Amdocs Ltd (DOX) 2007 Q2 法說會逐字稿

Welcome to the Amdocs second quarter 2007 earnings release conference call. Today's call is being recorded and webcast. Now at this time I'd like to turn the conference over to Tom O'Brien. Mr. O'Brien please go ahead.

Thank you. I'm Tom O'Brien, Vice President of Investor Relations for Amdocs. Before we begin I'd 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 and 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 to analyze the critical components in result of the operation 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 deviations will not be material. Such statements involve risks and uncertainties and may cause future results to differ from those anticipated. These risks include but are not limited to the effects of general economic conditions and 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 our Annual Report on Form 20-F filed on December 13, 2006 and our form 6-K furnished on February 7, 2007. 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 Chief Operating Officer; and Ron Moskovitz, Chief Financial Officer. Following Dov and Ron's comments we'll open the call to Q&A. Now, let me turn the call over to Dov Baharav.

Thank you, Tom. Good afternoon ladies and gentlemen. We are pleased to report $0.33 for the second quarter of fiscal 2007. Revenue grew 18% to $706 million and non-GAAP earnings per share also grew 18%. Demand for our products and services is strong as service providers continue to focus on their customers. The leading service providers are pursuing strategies including consolidation and convergence while coping with intense competition. We have positioned Amdocs to be the partner of choice to this leading service provider, supplying solutions that transform BSS to OSS.

This quarter is characterized by strengthening the relationship with our customer. First, our existing business remains strong. Second, the way this quarter combined with existing business continued to driver our growth. And third, while there are still some potential projects which are taking some time to close, there are others which are closing and which will contribute to the revenue in 2007 and beyond.

On the delivery front, this was a great quarter. We met key milestones on a number of very important projects and our delivery capability remains a competitive advantage when pursuing new deals. We continue to raise the bar in delivering complex projects, effectively using our talented employees in teams around the globe. We mentioned several wins in our earnings release today including a managed services contract with AT&T. We have worked with AT&T for many years and have provided them with systems to support the wireless, wireline, and directory business. It was our success in this effort which builds the trust in Amdocs and led AT&T toward us, the significant contract to support the legacy wireline, ordering, and OSA platform. The first of what hopefully can be more deals of this kind.

We also made important progress in OSS. Not only are we continuing the impressive success of Cramer, we are enjoying new success in delivering services around our growth platform, an area of our target market where a year ago we were just getting started. Looking ahead, we are confident that we can achieve our growth by continuing to maintain our strategic and operating focus. We know that there are uncertainties and challenges that must be overcome and we believe that we are the best positioned company to succeed in this market, and we look forward to success in the second half of 2007 and beyond. Let me now turn the call over to Ron Moskovitz for the financial review.

Thank you, Dov. Our second quarter revenue was $706.4 million representing growth of 18%. Our non-GAAP EPS which excludes acquisition related costs, restructuring charges, and equity based compensation expense net of related tax effect was up 18% to $0.52 per diluted share. GAAP EPS was $0.40 per diluted share.

I'll spend a minute now on a few P&L items. Please note that I'm referring to the results excluding acquisition related items, restructuring charges and equity based compensation expenses. License revenue was up this quarter due in part to strong OSS sales. Operating margins were 17.2% this quarter down 20 basis points from last quarter, but slightly better than we expected. R&D expense in the quarter decreased following the release of Amdocs 7, as some of these resources were moved to production support to affect knowledge transfer. This accounts for some of the reduction in service gross margin. Overall, we expect profitability in Q3 will be similar to Q2 levels. Improvements in profitability in some areas of our business are expected to be offset by margin pressure in the short-term related to the new minute services deal with AT&T.

The effective tax rate in Q2 is relatively low at 13.5%. We expect that our non-GAAP effective tax rate for fiscal 2007 excluding the tax effect of acquisition related costs, restructuring charges and equity based compensation expense to be in the range of 13 to 15%. We believe that this range is sustainable going forward. Free cash flow in this quarter was $58 million. Included in this number were $33 million in net CapEx. Free cash flow this quarter was impacted by the annual bonus payment to employees which are accrued throughout the year and primarily paid in January.

DSO at the end of the quarter was 62 days, up from last quarter, and billed accounts receivable decreased slightly to $58 million this quarter. The shared revenue was $265 million this quarter, an increase of $53 million from last quarter. We expect to continue to see fluctuations in this balance as it can be impacted by large advanced payments from customers among other factors. We may see some decrease in the deferred revenue balance next quarter.

