Amdocs Ltd (DOX) 2006 Q3 法說會逐字稿

Good day, everyone, and welcome to this Amdocs third quarter 2006 earnings release conference call.

Today's call is being recorded and Webcast. At this time I will turn the call over to Mr. Tom O'Brien. Please go ahead, sir.

Thank you, Robbie. I am Tom O'Brien, Vice of Investor Relations for Amdocs. Apologize to those of you who had to listen to this yesterday and will listen to it again.

But 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.

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 risk 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 risk and are discussed in our earnings release today and at greater length in the Company's filings with the Securities & Exchange Commission including in our annual report on Form 20-F, filed on December 28, 2005, and on our Form 6-K, furnished on May 15, 2006. 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; Eli Gelman, Executive Vice President; and Ron Moskovitz, Chief Financial Officer. Following Dov Baharav comments, we will open the call to Q&A.

Now, let me turn the call over to Dov Baharav.

Thank you, Mr. O'Brien. Good afternoon, ladies and gentlemen. We are pleased to report excellent results for the third quarter. Revenue grew 23%. Non-GAAP earnings per share grew 32%. And we had some very important customer wins. We continued to execute on our strategy, including in the M&A area as we close the Qpass acquisition, and just yesterday, announced our acquisition of Cramer. We have positioned Amdocs to be the vendor of choice to the leading communication service providers, supplying solutions that transform BSS through OSS.

We are encouraged by what we see in the market. Industry consolidation and transformation continues, and competition among service providers remain intense. Service providers must have BSS and OSS system that announce their interaction with their customer and support directed introduction of multiple new services.

Amdocs can support an Integrated Customer Management, or ICM, strategy in which Cramer will be uniquely positioned in the BSS and OSS to enable service providers to rapidly introduce new offering, lower total cost of ownership, and focus on their customers. Our position plus the market dynamics will drive our growth in 2006 and beyond.

In the current quarter we have 11 key wins, across line of business, geographies, and products. We disclosed a few details about some of them in our press release today. After an extensive review of potential solution, Rogers Communication, the largest wireless carrier in Canada and a long-time Amdocs customer, chose Amdocs to provide CRM capability across line of business to help them implement an Integrated Customer Management strategy.

We see additional opportunities with this customer as they pursue quadruple-play offering. In Australia we were selected by Telstra to provide an OSS solution.

Also this week, we signed an agreement to acquire Cramer, a leading provider of OSS and solution. The OSS market is both large and fast growing, and Cramer is the premier company in this space.

With this acquisition Amdocs will become the only Company to deliver an end-to-end solution spanning BSS and OSS, allowing us to take advantage of the growth opportunities presented by the large transformation projects in our industry. We see this as a strategic growth area for Amdocs.

The transformation in our industry and global issues present us with both challenges and opportunities. While activity in our market remains strong, there are risk in the global economy from things such as the high price of oil, political instability, and inflation. We are a global Company with developing centers around the world and less than one-third of employees in Israel. The situation there has became volatile in recent days, and we have detailed plan in place to ensure uninterrupted service to our customers.

Let me analyze these opportunities and challenges. We believe that we will prosper in 2006 and beyond. Our market-leading products, which support Integrated Customer Management, our service organization and delivery record, and our customer base of market leader give us that confidence.

Let me now turn the call to Ron Moskovitz for the financial review, and then I will come back with some concluding remarks.

Thank you, Dov. Our third quarter revenue was $626 million, representing growth of 23%. Our non-GAAP EPS, which excludes acquisition-related costs and equity-based compensation expense, net of related tax effects, was up 32%, to $0.49 per diluted share. GAAP EPS was $0.39 per diluted share.

I will spend a minute now on a few P&L items. Please note that I am referring to the results excluding acquisition-related items and equity compensation expense. Operating margins were 17.9% this quarter, up slightly from 17.7% last quarter. The main drivers of the increase were our gross margins on services and proportionately less spending on SG&A, offset by a impact -- a higher R&D expense. Gross margins should be comparable next quarter. We expect operating margins to improve slightly in the fourth quarter.

License revenue was down this quarter. As we get more business in consolidating tier-one carriers, the projects typically ever larger service components. Other income was up this quarter, due to higher interest rates on our investments, as well as foreign exchange benefits related to some balance sheet items. We expect this line item to decrease next quarter, in part due to lower cash balances as we fund acquisitions.

