Amdocs Ltd (DOX) 2007 Q4 法說會逐字稿

Good day, everyone and welcome to this Amdocs' fourth quarter 2007 earnings release conference call. Today's call is being recorded and webcast. At this time I would like to turn the call over to Mr. Tom O'Brien, please go ahead, sir.

I'm Tom O'Brien, Vice President of Investor Relations for Amdocs. 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 fact 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 investor to consistently analyze the critical components and results of operations of the Company's business and have a meaningful comparison to prior periods.

For more information regarding our use of non-GAAP financial measures including reconciliations of these measures we refer you to today's earnings release which will also be furnished to the SEC on Form 6-K. Also this call includes information that constitutes forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated.

These risks include but are not limited to the effects of general economic conditions and such other risks as discussed in our earnings release today and at greater length in the Company's filings with the Securities and Exchange Commission including our annual report on Form 20-F for the fiscal year ended September 30, 2006, as amended and our Form 6-K furnished on August 6, 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 on the call today are Dov Baharav, President and Chief Executive Officer of Amdocs Management Ltd.; Eli Gelman Executive Vice President and Chief Operating Officer; Ron Moskovitz, Chief Financial Officer; and Tamar Rapaport-Dagim, our incoming CFO. Following our prepared comments we will 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 our results for the fourth quarter of fiscal 2007. Revenue grew 9% to $727 million while non-GAAP earnings per share grew 8%.

During the quarter we had a number of important wins. For example, a long-term agreement that expands and extends by 4.5 years our current IT, our sourcing services agreement with AT&T. Under the agreement Amdocs will provide software development, organization, consolidation and other IT services to AT&Ts advertising and publishing operations. We were also selected by one of the largest wireless provider inside Latin America to supply emission critical systems supporting a large conversion project. This deal may open the door for more businesses with this very important customer.

2007 was a good year for Amdocs. Revenue grew 14% and non-GAAP EPS grew 16%. We will leave 2007 further increasing our leadership position in the marketplace from a product standpoint. For the first time in the industry Amdocs 7 offers a single platform capable of supporting the complex requirements of traditional and next-generation video, voice, and data services. Amdocs 7 demonstrates the kind of innovation that will let us drive growth in 2008 including in the moving cable and satellite markets.

During 2007 Amdocs believes new functionality and ground breaking project for key customer such as AT&T, Sprint, and Telstra, we believe that as in the past our exceptional delivery performance will lead to new and expanded business with our existing customers. During 2007 we integrated Cramer and Q pass into Amdocs. Cramer helped us accelerate our offering in the fast growing OSS market so that we can provide full spec, slow supervision. Q pass positions Amdocs to be the leader in the growing market for content which is a key focus area for our customer as they seek new sources of revenue from areas like digital advertising. In 2007 we acquired SigValue to provide us with an offering for the fast growing prepaid wireless activity in emerging markets where most of the subscriber growth is expected to occur. The common denominator of all this activity is that it supports our growth strategy by expanding our addressable market and positions Amdocs for success in 2008.

When we look at the market today and project what we expect to see in 2008 we see that the competition between service providers remained intense. New products and services continue to be introduced in order to attract and retain subscribers, as we saw in 2007 leading service providers are continuing to spend on transformation projects in order to (inaudible - highly accented language) the OSS and BSS to support digital services. Overall we remain encouraged by the trends that we see. We expect that the market forces will continue to drive consolidation in large IT transformation projects in 2008 and for years to follow and that Amdocs is well-positioned to win these businesses.

When we look specifically at our focus for Amdocs 2008 we see continuous growth. We expect to win additional transformation business in 2008 but we are not counting on a material improvement in the face of transformation in order to reach our guidance. We are currently negotiating a number of significant bills which should be the catalyst that drives 2008 growth including an acceleration of growth in the second half of the year. This deal among other includes telecom managed services deals and opportunities in the broadband cable and satellite market. We expect a modest decrease -- a modest increase in the profitability of 2008 even after taking into account this potential managed services deal. Our plan for 2008 also includes an increase in revenue related to content and emerging markets. But these activities are really position Amdocs for growth in 2009.

To satellite. We see growth in our market and the deals we are working on now give us the confidence that we can accelerate growth in the second half of fiscal 2008. Let me now turn the call over to Ron and Tamar for the financial review.

