Amdocs Ltd (DOX) 2003 Q4 法說會逐字稿

Good day everyone and welcome to the Amdocs fourth quarter fiscal 2003 earnings announcement Conference call. Today's call is being recorded and Web cast. At this time, I will turn the call over to Mr. Tom O'Brien, please go-ahead sir.

Thank you operator. This is Tom O'Brien, vice president in charge of investor relations for Amdocs. Before we begin, I would like to point out that during this call we will discuss pro forma information that is not prepared in course of GAAP. Investors should not construe the pro forma financial information as being superior to GAAP. The company's management uses pro forma financial information in its internal analysis because it enables the management to consistently analyze the critical components and results of operation and have a meaningful comparison to prior periods. The company's management believes that such measures provide useful information to investors for meaningful comparison to prior periods and analysis of the critical components and results of operations.

Also this call includes information constitutes forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 including statements about Amdocs growth and business results in future quarters. Although we believe that 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 risk conclude but are not limited to effects of general economic conditions, Amdocs ability to grow in the mobile wireline and IT business segments, adverse affects of market competition where the technological shifts that may render the companies products and services are obsolete potential loss of a major customer.

Our ability to develop long-term relationship with our customers and risks associated with operating businesses in the international markets. These and other risks are discussed 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 March 24, 2003 and our Form 6K filed on August 14, 2003.

Participating in the call today are Dov Baharav, president and chief executive officer of Amdocs Limited, Eli Gelman, executive vice president and Ron Moskovitz, chief financial officer. Following their comments, we'll open the call to Q&A. With that said, I'll turn the call over to Dov Baharav.

Thank you Tom. Good afternoon, ladies and gentlemen. This was another good quarter for Amdocs. We achieved revenue of $412 million in line with our guidance and sequential growth of 9.2%. Pro forma EPS was 23 cents per diluted share in line with guidance. GAAP EPS, which includes acquisition related and other charges, was 20 cents per diluted share. We are also pleased with other financial partner such as free cash flow, our substantial cash balance and low DSO. We achieved this good result in part because of some improvement in the market in which we operate. The telecom market is still tough. There are mixed results from Darier with some sign of improvement in certain sectors, particularly the wireless companies. Overall, however, carriers are still hesitant to commit to new projects.

With regards to our position in the market, we are seeing increased activity from existing customers and increasing acceptance of our offering including enabler, prepaid post paid integration and concept of integrated billing and CRM from a single vendor. Our new Amdocs Clarify CRM version is helping to drive momentum for our CRM products, which are very important part of our unique, offering of services and products and contributed to our success in Q4.

Let me spend just a moment to discuss some of Q4 sales activity. Among the wins this quarter was far eastern a leading mobile communication provider in Taiwan with 4.3 million subscribers. With implementing the Amdocs enabler-billing product to support one is urgent prepaid, post paid and voice data information and also implementing Amdocs products to support content partners. In this project, enabler will replace five different competitor systems. Far eastern is considered to be a leader in Southeast Asia and now success there may pave the way towards more business in that region.

Another win was with a major wireless communication provider in Japan who has selected Amdocs Order management system to support advanced data services. We are cooperating with IBM in this important project, which might become a gateway to additional penetration in the wire LAN industry and to Japan. We continue to focus on improving our responsiveness to our customer. Feedback received from a large attendance about user group conference in Miami recently was enthusiastic about our progress on product direction, product quality and our service and responsiveness.

On the operational front, we are pleased to report that we have successfully integrated the Bell Canada and SBCDO managed services operation into Amdocs and we are delivering services to our customer in compliance with the service level agreement that we have with them. We are achieving our possibility and operational target, which gives us confidence that we can continue to execute according to our business plan.

In Europe, we completed the successful implementation of Amdocs enabler for Vodofone. In this mobile communication service provider, enabler is now in live production providing full billing support for voice, voice and new generation services together with Amdocs E care and Amdocs importer. This successful implementation is part of our growing momentum in the Vodofone group where we enjoy high customer satisfaction with our existing installation new sales and overall sequential growth in revenue. In the US. we are continuing to work on the conversion of subscribers at Sprint PCS. Although to our disappointment the convert is going slower than planned.

One last item I'll bring up here is our conversion of US. Cellular subscriber based in the Midwest region form a competitive system and on to the Amdocs billing and customer care platform. By consolidation of billing system, this conversion enables U.S. Cellular to offer more than 4.3 million customers unified billing and customer care support across different regional operations.