Our effective tax rate in Q3 was 16.6%. The reduction in effective tax rate in Q3 is due to the -- a continued expansion into countries with lower income tax rates and to slight release of certain tax reserve. Next quarter's rate should be 17 to 18%.

Free cash flow was strong, at $94 million. Included in this number was $26 million in CapEx, a little less than we had forecasted. Next quarter's CapEx should be in the range of 40 to $50 million.

DSO at the end of the quarter was 60 days, up from last quarter. Deferred revenue was $243 million this quarter, about the same as last quarter on a net basis. When analyzing this line item we saw a decrease of around $25 million related to our core business, offset by a similar increase related to Qpass.

Our twelve-month backlog, which includes contracts, committed revenue from managed services contracts, letter of intent, maintenance, and estimated ongoing support activities was $1.96 billion at the end of the quarter, an increase of $120 million from the March quarter. About 80 million of this increase was organic, with the remainder coming from Qpass.

Looking forward, our guidance for the fourth quarter of fiscal 2006 is for revenue of approximately $657 million; a non-GAAP EPS of $0.49, excluding the effect of acquisition-related charges and excluding equity-based compensation expense of approximately $0.04 to $0.05 per share, net of related tax effect.

This EPS number includes $0.01 dilution resulting from the Qpass acquisition, as expected. Diluted GAAP EPS is expected to be approximately $0.41 to $0.42 per share. Our EPS guidance for Q4 is based on fully-diluted share count estimate of approximately 221 million shares. This guidance does not include any impact of the pending Cramer acquisition.

For fiscal year 2007, our preliminary guidance is for revenue of approximately $2.88 billion to $2.98 billion, and non-GAAP EPS in the range of $2.06 to $2.16, excluding the effect of acquisition-related charges and excluding the effect of employee equity-based compensation expense of approximately $0.19 to $0.22 per share, net of related tax effects.

We will not be able to give 2007 GAAP EPS guidance until after we complete the purchase price accounting for Cramer. Our fiscal 2007 guidance is based on a fully-diluted share count estimate of approximately 225 million shares.

Just to be clear, our 2007 revenue and non-GAAP EPS guidance includes the expected impact of the pending Cramer acquisition. For your reference, we expect the Cramer acquisition to be approximately $0.04 dilutive to non-GAAP EPS in 2007 and then accretive thereafter.

With that, let me turn it back to Dov.

Thank you, Ron. This was a very good quarter for Amdocs, and we are excited about the opportunities that we see.

With that, let me now open the call to Q&A.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to Tom Ernst with Deutsche Bank. Please go ahead.

Great. Thank you. Good afternoon. Just one point of clarification. I think it is worded correctly in the press release, but just to be clear, it is a $0.01 -- or, excuse me, the dilutive effect is not in the guidance number for Q4 for Cramer, but we do have $0.01 dilution from Qpass. Did we hear that right?

Yes.

Okay. Great. So very strong quarter behind you, good business, you've made two significant acquisitions. Just a thought on, as you're rounding out the OSS suite, as you're heading into content -- the content side of the business, is Amdocs still acquisitive as of this point? Or do you feel like you're kept busy with what you've got here for the next couple quarters?

Well, the main secret of Amdocs in the last few years was to integrate successfully the companies that we buy, making sure that all the employees that are included in the acquired company find Amdocs as their new home, and that we are able to generate the synergies from this acquisition. So, no question that our main focus in the new future will be on consolidating and conducting a successful post merger integration for Qpass and for Cramer.

And we have a [vertical] strategy. All the acquisitions that we've made until today were to support our strategy, and as we indicated in the past, we consider and would like to see the Company growing farther in 2007 and 2008. And probably as part of the growth of the Company we will continue in the future to do acquisitions.

And one financial follow-up, if you will permit. It looks like all the metrics quite strong -- backlog as a percentage of revenue -- but they seem to be diverging -- the backlog as a percentage of revenue versus the deferred revenue, which is, if we look back over a year ago, say, and the time prior to that, seems to be a much smaller percentage. Is there anything changed in the way you're collecting cash from customers? Or how should we view the divergence of those two?