Thank you, Dov. Our fourth quarter revenue was $726.7 million, representing growth of 9.2%. Our non-GAAP EPS which excludes acquisition related costs and equity based compensation expense net of related tax effect was up 8% to $0.54 per diluted share. GAAP EPS was $0.43 per diluted share.

I'll spend a minute now on a few P&L items. Please note that I'm referring to our non-GAAP reserves which excludes acquisition related items and equity based compensation expense. Licensed revenue grew again this quarter due in part to strong subscriber growth in our customer base and also from OSF sales. This line item will fluctuate as we had more product sales than in the past. At this time we are projecting license revenue to be at the lower level next quarter but license is expected to grow as the year progresses. Operating margins were up slightly compared to Q3 as the decrease in gross margins was offset by favorable trends in R&D and SG&A. Overall we expect profitability in Q1 '08 to increase slightly compared to Q4.

Other income decreased this quarter and is projected to slightly decrease next quarter due to lower focus at the interest income. The effective tax rate in Q4 is again relatively low at approximately 14% giving Amdocs effective tax rate of just under 13% for the fiscal year in 2007. The rest this year was positively affected by the successful resolution of the tax audit. We expect that our non-GAAP effective tax rate for fiscal 2008 excluding the tax effect of acquisition related costs and equity based compensation expense to be in the range of 13 to 15%.

Free cash flow in the quarter was $68 million, included in the calculation of this number was approximately $40 million in CapEx. DSO at the end of the quarter was 62 days, the same as last quarter. Unbilled accounts receivable increased slightly to $63 million this quarter. Deferred revenue was $174 million this quarter, a decrease of $70 million from last quarter. The majority of this decrease related to two customers. As we mentioned to you in Q2 '07, for example, when deferred revenue increased by $63 million primarily due to a large investment customer we predicted that this balance would decrease.

During Q4 we executed on some deliverables which were related to some large advance payments causing the deferred revenue balance to decrease. Since significant advance payments are difficult to predict and are not received in most cases, this line item will fluctuate from quarter to quarter. Our best estimate today is that the deferred balance at the end of Q1 may will fluctuate slightly from the Q4 level. And now let me turn the call over to Tamar.

Thanks, Ron. First, let me comment on a couple of 2007 items which will also affect 2008 beginning with backlog. Our twelve-month backlog which includes contracts, committed revenue from managed services contract, letters of intent, maintenance and estimates of ongoing support activities was 2.170 billion at the end of the quarter, an increase of 40 million from the third quarter.

We understand that backlog is an important metric for investors to use when analyzing Amdocs and we will continue to provide this metric to you. As we have discussed over the last year or so we are seeing more business for Amdocs that is not fully reflected in Amdocs. For example, some frame of license revenue is recognized relatively quickly. Also we have some customers that permit a project one phase at a time so while the actual amount of work that we do might be very large, the commitment at any given point in time is relatively small and therefore the amount that we can put into backlog reflects only a part of the project. However, since for confidentiality reasons we cannot share you with you the details (inaudible) information that we use internally we intend to continue to provide twelve-month backlog as a tool for your use.

CapEx for 2007 was approximately $165 million. We expect a similar level of spending in 2008 as we continue to invest in managed services projects and support the overall growth of our business. Depreciation in 2007 was $86 million and is expected to increase in 2008.

In August, 2007, we announced that our Board of Directors had authorized a $400 million share buy-back. During the quarter ended September 30, we used 50 million to repurchase approximately 1.4 million shares at an average price of $35.30 per share. From October 1, through yesterday we used another 18 million under our 10b51 plan to repurchase approximately 538,000 additional shares at an average price of $33.76 per share. As we have said in the past our first priority for our cash is for strategic M&A and managed services deals but we also intend under the right circumstances to continue to execute on our buyback plan.