Now regarding the SEC investigation discussed on our last quarter conference call. The situation today is that there are no substantive developments since last quarter's call.

Looking forward, we're confident that a telecom industry will gradually transition into recovery. Although we cannot be sure regarding the timing or magnitude of the recovery, the whole economic picture appears to be improving especially in the U.S. We are continuing to see signs of stability in the telecom market especially among the wireless carriers. As a result our pipeline of potential business is improving and there are some large deals in the pipeline, which may materialize in the future. We also see strength in our existing customers, which is translating into requests for additional products and services to support the current systems.

In the short-term, our ability to provide carriers with system enabling them to retain the customers, reduce costs, quickly roll out new services as well as now unique main services offering, allows us to continue to show strong performance and gain market share even in this today's market condition. As a result we believe that even in this tough market, we'll be able to achieve modest sequential growth in revenue and earnings in the next quarter.

In the long-term, these same factors that contribute to our short-term success coupled with our R&D (inaudible) will allow us to do even better as the market improves.

Let me now turn the call over to Ron Moskovitz our CFO for the financial review and then I'll come back with some concluding remarks.

Thank you, Dov. Our fourth quarter revenues were $411.8 million in line with guidance at a sequential growth of 9.2% over Q3. Our pro forma EPS was 23 cents per diluted share in line with our guidance. Our GAAP EPS for the quarter, which includes acquisition, related charges for amortization of purchase intangible assets, the cumulative effect of the company sharing certain acquisition results and related tax effect was 20 cents per diluted shares. Licensed revenue of $14.4 million is likely higher than last quarter both in absolute dollars and as a percentage of total revenue. We expect slight growth in light of revenue again next quarter. It's further improvement declined as market conditions improved.

As Dov mentioned earlier, the key event in Q4 was the closing of our purchase of Bell Canada's interest in Certen. The purchase price was $66 million in cash and the transaction closed on July 2nd. As part of the purchase price accounting for the Certen transaction, we are required to recognize our minority interest in Certen's sporadic acquisition results and see if we are accounting for our investment under the equity method instead of the cost method from inception through the date of the acquisition which is reflected in our Q4 quarterly GAAP results as a charge of $4.1 million pretax. The change to managed services agreement at Bell Canada drove the increase in our revenue in Q4 and contributed to our growing managed services business.

As we discussed last quarter, the SBCDO and Bell Canada deal puts pressure on our operating margins in Q4 largely accounting for the decrease from 17.1% in Q3 to 16% in Q4. As Dov mentioned earlier, the integration of Certen and SBCDO into Amdocs has gone well and we achieved our stability targets for the quarter. Therefore, we feel confident that we can continue execute according to our financial plan on these deals. In fact, margin contribution from these deals should begin to increase through 2004 although at a modest level. Our interest in other income lines was low this quarter due to the interest rate environment and because we no longer have interest on the convertible debentures from Certen. This line item may decrease slightly in the coming quarters. We had very good results in DSO in this quarter. With the percent of 30, DSO sending it's 44 days well below June's figure of 68 days. The key driver for this reduced DSO is the new managed services deal, which features steady payments on a regular basis.

Free cash flow defined, as cash flow from operations less net capital expenditures and payments on capital leases was strong at $76 million for the quarter. We ended the quarter with a cash balance of $1,291,000,000 up from last quarter. Major uses of the free cash generated in the quarter was seven transaction where we spent $66 million but acquired cash on the balance sheet of $26 million and our repurchase of our convertible notes in the amount of $45 million. At the end of the fourth quarter deferred revenue stood at $174.6 million down from Q3. As we indicated in the last quarter's call, the decrease was expected due to the transition to full ownership of Certen. Next of Certen we would have showed a slight decrease in deferred revenue.

Our 12 month backlog which includes letter of intent, ongoing support contracts and the committed revenue from managed services and maintenance was that $1,330,000,000 at the end of the fourth quarter a slight increase over Q3 backlog. We ended the quarter with approximately 9200 IT professionals including approximately 800 employees who joined us with Certen.