First of all, deferred revenue is part of the backlog. Now, the nature of the deferred revenue is that we see there's some lumpiness and it depends on some specifics of large payments and the terms which are no way -- which actually contain no reflection of the fundamentals of the business. So wouldn't put too much emphasis on the deferred revenue.

Thank you. [OPERATOR INSTRUCTIONS] We'll go next to Tom Roderick with Thomas Weisel Partners.

Hi. Good afternoon. Thank you. Just wanted to dig in a little bit, Sprint is a couple quarters under your belt, and to the extent that you can talk about any milestones that you've successfully achieved over there, that would be very helpful. But digging into the financials, can you confirm for us that there -- at this time, there is no element of legacy Sprint subscribers currently in the backlog number?

There is some, but most of it is not there yet.

Okay. So just -- I am sorry, go ahead.

In general, to the first part of your question, we are making nice progress with Sprint. We work hard with Sprint in order to achieve all the objectives of both companies. And we hope that once we -- there are some milestones that Sprint chooses to report, and we will share it with you. And we expect the backlog in the future to grow as a result of the conversion on one end, and addition of new services. And I think that you will see it in the coming quarters. And I don't know that we will be able to go into details and to specify how much money can be added because of each element.

Okay. Very good. And looking at Rogers, very nice win on the CRM side this quarter. Can you talk about what other systems you have in place at Rogers that interface, perhaps, with the CRM system? And what other opportunities exist at Rogers that you alluded to earlier in the call? Thank you.

Well, we are very excited about the Rogers deal. It represents a move by Rogers toward a quadruple-play, a full Integrated Customer Management. Rogers is the largest wireless carriers in Canada, a very large cable operator, and they own wireline assets. And the first phase of this ICM project is intended to provide consistent customer experience, having the CRM on top of the cable activity, the wireless activity, and the wireline activity. And it might serve as a basis for additional phases where Rogers would be able to implement the strategy of Integrated Customer Management, where they manage the integrated customer and creating intentional customer experience.

Thank you. We'll go next with Shaul Eyal with CIBC World Markets.

Thank you. Hi. Good afternoon, everybody. Very quick question. Even when I am looking at your core profitability, i.e., excluding all the acquisitions, seems as if it should be very, very strong. What's the reasons behind it? Is it continued improvement in gross margins, operating margin, each one, or all of the above?

As we expected and talked about it in previous quarters, we see a benefit coming from the organizational changes and the changes in the alignment of the [development] organization. And we see benefits coming from the expansion of our development center in India. We see improvement in quality. And there are a lot of internal activities I won't -- I spare you the details -- that they bring expansion of the gross margin of the services. And on top of that we gain some leverage that -- on the operating expenses. This quarter we saw some addition of Qpass, which we [deferred] with the analysis, but we still enjoy this kind of leverage.

All right. Now, and just on one final one -- What was the contribution from the DSD, if you can disclose it this quarter?

DSD, a little above $60 million.

Thank you. We'll go next to Michael Turits with Prudential. Please go ahead.

Hi, guys. Good evening.

Hi, there.

What are -- in the revenue guidance for next year, what are your assumptions for the contribution from Qpass and from Cramer to revenues.

Could you repeat that.

Qpass and Cramer next year, how much is in your guidance?

What would be the revenue of Cramer next year?

In the guidance for revenue next year, what are your assumptions about the contribution from Cramer and from Qpass.

We -- at this point, we give some initial preliminary guidance for the entire Company without breaking down this contribution.

Asked another way, could you give us some sense as to organic growth? I mean, you'd been guiding to growth of, I think, 10 to 14 or 10 to 15% organically, excluding acquisitions. So can I feel comfortable that you're getting that into '07?

Yes, yes.

Okay. And, then, I also wanted to -- could I just clarify, I think it is probably right, but in the current backlog numbers, since there is -- Cramer isn't closed, Cramer is definitely not in this backlog number, right?

It is not.

We haven't closed.

And I guess I'll ask -- someone else asked about acquisitions. You said you're going to do more. You seem to have covered most of the areas that you've talked about. What -- can you tell us a little bit more about, directionally, where you might want to make acquisitions?

Yes. As I said, the first priority which we have right now is to be successful in the [PMI] of Qpass and Cramer. And so the idea is to generate the benefits, not only to form the acquisition -- and by the way, we have not yet closed Cramer, so it will take some time.