Looking forward our guidance for the first quarter of fiscal 2008 is for revenue of approximately $735 million to $745 million, and non-GAAP EPS of $0.55 to $0.57 excluding the effect of acquisition related charges and excluding equity based compensation expense of approximately $0.05 to $0.06 per share. Net of related tax effects. Diluted GAAP EPS is expected to be approximately $0.43 to $0.46 per share. Our EPS guidance for Q1 is based on fully diluted share counts estimate of approximately 223 million shares. For fiscal year 2008 our guidance is for revenue of approximately 3.05 billion to $3.15 billion non-GAAP EPS in the range of $2.29 to $2.39, excluding the effect of acquisition related charges and excluding the effects of employee equity based compensation expense of approximately $0.20 to $0.23 per share net of related tax effect. Diluted GAAP EPS is expected to be approximately $1.82 to $1.95 per share. Our fiscal 2008 guidance is based on a fully diluted share count estimate of approximately 225 million shares. I want to emphasize that the forecasted share count that I have just gave do not include the effects of any future share repurchases that we may conduct in 2008.

Now let me turn the call back over to Dov.

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

Thank you. (OPERATOR INSTRUCTIONS) First question, Ashwin Shirvaikar from Citigroup.

Thank you. Now that you guys have delivered $2.14 EPS I suppose it was unnecessary to lower guidance in January this year, hurt your stock, you are near the top of your original range. So my question is, what level of conservatism do you have in your current guidance, what are the margin improvements and buy back assumptions you're making?

Ashwin, we actually provided the guidance that reflects our best estimate for the year. We feel quite comfortable with what the probability of meeting this guidance and as we mentioned, the guidance that we provided is based on, on specific deals that we are negotiating right now that will start contributing to the revenue in the, more in the second half of the year. And we are encouraged by the fact that we see increasing profitability during the year. So when we gave the guidance with our best estimate and that's what we feel comfortable with.

If we can talk about some of the margin improvement levers?

Well, what we see in our activity is just before that we are able to improve the gross margin and improve actually the operating income given the, I said before the fact that we are getting more, being more effective in our delivery. Secondly, we are able to do progress in our many services large deals. And on top we are making progress integrating the acquired Company that to some extent was a drag on the profitability last year and there will be, we will have higher profitability next year.

Once again, once again I would like to reminds everyone to limit yourself to one question and follow up. We'll go next to Liz Grausam at Goldman Sachs.

I would just like to expand on the margin suggestion because your guidance does suggest 8 to 10% top line growth and only 7 to 11% earnings growth for the year which really doesn't point to a large amount of margin expansion yet you do have some significant maturation process going on with the managed services deals and I think we've been banking on getting some margin expansion in this business for some time. So if you could discuss the trends that you're currently seeing, particularly in your services gross margin and if you can paint a path of profit improvement for us throughout the year and when we may see that from a timing standpoint and then kind of capture that and what margin expansion you'd expect year over year for 2008 in basis points for us so we can kind of get a sense of where your heads are at?

First let me address the trends during the year. We expect the margin improvement to continue during the year. And as to the reasons why you see on EPS growth that is the, matching the revenue growth, you need to remember that also the tax impact is coming into play as well as the final income. From a tax point of view, 2007 resulted in very low tax rate of 12.8%. That had to do with the resolution of a tax audit in the U.S. favorably. While in 2008 we forecast a range of 13 to 15% inconsistent with what we predicted in the past. As to final net income unfortunately interest rates are going down and that will have some impact on our op line income as well. So although the operational margin is going to improve, some of the other items down through the net income level and have some opposite effects.

Okay. And then just looking at your top line outlook, you certainly painted a picture to the Street back at your analyst meeting of a target of 10 to 15% long-term revenue growth and the projections for 2008 are for 8 to 10%. Dov, you certainly captured or described some conservatism in that that you're not counting on any reacceleration in deal activity and you are also in current negotiations. But if you can kind of bracket that for us the 8 to 10% level, why is it coming in below expectation of your long-term target particularly in an environment which seems to have a lot of pent up demand?

Well, Liz, thanks for the question. We said before that the long-term growth of the Company is to 10 to 15% which is more than double the rate of the industry growth that we are in. We still believe this is long-term growth rate of the Company. This year it's on the low end of this range. We do not count on significant M&As or activities of this nature for this growth. And we believe that the rate of transformation in the industry will eventually accelerate. And this acceleration will actually, will actually get us to the higher end of the range or maybe even more than 15%. Now for this specific fiscal year '08, since we are currently negotiating several large, very large deals we are expecting them to get into a certain time of the year and with this built in we expect accelerated growth in the second half of the year. If you try to calculate the second half of the year growth, you will see that we are willing to the range that we predicted for the long-term of the Company growth.