Looking forward, our guidance for the first quarter of fiscal 2004 is for revenue in the range of $416 million to $422 million. We expect pro forma EPS of 24 cents. Diluted GAAP EPS is expected to be approximately 2 to 4 cents less pro forma EPS. Also the effective tax rate for fiscal 2004 is expected to decrease from 25% to 23%. We also announced today that our Board of Directors has authorized a stock buyback program of up to 5 million shares over the next 12 months. The authorization permits Amdocs to repurchase ordinary shares in open markets or privately negotiated transactions and the price deemed appropriate. One of the main purposes of the buyback program is to offset the dilutive effect of any future share issuances, including issuances in connection with acquisitions or pursuant to stock option plans. With that, let me turn it back to Dov.

Thank you. This was a good quarter for Amdocs. We are navigating the challenges, the challenging business environment by staying focused on executing our strategy including expending business with existing customers that have the highest potential in the count environment. In Berlin we are continuing our investment in R&D and marketing ensuring we maintain momentum and further strengthen our leadership over the competition. Our objective is to be positioned strongly so we can effectively leverage the industry's transition into recovery. With that, let me now open the call to Q&A.

Our question-and answer-session today will be conducted electronically. [operator instructions]

We'll take our first question today from Greg Gould with Goldman Sachs.

Hello. Two questions. The first is on the out sourcing contracts; you mentioned that they are meeting expectations financially. Can you just remind us about the operating margin; how it should progress on typical out sourcing deals, say the first year versus the second year? How quickly do they ramp to reach steady state profitability?

Well, Greg, it may vary from one transaction to the other. And to give you an example in Certen, we are in good progress in the transition because we are started this project two-and-a-half years ago. And it's a different situation than we've seen SBCDO where we have about two years of modernization. So it may vary from one deal to the other. In particular in Certen and SBCDO, we are going to see a margin today of the early stages lower than what we expect in the future. And as we said, we are going so see a slight increase through 2004 the operating margins from this deals.

OK. Dov Baharav, did I hear you correctly that you expect sequential revenue and earnings growth for the next several quarters or just for the December quarter?

Greg, I indicated next quarter. So it's the coming quarter, the first quarter of 2004, but the quarter after it and maybe the quarters after. Overall, we are optimistic about our ability to add modest growth in the coming quarters.

If I could sneak one last one in. You mentioned existing clients are interested in or they're showing more interest in additional services. Is that in line with what you would have thought say three or six months ago or is it stronger than that?

I would say it's stronger. A year ago, we felt we had some erosion in the business with existing customers. We saw lately stabilization and some increase in the existing services and in addition of business with existing customers.

Greg Gould OK. Thank you.

Thank you.

[operator instructions]

We'll go to Michael Turits at Prudential Securities.

Hello, guys. Depending on where you model that interest income, I know you said that was down. But it looks like to get to the EPS the operating margin looks pretty flat going into the December quarter? Is that rate or do you expect that that increase that you were talking about in contribution margin from the outsourcing deals to actually drive an overall increase in operating margins next quarter?

We said that the margins, we didn't specify the margins, but you may expect a slight increase of margin in the December quarter as a result of the slight increases in licenses and operating margins in management services.

Just a follow-up to that, you had decent decline in your gross margins this quarter on services it sounded like 33, 34 and change. Is that where we should expect the service margins to be now that you're doing more outsourcing?

It is what we see in the early stages of outsourcing, but in moving forward, we think that this should go up.

OK. And did you say what the -- that was my one-and-a-half questions, go ahead.

We'll go no Marianne Wolk with Susquehanna Financial.

Hello I have two quick questions First of all, can you give us the outsourcing percentage and myth this quarter? And can you tell us if you added any outsourcing customer this quarter outside of Bell Canada?

Dov Baharav First, you will, we didn't add any outsourcing deal per se. In terms of the approximate percentage of managed services, it was around 40%.

And will you like last quarter give us some outsourcing guidance for the December quarter? Should that rise or stabilize in the 40 percent range?

It should be the same percentage.

And finally, can you give us if there was any currency in past international mix of revenues. And thanks a lot

The international mix of revenues is a -- we have an increasing North American due to the Certen additions, so 65 North American about 27 Europe and 8% the rest of the world. The world. As for the currency we have most of our revenue is denominated in U.S. dollars and we use U.S. dollars so it doesn't significantly impact us.

Thank you.

Our next question will come from Mike Latimore with Raymond James.

Mike Latimore Yes. Good afternoon. On license may be up a little quarter, how about backlog as well?

Well, we estimate that the increasing license revenue for next quarter and we estimate that we will have some growth next quarter. So our hopes that we will see the backlog and growing as well. Giving our whole expectations for slight growth in the coming quarters.