Now, regarding the acquisition, as we said, the Company has a very comprehensive strategy, how to grow the business, including expanding our services and selling to tier one in Europe and in other places, including expanding our activity in the financial services. And it might be that in order to execute upon our strategy, we will have to do acquisition either to support our penetration to some tier one in Europe, either to increase our presence in financial services, either to do something in the low ARPU countries where we would like to penetrate as well. However we do not feel any urgent need to rush and do an acquisition tomorrow morning. And the way that we operated until today, setting a strategy and doing an acquisition at the right time, after very diligent and careful due diligence, and learning the Company, and making the right decision, I think that will characterize our activities in the future.

Thank you. We'll take our next question from Sterling Auty with JPMorgan.

Thanks, guys. Can you give us a sense as to how the performance was by geography?

Yes. We had about 68% in North America, 24% in Europe, and 8% in the rest of the world. And as for our performance, actually we had sales in all of the regions. And in terms of sales, we saw momentum in Europe, in North America, and we mentioned Australia as well. So we are very pleased in the progress in all fronts in terms of geography.

Okay. And can you update us on some of the progress, maybe, in some of the emerging markets, particularly China?

Well, in China we are very pleased from the progress in China. We -- it is a long process of learning and getting used to a completely different culture and a way of doing business. We enjoy growth of the Longshine activity there. We feel that we created a good integration of the Company, the Longshine that we acquired there with Amdocs. We making progress with our activity with BMCC, Beijing Mobile, implementing our solutions there. And we feel that we have a great opportunity for next year to grow the business substantially.

Thank you. We'll go next to Will Power with Robert Baird.

Thanks. The first question, I guess, was following up on Qpass. I wonder if you can talk about any of the early cross-selling opportunities you're seeing there? And I know you had previously provided guidance for 12 to $15 million in quarterly revenue. Should we expect that to accelerate as we get into '07?

Will, obviously, we see Qpass as a growth engine for the Company, and, therefore, since we give some guidance for the initial few quarters, we expect it to grow as we go into '07. In terms of the opportunities in the -- as a little bit too earlier to talk about the specifics, but we see some very good initial response from customers, both in Europe, in APAC, and in North America to the Qpass offering. And one of the limiting factor for Qpass before was the viability and the sense of -- the comfort level that the carriers would have in a company, small company. A lot of the services that Qpass is offering is an amended services mode, so people are looking for stability and want to have a positive answer to the question, would they be there in five or ten years from now. So we see a lot of positive response in carriers all over the world, in mobile as well as broadband.

I think that they also help Amdocs to build up its image as a leading Company that invests in the future of its customers. In a way we are perceived as someone who is a thought leader or preparing -- being there ahead of the curve instead of trailing the industry, and this is very true about the Qpass acquisition. It is very much true about the Cramer recent acquisition, because the carriers needs a lot of help on their transformation, especially when it comes to data content and OSS. So these two acquisitions contribute dramatically to the reality, as well as the perception as Amdocs as a leader in the industry.

Okay. And, then, my second question was on the cable business. You all were, I think, pretty bullish on prospects for cable at the investor day, and I know you had a contract extension that you announced here. Can you update us on when you expect to get new wins in the cable business and what that outlook looks like?

Will, it is actually, again, we would not give specifics, but we know for fact that few significant players are waiting to see our Amdocs 7, which is a cable- and broadband-ready version that would come up -- will be available later on this year. We have a lot of leads in our pipeline in different stages. On the other hand, we predicted all along that the transformation of cable carriers into completely new billing and CRM system would be cautious move. This industry used to work with two vendors for each carrier, just because they did not have the right suppliers that invested in their future. And we believe that we will see more progress, initially maybe on the CRM front and other point solution, and eventually end-to-end complete transformation of customer care and billing.

Thank you. We'll take our next question from Julie Santoriello with Morgan Stanley.

Thanks. Good day. A question on the contribution to backlog from Sprint. You said that there is some in there, but most of it is not in the backlog at all. I am wondering if that's because you do not see a large amount of transitions happening in the next four quarters? Or if it is just too soon for you to be able to quantify the revenue from those transitions?

