revenue included a negative impact from foreign currency movements of approximately $1 million compared to our guidance assumptions
• Record managed services revenue of $635 million, equivalent to approximately 61% of total revenue
• GAAP diluted EPS of $0.91, at the midpoint of the $0.87-$0.95 guidance range
• Non-GAAP diluted EPS of $1.13, above the midpoint of the $1.09-$1.15 guidance range
• GAAP operating income of $149 million; GAAP operating margin of 14.2%
• Non-GAAP operating income of $185 million; increased non-GAAP operating margin of 17.6%
• Returned record quarterly cash amount of $403 million to shareholders through share repurchases and quarterly cash dividends, including net proceeds received from the divestiture of OpenMarket
• Quarterly free cash flow of $70 million, comprised of cash flow from operations of $120 million, less $49 million in net capital expenditures and other(1)
• Normalized free cash flow of $133 million(1)
• Twelve-month backlog of $3.54 billion up approximately $50 million sequentially; on a pro forma(2) basis, record twelve-month backlog was up 9.3% as compared to last year’s second fiscal quarter
• The board of directors approved a quarterly cash dividend of $0.36 per share to be paid on July 23, 2021

“I am pleased to report strong results for the second fiscal quarter. Revenue was well above the midpoint of guidance and driven by our best-ever quarter in North America on a pro forma(2) basis where we are seeing healthy activity levels at AT&T, T-Mobile and various other customers across the region. At the operating level, we maintained our focus on consistent project delivery, which translated to healthy cash collections and robust free cash flow generation. Additionally, we returned a record cash amount of more than $400 million to shareholders this quarter, including the net proceeds received from the divesture of OpenMarket, as we had committed to previously,” said Shuky Sheffer, president and chief executive officer of Amdocs Management Limited.

Sheffer continued, “Accelerating the communications industry’s journey to the cloud is core to Amdocs’ future growth and this quarter we took some important steps to further solidify our leadership in this domain. We are today pleased to announce the acquisition of Sourced Group, a leading global technology consultancy specializing in large-scale cloud transformations for sophisticated, high-end enterprise customers in different industries such as communications, financial services and others. Sourced’s proven cloud migration platform, deployment framework and trusted design process, alongside its deep partnerships with Amazon Web Services, Microsoft Azure and Google Cloud Platform, complement our portfolio of cloud-native products and services and further expands and diversifies our customer base.”

Sheffer concluded, “I am pleased to report an improved outlook for revenue and earnings per share growth for the full fiscal year 2021, mainly driven by our expectation for a stronger second half. Our confidence is based on the visibility of our 12-month backlog, which is up more than 9% from a year ago on a pro forma(2) basis. Moreover, we are focused on maintaining our recent sales momentum by executing our growth strategy which we believe is well-aligned with our customer’s multi-year investments in digital modernization, 5G, cloud migration, and next-generation OSS platforms.”

GUIDANCE:

Amdocs sees Q3 2021 EPS of $1.14-$1.20, versus the consensus of $1.18. Amdocs sees Q3 2021 revenue of $1.04-1.08 billion, versus the consensus of $1.05 billion.

Third Quarter Fiscal 2021 Outlook

• Revenue of approximately $1,040-$1,080 million, assuming approximately $3 million sequential negative impact from foreign currency fluctuations as compared to the second quarter of fiscal 2021 and contributions from recently completed acquisitions
• GAAP diluted EPS of approximately $0.91-$0.99. The impact of recent acquisitions on GAAP diluted EPS will not be known until after Amdocs completes the purchase price allocation
• Non-GAAP diluted EPS of approximately $1.14-$1.20, excluding amortization of purchased intangible assets and other acquisition-related costs, changes in certain acquisitions related liabilities measured at fair value, and approximately $0.08-$0.10 per share of equity-based compensation expense, net of related tax effects.

Full Year Fiscal 2021 Outlook

• Full year fiscal 2021 revenue guidance reflects the divestiture of OpenMarket as of December 31, 2020 and incorporates an expected positive impact from foreign currency fluctuations of about 1.0% year-over-year as compared with a positive impact of about 1.2% year-over-year previously and a positive contribution from recently completed acquisitions of about 0.5%
• Expects pro forma(2) revenue growth of 5.0%-8.0% year-over-year on a constant currency basis as compared with 3.5%-7.5% year-over-year on a constant currency basis previously
• Expects revenue growth of 1.0%-4.0% year-over-year on a reported basis as compared with (0.3)% -3.7% year-over-year previously
• Expects revenue growth of 0.0%-3.0% year-over-year on a constant currency basis as compared with (1.5)% -2.5% year-over-year previously
• Expects GAAP diluted earnings per share growth of roughly 39.0%-44.0% year-over-year, including gain, net of tax, from divestiture of OpenMarket, as compared with 37.5%-44.5% year-over-year previously. The impact of recent acquisitions on GAAP diluted EPS will not be known until after Amdocs completes the purchase price allocation
• Expects non-GAAP diluted earnings per share growth of roughly 6.0%-9.0% year-over-year as compared with 4.0%-8.0% year-over-year previously, excluding amortization of purchased intangible assets and other acquisition-related costs, changes in certain acquisitions related liabilities measured at fair value, approximately $0.32-$0.36 per share of equity-based compensation expense, and gain from divestiture of OpenMarket, net of related tax effects. The impact of recent acquisitions on Amdocs’ non-GAAP diluted earnings per share is expected to be neutral in the full fiscal year 2021
• Expects pro forma(2) non-GAAP diluted earnings per share growth of roughly 7.5%-10.5% year-over-year as compared with 5.5%-9.5% year-over-year previously, excluding amortization of purchased intangible assets and other acquisition-related costs, changes in certain acquisitions related liabilities measured at fair value, approximately $0.32-$0.36 per share of equity-based compensation expense, and gain from divestiture of OpenMarket, net of related tax effects
• Expects free cash flow of approximately $620 million, comprised of cash flow from operations, less net capital expenditures and other, as compared with $600 million previously
• Expects normalized free cash flow of approximately $820 million as compared with $800 million previously; normalized free cash flow excludes expected capital expenditure of $140 million related to the new campus development in Israel, $40 million of capital gains tax in relation to the divestiture of OpenMarket, and other items

Our third fiscal quarter 2021 and full year fiscal 2021 outlook takes into consideration the Company’s current expectations regarding macro and industry specific risks and various uncertainties and certain assumptions that we will discuss on our earnings conference call.However, we note thatmarket dynamics continue to shift rapidly and wecannot predict all possible outcomes, including those resulting from the COVID-19 pandemic, which has created, and continues to create, a significant amount of uncertainty, or from current and potential customer consolidation or their other strategic corporate activities.

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