Mike Latimore Thank you.

Our next question will come from Scott Sutherland with Wedbush Morgan Securities.

Good afternoon. Question on what you think your opportunities are and some of the other verticals like cable direct broadcast, the financial services and potentially the wire line in North American given the Jean bell lab systems.

We enjoy very much the growth that we have in our traditional market and our activity, the existing activity in the wireless and in the wire line. However, as we indicated in the past, we started doing some activity in order to expand our base and being able to expand our addressable market. So regarding wire line, we have already about 20% of our activity in this area. We see substantial changes in this market where the wireless carriers are moving toward broadband. We see a substantial increase in the activity in the BC area which is accompanied with a variety of data services that is offered by the wire line carriers which requires new systems to support this activity, whether it's automated management or others.

So we see it as a big opportunity given the size of the wire line carriers, giving the complexity of the activity and giving the need for the system to support the new services. Now if you couple it with the need to reduce our costs and maybe consolidate systems, we have unique offering in this area. On top of the wire line area, we have not yet penetrated to the cable industry. And we see it as future potential for us. And we indicated in the past and we continue to explore possibilities to get into this industry. Now, one of the elements that are helping us a lot in considering a successful low risk penetration to new areas is our CRM offering. So it helps us to penetrate to one end to the wire line industry.

We have already some installation in the cable industry of our CRM. And we have installation for our CRM in the financial services. So we tend to leverage our CRM offering in order to penetrate with very low risk to the financial services and maybe couple it with our billing offerings that is required in the financial services. So all along we are focused on the telecom, this is our main market. We believe that there we will actually divide the majority of our revenue, however, we're doing first steps in the other areas in order to have a few years from now additional substantial leg to the company.

And one other question. What is the percentage of --what is the percentage directory business?

It was 14% in this quarter.

Thank you.

We'll go now to Tom Ernst with Thomas Weisel partners.

Yeah. Good afternoon. Thank you. In your comments on Vodofone in terms of growing business there, Dov, can you comment on is Vodofone looking to standardize finally corporate level on billing platform?

Well, Tom, it's Eli. Vodofone has all along an approach of having two vendors for the billing area. Amdocs is the major one and they also have portal in some instances. I do not know that they are going to standardize on one billing platform. Although in certain regions, we are doing more consolidation work and more coherent platform and streamlining the platform on Amdocs billing system. As for the CRM, we do have some installation Vodofone and we have a growing business with Vodofone both on the billing and the CRM area.

And are you seeing Vodofone corporate push you give you entry into use of Vodofone say that otherwise you hadn't had access to?

Well, our strategy all along and our execution is really that we work with Vodofone global and Vodofone corporate in parallel to working with a specific operation. At the end of the day it has been to be authorized and directed by the corporate, but we believe that we need to convince each one of the operation on their own needs and make sure that we keep the relation with them. At the end of the day, we serve the specific operators. So we work with both the specific operators as well as the global services.

OK. A follow up to a previous question. In the financial services vertical, can you comment on how you're doing in terms of getting the billing platform actually sold into financial services? You mentioned some opportunity there.

Well, as we indicated, it is not a major portion of our activity. We just initiated the start some efforts and once we are having some contracts, we'll be glad to share it with you as we do in our other verticals.

OK. Thanks, guys.

We'll go now to Sterling Auty with J.P. Morgan.

Hello, guys. First, on the tax rate, how long is that tax rate sustainable at 23%? Could you carry that forward even beyond 2004?

We believe that we can carry it out beyond 2004. I would say that we might have some potential even to move it down further.

OK. And you talked about the profitability and the out source business on target, but can you talk about the profitability in the rest of the business.

Let me take this question. It's Dov. First of all, just maybe reference to a term that is used here, it's outsourcing. We actually prefer to describe our activities as managed services since we are not providing just a data center area of operation and maybe some technical staff, but a full business, business operations there, which include many functions. So and so we prefer it to say it this way. As far as the profitability of the other sides of the business and we may see slight increase. It depends on the level of revenue. First of all, we see license going up a little bit and there's licenses go up; it expects to generate higher margins. The second thing, as you see, as revenue is going up, we don't have to increase the same pace of the R&D and SG&A so this is another factor that could bring our margins up while we are keeping the gross margins on the services on the non managed services business basically at the same level.

Lastly, how much of the license increases clarify as you head into the next quarter and how much is non clarify license revenue?