We cannot give much detail, but it is a -- as we mentioned, we capture in the backlog the next twelve months revenue that we expect, and, obviously, it takes into account some milestones in the progress that we expect to see in the project.

Just to add to that, let's not lose sight of what we are doing for Sprint. Sprint is going through a huge transformation. We are going to help them. And we are helping them transforming at the core center front, with CRM; at the mediation front; the managing of these huge accounts. They have post-paid. They have pre-paid. They have the joint venture with a cable company and few other things that we did not specify.

We're talking about a huge transformation that will take place in the next couple of years, and we are their vendor of choice. We are their partner of choice. We are working in context of the plan, executing right on the plan. We ramp up the amount of people that are working on Sprint significantly. And this is the most important thing for us. And we believe that we will produce good results and a very high-quality delivery, as we did with Nextel in the past.

Okay. I guess that's why I am surprised that there isn't a bigger contribution from that customer to backlog.

We didn't say whether it is billing big or small. It [still is] a contribution, and we will see addition contribution in the coming quarters.

Most of the growth of the backlog this quarter is a result of the sales that we had in front of the business, not necessarily from Sprint.

Thank you. We'll take our next question from Ashwin Shirvaikar with Citigroup. Please go ahead.

Thank you and congratulations on the quarter.

Thank you, Ashwin.

What I wanted to find out was the range of EPS -- preliminary EPS guidance you've given seems to be fairly wide, about a $0.10 range over there. Last year you had a $0.05 range. So can you sort of explain what would lead to the lower end of the range, what might lead to the higher end of the range?

As we said in the call, this is a preliminary range, where -- we're not yet at the beginning of the year, and we need to conclude the -- our budget process, and there is a lot of moving pieces. So by the time that we give you more accurate numbers, next quarter we'll be able to narrow the range and maybe to have a range which is comparable to the range that we gave last year.

Okay. So, I guess, should be looking for 2.11 to 2.16 or something?

I think that we have to discuss it next quarter.

Ashwin, I think the intention here was to -- these are the backlog and the momentums we have, and the plans that we have right now internally, we saw that to share with you, with the analyst community, some kind of a range that we believe that we can be in would be something that can help you look at the Company the way we look at it, it is 15 miles ahead of the end of next year, so --

Sure, sure. With regards to Cramer, I have a question. Is the intent with Cramer to sell two stand-alone products into a common client base? Or is the intent to eventually have a road map to have one product?

Ashwin, as we mentioned yesterday, and maybe we did not elaborate about it enough, there is no overlap in the product that Cramer has currently, and that Amdocs has. And, therefore, we are going to have a set of products that are not -- they are complementing each other. And we're going to add to that a lot of services and consulting in the future. And, therefore, we see only synergies from this win. And there are some examples that were recorded by some of our customers such as Telstra. Telstra chose Cramer for their network business management and related services. And they chose us for complementing -- complementary applications and services. And, together, we'll have a larger project with Telstra.

Thank you. We'll take our next question from Mike Latimore with Raymond James & Associates.

Yes, good afternoon. Can you just go a little more detail, you mentioned the license revenue was down for a reason. I didn't quite get why the license was down. And what's the outlook for license revenue? And then, secondly, what tax rate are you assuming in your '07 guidance?

As for the tax rate, as we said, we gave preliminary guidance, and we don't give more details on the tax. Obviously, we don't expect the tax rate to go up, but it is too early to discuss it at this point. As for license, as I mentioned earlier, there is the nature of our business is to deal with tier one and tier two carriers. And recently in the consolidating business, when we have more business with the large tier one guys, we encounter more projects where the mix of license is lower than what we used to have in the past. And recently it make some impact on the mix of the revenue on whether we're able to compensate for that on the margin side by better margins on the services. So, all in all, we feel comfortable that our business is moving forward and that change of mix doesn't bother us at all.

Thanks.

Thank you.

Thank you.

Thank you. We'll take our next question from Julian Bu with Lehman Brothers. Please go ahead.

Hi. Great quarter, guys.

Thank you.

First of all, Ron, I guess I missed the tax rate for the next quarter. What's that number?

We gave a range of 17 to 18%.

Okay. Great. And also let me go back to backlog. The -- suffice it to say, the Street has had a hard time guessing where the backlog number will be. This quarter 80 million organic growth is probably the largest in the past more than a year. And you talked about new sales drove that growth. Could you talk a little bit specifically, was that due to Telstra? Or just how do you come back that number?