Now to our backlog which includes contracts, committed revenue from managed services contract, letters of intent, maintenance and estimated ongoing support activity was $2.110 billion, at the end of the quarter, an increase of $20 million from the first quarter.

Looking forward, our guidance for the third quarter of the fiscal 2007 is for revenue of approximately 710 to $720 million and non-GAAP EPS of $0.50 to $0.52 excluding the effect of acquisition related charges and excluding equity based compensation expense over approximately $0.05 to $0.06 per share net of related taxes. Diluted GAAP EPS is expected to be approximately $0.38 to $0.41 per share. Our EPS guidance for Q3 is based on a fully diluted share count estimate of approximately 224 million shares.

For fiscal year 2007, our guidance is unchanged from what we gave last quarter, with revenue of approximately 2.83 to $2.91 billion, and non-GAAP EPS in the range of $2.02 to $2.12, excluding the effect of acquisition related charges, restructuring charges and excluding the effect of employee equity based compensation expense of approximately $0.21 to $0.24 per share, net of related tax effect. Diluted GAAP EPS is expected to be approximately $1.54 to $1.68 per share. Our fiscal 2007 guidance is based on a fully diluted share count estimate of approximately 224 million shares. With that, let me turn it back to Dov.

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

Very good. (OPERATOR INSTRUCTIONS) Our first question will come from Liz Grausam with Goldman Sachs.

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

Liz, actually, what we are trying to convey that we don't see any material change in comparison to last quarter, so the transformation in the industry occurs and we believe that not only the United States will see the main carriers transforming but also in Europe and the other places, and but it takes more time than what we expected at the beginning of the year, but if we compare this quarter to previous quarter, no changes and we feel comfortable with the rate of wins that we have and with the projection for the rest of the year.

And Liz, let me just add this, in terms of the question about the pipeline, the pipeline this quarter is strong, slightly stronger than last quarter, actually, and comprised out of a variety of opportunities from all different areas, building and mediation, and CRM, so service, boss, managed services which is a very strong indication of the strength of the pipeline because you need to remember that we just moved AT&T from the pipeline to the backlog this quarter, so the fact that the net was up towards is still a very strong pipeline gives us the level of confidence that Dov mentioned regarding meeting the Q3 and Q4 targets.

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

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

And when do you see that pressure in the year?

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

Great. Thank you.

Thank you, Liz.

Our next question is from Will Power with Robert W. Baird.

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

As you know, Vodafone embarked on ADM, managed services, application development maintenance deal, mainly with IBM and EDS. IBM on the South European countries and ADS on the North part of it and we are on the primary partner for both EDS and IBM for their customer account bidding process. All in all, the plan is on target in terms of the rate of adding new carriers or what they call (Inaudible) on to this master plan. In parallel, we have new opportunities in Vodafone, all around Vodafone, and these opportunities are not contradicting, not contradicting the ADM trend. We're talking about new wins that we had in the last couple of quarters so we progress Vodafone in two avenues. One is new wins that we have on different applications and the second component is part of our alliance with IBM and with EDS on the ADM managed services deal.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) We'll next go to Tom Ernst with Deutsche Bank.

Good afternoon, gentlemen. Thank you.

Good afternoon, Tom.

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

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

Our next question will come from Ashwin Shirvaikar with Citigroup.

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

When we look at the different layers of our business, basically, we have -- we acquired a lot of companies , a lot of businesses and we are investing on many growth engines and that's put some pressure on the profitability on the short-term. The same case is applicable to the managed services deal, so if we look at say the core business that we had from previous to all the acquisitions we got to the 20% and we have specific targets for each layer of our business to get to 20%, it may take some time, and it doesn't take into account some additional activities of M&A that we can do in the past -- in the future, sorry. As for the managed service, for the specific managed services deal, although we target to get to a managed services profitability which is in line with our corporate

Ashwin, also, regarding this deal, I want to add maybe two comments. First of all, the gravity and the importance of this deal, we had a very short press release, but the idea that the telephone companies, the heart of AT&T is outsourcing to Amdocs Systems that are mainstream and mission critical to them. We are talking about the ordering and the mighty sword. Built a core system that was developed 30 years ago and over they managed there to touch it for many many years. The fact that they are outsourcing this type of application, an application to Amdocs is a great vindication of the trust that we have.