It's very difficult to describe because in some of the cases we are selling a one system that includes CRM and billing as an integrated unit. So it's difficult to differentiate between the two of them.

OK. Thank you.

Your next question will come from Peter Jacobson with Kaufman brothers.

Hello. Thanks. Can you comment on the size of the Far East tone deal or characterize that as well as the large deals in the pipeline. Are any of those in say late stage of the sales cycle? And can you quantify large? Are there any that are in the hundreds of millions of dollars multi year deals?

Well, the size is about the -- maybe will develop to slightly higher than average, but it's about average deal. And as for the billing and the PRM, in terms of the pipeline, we have a diversified pipeline large ones are in the tens of millions of dollars. Hundreds are our mega deals and we have only a few of those. And in terms of specific terms of the life cycle and then give you some more color, I'm not sure that we can provide more details.

OK. Thank you. That's all I have. Thanks.

Our next question will come from Shaul Eyal with CIBC World Markets.

Thank you. Hello. Good evening. Increased activity in Asia this quarter. If you can I don't know share with us who did you displace in Japan? And maybe also just kind of provide us with an update of what's happening in Asia and more specifically in Japan? Is it on the wireless side, wire ln side, what are your expectations going forward for that region?

Well, we announced actually one win for a major wire line carrier in the order management assistant. We use it as important to us since it was additional penetration to Japan, which is a very important market. It has been done with Cooperation with IBM, which actually strengthened the Cooperation alliance with IBM, which is important again. And actually, when we're looking forward to Japan, it's a big market, it's not so easy for us to penetrate given the fact that we usually provide a product and services, however the services now should be provided based on local terms with local people. And we usually when we provide services in this area it's with Cooperation with other. So I would say that we are now encouraged by this success and we are looking forward to penetrate further to this market.

Fair enough. The competitive that you displaced, are those traditional competitors, the usual suspects or some local competitors?

I don't know that we replaced any competitor and it might be internally a system of the carrier. I would say that it's our system. Actually I would say that our system in Japan is a unique one. It is a unique one and provides and I would say things that cannot be offered by any competitors.

So just to add to that, Dov was referring to Japan. If you're referring to fire stone on the more Bud side in Taiwan, they're with one integrated enabler where we're replacing five different applications from five different vendors, one people for the post paid, one being for the prepaid, another one for the data and collection of the data. And one for the PRM. So on and so forth. So they're, on each specific subject it is usual suspects on the subject.

Fair enough. Many thanks.

Our next question comes from Adam Waldo with Lehman brothers.

Good afternoon. I wonder if could you give us a little more color behind your thought process around the share buyback announcement and the convertible debt repurchase in the quarter. How should we think about this going forward as you look to deploy for a greater return the surplus capital on the balance sheet, which is quite extensive?

It's called convert repurchase. We have a put on the convert at June '04 and we have a conversion rate price of $ 92. So I would say that you know there is a good chance that it will be put to us. And what we use these for is some opportunities approach. We bought in the prices which are compelling and I'm not sure we will really be able to do such repurchase in the coming few quarters as well. As for the buyback, what we are trying to do is the bank of the shares we're trying to mitigate some maybe looking at the effect of a stock option almost and some other small issuance's with respect to small potential acquisitions or stuff like that. So we are trying to a little bit mitigate the effect and no more than that.

OK. So we should think of share buyback strictly for anti-dilutive purposes. Also could you give us some comment on the significant sequential decline in accounts receivable? Is that level of DSO improvement sustainable as we go forward?

I would say in terms of DSO, the it's a change in that regard in a year ago, we had about 80 days. 80 days of DSO, since then, we increased significantly the managed services portion of our business. There we get paid on the regular monthly payments. So basically we could reach in this part of the business to very low numbers even to zero number. So overall, in average, it's reduced, it reduces significantly the DSO. We think that it is a sustainable at similar levels, maybe a little bit high. But it's not expected to go back to a 70s or 80s.

That's great to hear. Finally, when will you file an SEC filings with the full financials historically?

We do it as a part of -- we do it as part of the annual 20 F report around December.

Thank you.

We'll go next to Thomas Vincent with Smith Barney.

Thank you. Just a follow-up on a previous questions on the margins and the services and licenses business. If you look back historically, you've been running with an operating March of roughly 20% to 23% in the license and services business. So is that where you roughly are now or how should we look at that? Just to put that in into context.