Julian, let me just shed some light and -- on this question and the hard time in having to predict this number. We have hard time to predict this number, too, because we are not so much concentrating on this number. It is only one element, one barometer that is reflecting the growth of our business, and not necessarily the most important one. This quarter we had 11 wins from all over the world, including wins on the CRM front, on the PRM, on billing, on ICM, from different geographies. And the backlog is the way it calculated the results of -- of the results of the Company.

We are focusing very much and we are enjoying momentum, [also], in the last few quarters. Our pipeline remains very strong, looking forward. Again, it's very diversified from -- it includes different application, different geographies, managed services and so on and so forth. So the backlog is a good indication, or relatively good indication, but it is definitely only one barometer out of the overall barometers that we are looking into. As a matter of fact, we are not running the Company by the backlog.

Okay. I guess, let me follow up. Is there one customer accounting for, say, half of the $80 million increase?

No. Actually, it is very diversified. And the changes in the backlog consist of impact of new sales plus some changes in existing customers. So it is a barrage of data points from many customers, many projects, and we don't -- we cannot necessarily identify the change with, say, one or two large events.

I think that, maybe, one good indicator for our future performance may be the guidance that we give to the market that so far were quite indicative.

Thank you. We'll go next to Peter Jacobson with Kaufman Brothers. Please go ahead.

Thanks. Yes, just related to that last question -- Is the Telstra deal that you discussed included in the backlog?

Yes, yes.

The portion of the next months.

Yes.

Okay. Thank you. And with respect to the spending environment for billing systems and CRM, do you see any changes with consolidation? Do you see any evidence of delayed decision cycles, particularly with larger billing deals that you're overcoming? Or would you say that the spending patterns and decision cycles are similar to recent quarters? And, then, secondly, do you see, perhaps, any shift more towards CRM as opposed to the billing systems? Thank you.

What we see in the market, actually, is a quite positive environment, where carriers are -- carriers are ready to move forward and to update their system. So -- and, of course, everything that I say is from our [position]. It might be that some of our competitors see a different market. And what we see is that carriers are starting to move toward the transformation, and need it in order to take them from a old [DUR] of network provider to marketeer of digital services. So they have to change their network. And they have to change their BSS system. When they change the networks, they have to change the OSS systems. And as a result of it, they will have project -- as we -- [as have I] announced lately, and we see a demand for a OSS system as a result of the transformation.

Now, we do not see any lengthening of the sales process, of the selling process regarding a CRM and regarding a billing. And we are very much pleased with the centric wall of the CRM in all the Integrated Customer Management activity. The effort by carriers to generate intentional customer experience, to improve the customer experience, is focusing, first of all, on the CRM, and later on, on all the back offices -- back office systems.

Okay. Thank you.

Thank you.

Thank you. We'll go next to Daniel Meron with RBC Capital Markets. Please go ahead.

Thanks. Congrats on the good performance.

Thank you.

Maybe you can -- maybe you can touch a bit on the progress with IPTV. Do you see the same levels of interest where your projects are at this point?

Daniel, in terms of the IPTV, obviously, different carriers have different approach to IPTV. AT&T, being the earlier adopter in North America in a big way, we see a lot of progress in our project with AT&T around IPTV, around IPTV, and around IPTV as an infrastructure for data services that's under the Lightspeed and general name, but even this quarter, we had some progress in additional services and support of this project. So AT&T is moving full steam ahead, and we see a lot of progress there.

In Europe we see a lot of interest, but we could not provide any specifics in terms of timing or whether they're going to jump into this wagon. I would say they are more in a trial mode. They show a lot of interest in our offering there. The most important thing for us is that IPTV is only one application, and not necessarily the winning application in the future that carriers are going to.

We have talked about transformation to digital networks, IP network, and it could be that the application would be different in the future. They are using the same infrastructure for VoIP. They are using the same infrastructure for other video services. And we believe that we have the right solution to support the IP networks of the carriers as they move forward to them. And IPTV is one example of it.

Thanks, Eli. And maybe just tying into that, do you -- did you start any discussions with wireline carriers with cable companies on way to put the Qpass capabilities into that domain? Or is it too far off right now?