Our next question goes to Daniel Meron of RBC Capital Markets. Mr. Meron, your line is open. We're not hearing you. Please check your mute button.

A couple questions, first of all, as far as the deals that you are seeing right now in the market, do you see them more from wireline, wireless, where do you see that? And also the push out that you're seeing, is there any particular reason for that or is it more customer specific or is it just more of a general industry trend?

In terms of the pipeline and the deals that we are negotiating in, we see both wireline and wireless and MSO. Cable and satellite. And a few others. So from this respect we see this type of specific deals in our pipeline and the specific deals that we are referring to in the Street. I'm not sure if I got the second half of that question, though.

Mr. Meron, your line is still open. You just broke up.

Yes, just if you can just give us more specifics about why the sales cycle has been so long. I mean, a lot of these deals have been in the pipeline for a long time and we are just waiting for a lot of these deals to just come in. Why are there so many delays in that and what would get those projects to kick in in the second half of '08?

Well, what directories the market that we operate in, Daniel, is that there is consolidation. We are dealing with mega carriers. They need vendors that can handle this mega project and mega activity. Which creates the big opportunities for Amdocs and ensures that we will have growth in the future. But on the same token dealing with large carriers and discussing substantial deals is a toll, and the toll is that it takes time to negotiate it and if the deal is delayed by one quarter or two quarters, it has an impact on our growth rate. So now we have more confidence given the fact that we are, we have more specifics and we are negotiating the deal, so we feel much better about the probability of having them in the second half and we were not able to close them before.

Okay. And then just a quick follow-up. Regionally, can you give us more specifics on where do you see the opportunities right now, it's more of developed markets and what do you think about the emerging markets mix into 2008? Thank you.

We feel that we have opportunities in the developed market and in the emerging markets. In the developed market we have small penetration, so in the United States, yes, we are in a good -- in North America we are in a good position and however we capture a small portion of the market. There are many areas in the developed markets, for example, Europe, and in other countries that have their own strong economy and which we have a very minimal penetration, just for example, Japan, Italy, Germany, countries that we have a very small penetration and that can serve as a big potential for us.

Now, on the same token and in talking about the potential, the emerging market represent a, I would say long-term big potential for Amdocs. Now we have done a lot in this regard. We have our activity in China. We say 1200 people, we say very successful implementation with China Mobile, the largest mobile carrier in the world, in Beijing ready for the Olympics. We have our activity in India with our DVCI development center there with 3,000 people. We have activity in many other countries and we can leverage the fixed value asset that now enables us to get to small countries, small carriers, that will grow and will provide us sources of revenue in the future. So I think that 2008 will see growth in the emerging markets for us but we will feel the full impact of it in 2009.

Our next question goes to Tom Roderick at Thomas Weisel Partners.

Hi, good afternoon, guys, thank you. Dov, in your comments, it seems as though your enthusiasm or maybe the tone around general business may be a little higher than it's been in past quarters particularly as it relates to some of these big projects on the horizon, pays to transformation may be improving. What gives you confidence when you make some comments regarding some of these bigger projects that are in the pipeline, particularly the managed services deal you referenced. What gives you the confidence that they can and will close over the next few quarters where this has been a year of delayed project spend and slow pace of transformation? Are you getting signals from specific customers that they are ready to go ahead and just need to clear budget? What are the hold-ups here?

Well, Tom, let me try to address your good question. I think in terms of the pace of transformation we said that we'd see about the same pace and we are not counting on a significant acceleration in '08. But we do see transformation. Now specifically the deals that we are talking about are not deals that we are negotiating for years. These are deals that we meet the people, we know the progress of the specific deals, we know the dynamics of these deals, we know how far we are and we know that some of them relates to some internal commitment that these carriers are taking which will materialize only as these deals are materializing. So again although we are not 100% sure and it's not in the bag we feel confident in terms of our ability to close these deals, not to mention that we believe that we are the only guys around that can actually execute on these specific transformation projects.

When you look these transformation projects specifically the deals that you're referencing, you're putting in a lot of work to get these to close, are these sort of one-off sole source negotiations or are there multiple other vendors at the table and kind of a formal RFP process on that?

I don't think that we can give that detail, Tom, sorry.

What we feel good about the probability that we can close the deal.