In the part where we had a margin, operating margins in the mid 20s, it was when the license was presented about a 10% of the business. So now when we have license of 3.5%, it goes directly to the bottom line. So we are living now the area of 16%. We plan to increase it. But in order to see, to cause that 20% margins, we will have to increase significantly license.

Let me add here that we are optimistically guarding our ability to increase margins in the managed services area. If we look at our experience and expect in Telstra and other, we will be enable over time to increase the margin activities to the normal margins of the company which were about 20%. So even though the license portion of our revenue is very low right now, I would say that doing a good job on making our managed services more efficient might provide us an increased margins.

OK. And Dov, can you maybe provide some color on why the migration at sprint is going slower than expected?

Well, the reason of course the customer considers the gelaty (ph) issue, which I cannot elaborate. Whether we are a not the only one, party in this activity. We are providing the software, the billing software. Other limits of the software, another element of the activities there. We as we indicated last quarter, we have completed all the development work there and now the conversion takes place. It wasn't a disappointment, it was a little bit slower than what we planned. And we are continuing to work and moving forward.

OK. Great. Thanks.

Our next question today comes from Kevin Sonnet with Founders.

Thank you. The big deals you talked about in the pipeline, to what extent have you baked in some win rate over the next few quarters in your hope that revenues grow sequentially a little bit each quarter?

Well, what directs the growth of the company actually in the last year was the fact that we got several large deals that created the kind of a step function of the revenue of the company. So you saw it in the third quarter when the gross margin went from 355 to 377m and in the first quarter where the gross was from be a $35 million or 9.2% sequential, mainly because of the Certen deal. Looking forward, our increased market share, our momentum in the market in selling just licenses and regular services is providing us with the I would say the modest sequential growth. That, of course is a result of the status of the industry, which is not good, as we said. Customer is hesitant to commit to new projects and others. Now, what can happen is that on one end as the market changes, we see more activity, we would be able to generate more revenue from our traditional activity of selling licenses and services. And if some of the large deals that we have in the pipeline materialize we might see additional step function maybe in probably won't be in the next quarter but some time in the future we might see other increases in the revenue but I would say not in the coming quarter or so two quarters.

So you point out closing one or two of those significant --one of those large deals, you still expect kind of modest sequential growth. Then I guess the only follow-up, is if you are able to close a couple of those deals, not in the next quarter or two, but over the next year or so, how would that increase the operating margin expectation, of also getting a little bit of improvement each quarter?

Well, depends on the kind of deals that we will sign. However, in our way logic, what I can say is in the second half of 2003 we have a unique combination where we sign two large deals, one with (inaudible), one with Certen almost at the same time and these two deals were in the initial state just almost at the same time and then we had an impact on our overall margin. If we had one deal at a time, we might not -- we might see very minimal impact on the margins. We'll see an increase in revenue and maybe actually additional activity will support the economy of scale and help us to increase margins.

Very helpful. Thank you.

We'll go next to Marrianne Wolk with Susquehanna Financial.

I just wanted to a quick follow-up question. First of alls what is your ability to support additional U.S. wireless out sourcing customer in your current wireless data center? And the second question was what kind of progress have you made upgrading those last Bell Canada platforms that were legacy systems?

Our ability to support additional mobile carriers in our out sourcing facility, we have this capability. And we and actually, we plan to do it in the future and actually by that generating economies of scale. We have today several layer a mens service deal in certain area and we would like in the future to maybe consolidate some of the back office activities in order to generate more efficiencies. Regarding the Certen deal and our progress there, here, I would say that we are very encouraged. We related to consolidate all the activities of Certen into Amdocs. And we are encouraged giving the fact that now that everything is under our control, we feel that we are in good shape and we have very capability and to improve the service on one end reduce the expenses on the other end. Regarding the modernization, it continues, we have not finished it yet. And because of the due to the holiday season, there is some slowdown in some of the conversion will be completed at the beginning of 2004.

And finally, can you confirm because the call broke up what the directory services percentage revenue was and whether that actually rose on absolute dollar basis?

It was 14% in the absolute dollars, I think it is slightly up. I may have to check this number, but my guess is slightly up.

Thank you.

Thank you.

That does conclude our question-and-answer session for today. I will turn the call back to our speakers for any closing remarks you may have.

Thank you, operator. This is Tom O'Brien again on behalf of the company. Thank you all for attending our call. Good night.

We do appreciate your participation. You may disconnect at this time.