The second comment I would like to say in terms of the levers and how we intend to grow the margins, obviously we are going to get hundreds of people and we would move part of this walk into lower jurisdiction and lower cost jurisdiction of Amdocs. We have some ideas and plans how to improve effectiveness of the people, and we may use as we usually do some creative software also to mechanize more things that were not mechanized before. So between the different components of this higher effectiveness and lower cost, we believe we can improve the margins on the specific deal.

Okay, thank you.

Thank you, Ashwin.

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

Good afternoon. Could you provide us with an update on the competitive environment? I believe we just passed the one year anniversary of when Oracle acquired Portal and I was just wondering if you're seeing them in a more significant way than what you have in the past?

Looking at our competitive landscape, we see Oracle, we compete with Oracle, but I would say to a lesser extent than what we expected in the short-term, so Oracle bought Siebel, they bought Portal and they inherited the server competitive situation in many places. I would say that some quite (Inaudible) failure of Portal, and several accounts help us to actually gain advantage in the market and I would say that looking at the last quarter, we didn't lose to the competition and -- we didn't lose to the competition and actually, we feel that we are gaining momentum, and maybe it takes them more time to get organized and to start competing with us. So we feel good about where we are right now

Great, thank you. And then just one follow-up. Did the new AT&T deal contribute to reported backlog? And then where do you see backlog going over the next quarter or two?

The AT&T deal contributed to the backlog, the annual run rate of this business is the tens of millions of dollars a year, so it is included and as for the backlog, in the following quarter we are not capable of providing guidance for the backlog. We expect that over time, it will correlate to the growth of the business and then we'll see growth and we expect growth in Amdocs f business in all fronts, we expect backlog to grow as well.

Okay, thank you.

Our next question is from Scott Sutherland with Wedbush Morgan.

This is actually Terry Rice for Scott Sutherland. It seemed like your guidance for the year, you've kept it the same which seems like it's become a little bit more pushed to the second half. Can you talk a little bit about the levers that you'll use to get to the mid point of that guidance?

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

But do you believe you have the projects with the new AT&T project and Sprint that the business is in hand that you can get to that level today?

We cannot refer to it whether we are at this point or the other. If we wanted to give more specific guidance with one number, we would have done that.

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

Yes, what I meant is that the AT&T deal and this is typical in our managed services deals, at the beginning it creates some pressure on the margin so this deals by itself creates some negative impact on the margins on the short-term. On the other end, in other parts of the business we expect to see margin improvement, and these two elements are going to offset one another.

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

For all the business other than the AT&T that we are going to see increase profitability, the AT&T deal by itself is going to impact us negatively in the next couple of quarters. Overall, we're going to see flat margins.

Very good. Thank you.

Your next question is from Marianne Wolk with Susquehanna.

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

First of all we see, we are very pleased with the growth of the license. This has to do with a strong sales and in particular a very good performance on the OSSA division and looking forward that the next quarter, we have several scenarios. Overall we expect license to grow. I'm not sure that it's going to grow as a percentage of a revenue, but we surely expect to see some growth.

So you're assuming sequential growth there?

Yes.

And my follow-up was with regard to Sprint. Is there any way to convey to us the kind of momentum you're having in converting subscribers? Some of your competitors are indicating that there really hasn't been any momentum in the conversion side and suggesting that you're still in the test stage, so is there any way you could describe to us the kinds of successes you're having at this point on the Sprint contract?

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

And can you at least convey whether or not we're still doing sort of 100,000 here or there or whether you're into the millions yet?

It's in the millions, but the numbers you'll have to ask Sprint.

Thanks very much. Oh, wait, one last quick question on the tax rate. Last quarter, you said the 13.5% rate was due to a reversal. Are these reversals now permanent? How is it that you were able to extend that through the course of this year and should we assume 13.5% is also a good rate for fiscal 08?

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

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

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

Yes.

Hello?

Yes, Daniel, we hear you very well.