No, we started the discussion along we -- Qpass revenue comes mainly today from mobile content, but this product is 100% capable to support broadband and other. They -- we have some customers today on the broadband side, and we see interest from other fixed line or wireline companies to this type of product and services.

And let me add to what Eli said that given the convergence, for example, in AT&T where they are looking to provide the quadruple-play, at some point, the advantages of implementation of Qpass in the wireless might be at high demand with wireline carriers, given the convergence everywhere.

Thank you. We have time for one final question. And we'll go to Gil Luria with Wedbush Morgan Securities. Please go ahead.

Good afternoon.

Good afternoon.

Just had a question on Cramer. How many additional customers that don't overlap with you do you see them adding beyond the product set that doesn't seem to overlap with your product set?

It's quite a few. In Europe, Western Europe, Eastern Europe, rest of the world, APAC, could be dozens. They have 80-plus customers, and we overlap with -- in some cases. Luckily, or smartly, they're concentrating on the tier-one, tier-two space as well. So we see a lot of cross-sell and up-sell opportunities once we close this deal. And linking it to Daniel's question, their product is capable to handle, and is handling today, wireless, as well as wireline companies, as well as cable companies in the future. So we think that as we see wireline companies, fixed line companies, waiting to spend more money to protect their customer base and to grow, we think Cramer product will also be a good door opening for us to additional carriers, wireline and wireless alike.

Great. Have you been approaching some of those customers with Cramer since you started the partnership? Or are you going to wait for the close to do that?

Well, as -- we have one indication that we -- not only that we approached it, it's actually succeeded, which is Telstra. In Telstra, as part of our alliance with Cramer, we aligned our activity there. Obviously, it was part of alliance, so it is relatively harmless type engagement. Needless to say, as soon as we close, we are going to have a campaign to many more customers. We are very enthusiastic about this deal. Cramer people are very enthusiastic about this deal. And I think the market altogether is -- really see the value that we can now bring to the market.

Thank you. Actually, we do have one last question. We will go to Liz Grausam with Goldman Sachs. Please go ahead.

Hi, guys, thanks for taking the question. I am just wondering about the European market. We have seen very large transformational projects launched in North America, both Canada and the United States and also Telstra, from a very large cross-product project. Have you seen that start to emerge in Europe yet? And if not, is it something that we can see on the near-term time horizon to get the European market to start spending more materially?

Liz, there is a difference between North America and Europe. The competitive environment among carriers in North America is by far more intense in comparison to Europe. As a result of it, we see the transformation in much more advanced stage in North America and compared then to Europe. So talking to the European carriers, to the leadership there, they are convinced that they have to go through the transformation. The time line is a little bit different. So we see some preparation. We see them talking about it. We see them preparing for it. But we assume there will be a lag of maybe two, three years.

And, Liz, in the meantime, we do not see the large transformation project, as Dov mentioned, but they buy components from our ICM portfolio. A few good of the wins that we -- quite a few of the wins we have this quarter came from Europe and from other parts of the world, so it is not that they are frozen there by any stretch of imagination. We are keep on going there, and there is a big demand for our product and services there.

Is there any difference in Europe you could characterize between wireless versus wireline spending patterns? Is one more aggressive at this point in time?

Not really. Actually, both are -- look, Telstra is a wireline project. In the win list, we have a few wireless wins, and, no, I don't think that's so.

Everybody eventually is going to triple- or quadruple-play. So it is just a matter of where do they start, and what is their strategy to get to bundling and convergence. So I would say, we see the demands from both ends. In terms of big transformation projects, I don't know.

It looks like that Europe is going through the same pattern of the United States, consolidation and convergence. And once they go through the transformation, we believe -- and based on our discussion with them, that Amdocs might be a very -- the natural choice for such converging, consolidating, mega carrier to help them go through the transformation, helping them to -- with thought leadership, helping them with our set of product, the OSS that is needed in the initial stage, the BSS later on, business processes services. So we feel that Europe is a big potential that we have not yet enjoyed from.

Thank you. That concludes today's question-and-answer session. At this time, I would like to turn the program back over to Amdocs for any additional or closing remarks.

Okay. Thank you very much for joining us on the call today. This concludes the call.

This concludes today's conference. You may disconnect your line at any time.