We'll go next to Shyam Patil at Raymond James.

Could you comment on why deferred revenue was down almost 30% sequentially? What caused that?

Sure. As we had noted in the past when we had the large advanced claims coming in, for example in Q2 of '07 if you recall we had an interest of $53 million in deferred back then. Then over time we have deliverables that are being executed upon such advanced payments and this is causing reduction in deferred. This kind of advanced payments are not a routine issue; we have not seen anything come in this quarter and it has to do with the specific nature of the deals and we don't foresee into the Q1 of '08 any significant fluctuations to continue in that space.

Then in regards to these large transformation deals that you expect to sign in the first half of '08, are they still in the competitive stages or are you in exclusive negotiations at this point?

Again we cannot provide a lot of details on this. But usually we are more confident when we are the one at the table.

It's not done until it's done and until we have it signed. However, we are in a good stage.

We'll go now to Scott Sutherland at Wedbush Morgan.

Thank you, good afternoon. And Ron, I guess your last call so good luck in your next endeavor.

Thank you.

A couple questions. First, a year ago you provided about this time some pretty optimistic guidance that was at the higher end of consensus expectations. Would you compare your guidance now that year, maybe at the lower end of consensus expectation, your guidance, is it the same type of visibility, are you being more conservative given you came more at the lower end of last year's guidance. Just give us a feel of how you're looking at guidance now, is it the same or different?

When we compare, Scott, actually the projections now to last year, we feel that now probably it's a little bit more conservative given the natural tendency of people after maybe being feeling that they were too optimistic last time, they are more careful this time. So we think that the numbers that we just provided present the right level of conservatism.

Okay. Great. And the second question is when you look at the cable market it seems like it's been generally a flat market bed. Within your numbers have you seen revenue grow in the broadband market, and would you say it's at the same corporate rate, the 8 to 10% range or is it faster or slower?

In terms of the market itself, broadband, MSOs can provide higher growth rate than the other telcos.

I guess the question was when you look at Q4 maybe where you were a year ago are you seeing something in the high single digits or double digits growth in revenue from the broadband market for you guys?

We usually see growth in cable the same of the growth of the Company. Although on a quarter by quarter basis it is flat but overall (inaudible).

However, the question is in our minds, the question is not what was the growth of the cable in Q4, but what is going to be the growth in our broadband activity in 2008. And we consider the broadband and satellite as one of the sources of growth for Amdocs, accelerated growth. So we expect the growth in the cable to be faster than the overall growth of the Company. And we believe that our offering is quite appealing and spending a lot of time talking to the leaders of this industry in North America and I would say that, I am quite encouraged by their reaction and by our prospects in this area.

Our next question goes to Shaul Eyal at CIBC World Markets.

Good afternoon guys. A couple quick questions, a couple of quarters ago you kind of ratcheted down your revenue if I recall by about 50 million. Any of this revenue that you see coming back in the past couple of quarters? Some of it at least?

I would say, yes, our expectation, for example, let me give you an example that we mentioned in the past. We have expectation in early 2007 to see the consolidation of AT&T and BellSouth. And happening earlier. And it took some more time to close it and AT&T is one of our most substantial customer with, which provides a substantial reason for being a optimist about our future revenue. So I would say that, yes, AT&T activity represents just a delay. On the other end we indicated in the past that the pace of transformation was not as fast as we expected and what we see now is that several carriers are moving toward transformation and we don't believe that there is a substantial transformation in the industry without seeing Amdocs in growth. So we would see all this potential as part of our byplan.

What was the headcount by the end of the quarter?

The headcount for the end of the quarter will be 16,000 so I don't know that we had a substantial increase this quarter.

Next question, Ben Abramovitz at ICAP Securities.

Two questions, there's been talk recently of service providers spending slow downs and I'm trying to get an idea, you are talking about transformation projects and large transformation projects, can you give us some color in terms of the overall environment of what the service providers are telling you or what you're seeing in terms of overall spending? And does that play into some of the guidance that you're giving for 2008?