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

We are very pleased with our progress in the cable, what we call broadband cable and satellite business. We enjoy a warm welcome by the different operator. We see receptiveness to our offering, and we enjoy several wins, expansion of existing activity, conversion of new subscribers and so moving new subscriber from a system of other vendors to our systems, so increasing our relative share there, expanding the functionality that we provide to the carriers, and I would say quite advanced discussion regarding a more meaningful and sizeable deal with these guys. Now, what we see is that the cable industry is moving to the quadruple play. They are moving toward a new era where they will have to offer a complex offering of a voice/data/games/video, maybe advertising, everything combined on an IP model, and that will require capable, flexible, agile systems which enables them to create this intentional customer experience. Now, the IP TV progress--.

Excuse me?

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

And our next question is from Sterling Auty with JPMorgan.

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

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

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

I agree with you that we have some contradicting messages from the market, and we see a lot of opportunities in all areas and we have a very diverse offering to the market, in the billing, in the CRM, in the OSS, in mediation, and in managed services, in consulting, so and many geographies, in low ARPU markets and in the high ARPU markets, so overall, we see more opportunities; however, the pace of transformation and the number of signed deals that we have seen in this quarter, about the same pace that we have seen in the last quarter, so overall looking backwards, we cannot say that there is a substantial improvement. Looking forward, there are many opportunities and the jury is still out on how fast we will be able to convert the prospects to a contract.

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

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

That helps a lot. Just one last quick one would be on Q pass. That is one of the newer areas that you talked about OSS, but can you just give us some color on the experience with Q pass in the quarter if you can give us quantitatively that's great or at least qualitatively.

We are pleased with the performance of Q pass, there is growth. We enjoy very nice growth. The activity in this area is growing. We believe that the growth that can be achieved in this area is much higher, and we are focusing these days on how we can take the Q pass activity that's relative to our overall activities and how we can use it as the cornerstone in order to build a substantial revenue generating activity and just let me remind you that in this area, this is the main growth area for the ARPU for wireless companies and they expect to see increase in the digital advertising for wireless companies and many additional services regarding Mobile TV and gaming and others and music, so we see huge growth and our focus will be, how we turn Q pass to be just the beginning of a substantial portion of our business.

Great. Thank you very much.

Thank you, Sterling.

Your next question is from Tal Liani with Merrill Lynch.

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

So thank you for the question, Tal. First of all, we did commit to 20% within 2008. We believe that the fundamentals of our business are as such that in any slice of the business that we deal with, we can get to the 20%; however when we combine the organic activity of the Company with some acquisitions and some investment in new growth areas, we compromise the margins of the Company in order to accelerate the growth rate of the Company. So, if we grow organically and not do any I would say anything which is outside of the normal course of business, we believe that we are on track to get to the 20%, and frankly, any time that we do something which is outside of it to invest in new areas, so we are going to see this pressure as we see in 2007.

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

I would say it's too early to put the 20% into '08. We expect to see growth margin in '08 but I wouldn't rush. I would say it might be linear growth rather than a step function.

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

Tal? Let me tell you that I believe all the management and the Board of Directors, we like where we are. We like the activity of the Company. We think that we are equipped very well to be competitive in this market regarding our suite of products regarding our services, regarding our consulting, regarding our market position, and we like where we are, and we think that we bring and we will bring great value to our shareholders.

Great. Thank you.

Thank you, Tal.

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

Hi, guys, good afternoon. I think a question has already been asked on kind of the adoption of the cable market but can you talk a little bit about the road map of Amdocs 7? What sort of releases should we look for next in the road map to drive some deeper adoption in cable and in terms of how you get there, how are you trying to approach the market today knowing that big share gains aren't really up for grabs until 2008 and beyond?

Well, Tom, first of all, in terms of Amdocs 7, you need to know that we feel very comfortable and encouraged by the rate and the receptiveness of the market in Amdocs 7. As a matter of fact other than specific exceptions, Amdocs 7, is the only component that we sell in the market today and we have several significant wins on Amdocs 7. As for the future, we do not invest in Amdocs 8, or in Amdocs 7.5 based on the current view that we see of the market, by and large we go through the process of analyzing whether the market would need six months, 12 months, and 18 months down the road, and we are trying to make sure that we are ahead of the curb. That's the advantage of Amdocs and that's what we are going to do. So just do give you an idea, we came up with a new product which is enterprise product catalog, and integrating this type of components into Amdocs 7. probably will create new version, either minor or major one.

So we have many plans in the pipeline, and we are trying to be ahead of the curve all the time, and that's why our customers like to buy products from us because in a way, we anticipating where the market is going and what needs to be there. In many cases we are doing it with one or two better customers, so we are are avoiding the risk of developing new versions in ivory towers and assuming that we know better than what the market needs, which is part some time part of the competitors -- of our competitor'[s approach. We usually develop things that are coming as a result of talking to our customers and analyzing what will they need in 6 to 18 months.

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

Thank you, Tom. As you know that we have good relationship with IBM for quite some time now, probably three years or more. All of our products are becoming any new release is actually an IBM plus on compatible these days and the new agreement or the renewed agreement that we have with IBM that we recently announced makes sure that we have much more planning and much more going to market strategy with IBM. That is to say that we go through region by region. We try to analyze the situation in different places and we try to see which are the beads that we are going to bid with IBM and in some cases, some time many cases, we do not bid with them , but on those that we do, we have an early process to identify those, to set up the teams, and to follow-up on it, on a regular basis between our executives and IBM partners on the ground. So today, for example, we have a very good relationship with IBM on the test build for example.

On the Vodafone build, as I mentioned, and in quite a few other deals and some of them are in the early stages and some of them are in the later stages. All in all, it means that we act on both sides, not as an exclusive partner but as preferred partner, and we believe it represents a win-win and win partnership on both

Great. That's great. Thank you very much.

Thank you, Tom.

Our next question is from Ben Abramovitz with ICAP Securities.

Good evening, guys.

Good evening.

Just wanted to focus for a minute on your acquisition of SigValue in the quarter. How much it contributed to revenue in the quarter? How much it contributed to the tick up in backlog, and maybe on the deferred revenue side how much SigValue contributed.

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

None to backlog?

Yes.

And deferred revenue then I assume none as well?

None.

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

Well, we are on target in terms of the plan to integrate the CRM to the cable enabled billing components as planned. But Ben, let me just go back to the other question of SigValue and just address the strategic importance of this acquisition. As we all know, most of the growth in the world is happening in the lower ARPU regions these days. If you look at Vodafone, the growth of the mature market is very modest, very very modest actually and then most of the growth comes from the emerging market and that's a phenomenon we see all over the place.

SigValue is a phenomenal technology that allows us to offer mainly pre-paid but maybe some post-paid in some cases, offering and in a shrink wrap software and in some services but not, does not require a lot of services and to sell it to the low tier and the low ARPU areas, and this is strategic value for us. And in the future, obviously we'll be able to in some cases, in some areas, to augment this SigValue components with other Amdocs components but for the short-term, it gives us a great vehicle to get into regions that were not part of Amdocs territory, before, and we are very encouraged from the result that we have seen in the short time that SigValue has been under the arms of Amdocs by joining Amdocs, SigValue got a lot of credibility in terms of deliverability, in terms of technology depth, and as a result, we see good momentum and hopefully in the next few quarters we'll be able to break some news around wins in this area.

Thank you.

Thank you, Ben.

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

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

No. Nothing material. There was some but nothing material. Overall we have some edging and there was some things that offset one another, so nothing to report about it.

Fair enough. With respect to the upcoming AT&T contract, are you guys, will you go through some sort of a selective hiring as this starts ramping up down the road?

IT's mostly people that we get from AT&T with some subcontractors so it doesn't require hiring from us at this point.

Got it. What was kind of the recent headcount as you exited the quarter?

Of the Company?

Yes.

It's around 8,000 people.

All right thank you very much.

Thank you.

Our next question is from Larry Berlin, First Analysis.

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

Somewhere between 35 to 40%.

Okay, can you give us a normal geographic break down? We haven't done yet in awhile.

Geographic break down, we have 67% in North America, 27% in Europe and 10% in the rest of the world.

Okay, and what was depreciation and amortization?

Depreciation and amortization, it's overall $41 million.

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

Yes, Larry, actually, it's early. It was not by mistake. What is happening is quite some time we are dealing with this dilemma. Part of the reason we think that it's becoming less and less meaningful is because we have a lot of numbers of small deals on the CRM side and now with SigValue, some smaller components and in some cases with the OSS, and as a matter of fact, the actual number is becoming less and less meaningful and we saw that actually the guidance is a better indication for where the business is going. For this specific order the numbers were higher than last quarter but again the number per se of wins does not mean as much and therefore, we did not use it.

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

Thank you.

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

Great. Thank you, and on behalf of the Company, I'd like to thank you to everyone for attending the call. This concludes the call.