So first of all we see that in 2007 there was growth in the CapEx of many of the carriers. Now from time to time it's quite misleading to look at the overall CapEx given the fact that most of it is network and equipment. Unfortunately Amdocs' portion of the CapEx is too small so, and not necessarily correlates to the overall investment. However, when you look at the Amdocs revenue, managed services for example is a good example that has nothing to do with the CapEx, the other way around. When carriers are trying to save some money and being more competitive, they suddenly let us do or managed services projects, by that reducing their cost, improving their SLA, being able to do modernization at the same time to -- for their activity. So we are able to combine for the carriers the reduction in their OpEx and even do something in the CapEx so overall they spend less money and we make more money.

So when looking at 2008 we see investment in the emerging markets. We see investment towards content, digital services. We see investment in transforming to a new IP network which will provide us revenue into (inaudible). And an increase in the managed services.

Now another important area for growth to us is the MSO, where they needs moving very fast toward the slip and play with the data voice and video moving to IP and that will, we have the best offering in this regard. So we believe that we will be -- have growth there and by the way another source of revenue for Amdocs is the Amdocs consulting division. We have one of the largest consulting division in North America, now we (inaudible) and we see there substantial increase in the revenue from consulting for digital consulting, PMO, additional services like testing and training and that also helps to increase the growth rate of the Company.

Then the broadband, the broadband cable deal that you're talking that's in the pipeline that you hope to close at some point in 2008, I'm trying to understand if this is an expansion of an existing customer or is this a new customer that would be coming over to Amdocs? Is it reupping, is it basically add on or transformation of an existing platform that's already there or is this a completely new customer to Amdocs that you're looking at?

Well, I don't think that we can really provide all the details that you ask for.

Some of them will be fine.

But I would say that it's a transformational project that includes significant components of modernization of software and conversion and activities of this nature and I think that's the best I can describe it.

Okay. Thank you.

We will go next to Jason Kupferberg at UBS.

A question on free cash flow here, I guess in fiscal '07 free cash flow came in for the year at I guess about 55% of non-GAAP net income and I think roughly on an annual basis you tend to look for that metric to be closer to the 100% range plus or minus a little bit. Now fiscal '08 I understand CapEx in absolute dollars is expected to remain at relatively elevated levels. So how should we think about the full free cash flow number relative to non-GAAP net income? Will it be higher on a percentage basis than it was in fiscal '07 or any color there would be great?

We believe that free cash flow will grow in 2008. As to the difference between non-GAAP net income and free cash flow, well, a couple of factors to consider. One, we are under an accelerated CapEx investment as well as other investments that have to do with some large managed services deals that we have executed and are performing these days as well as some changes in the -- the pattern maybe from time to time, quarter over quarter of invoicing milestones versus the ongoing delivery of the milestones in the projects such as example we had on the positive side in Q2 of '07 , when we got the large advance payment and then later on executing on these milestones and having the other way around. Overall we don't foresee any reason for a kind of a major change in the trends as we continue to grow and invest in new areas and we do see an overall growth in free cash flow into

Sorry if I can just get a clarification there, when you say free cash flow will grow in '08 will it grow about in line with non-GAAP net income, in other words so that the ratio between those two stays in the call it 55% range or are you expecting an increase in that ratio because of any kind of one time-ish events in fiscal '07?

Well, it depends, it depends on the type of the deals that will comprise the growth of the Company. So if we win several large managed services deals that will require some up front investment in cash, that might have maybe a negative impact on the cash flow of 2008 as we said the first part of it because we will have to win that. If the deal will be different, maybe regular deals, maybe then it might be the other way around. So I would say we should wait and see and if we hope to win managed services deal then we will see a little bit, we see growth but not maybe fully in line with the net profit of the Company.

And M&A pipeline, any color there on what you are seeing? It's been a little quieter recently but obviously you guys digested a lot in fiscal '07?

No, Jason, as we said all along it's first priority for use of our cash, it's not only that we need to digest all the asset that we acquired in the past year or two, it's also that we are looking for assets that support our strategy, I would call it the components and we have a good track record, we don't want to ruin it. We keep on looking around in all directions being additional products, additional penetration into certain areas. We do not exclude to buy within our space. And so I would say that we cannot provide more color right now. But we are as active in looking aggressively without compromising the quality of the target that we are looking for.

Our next question goes to Tal Liani at Merrill Lynch.

Tamar, thanks for the clarification on the backlog. I take the blame for creating the confusion of the wrong interpretation of the trends in the orders. But I want to ask you about overall your guidance, your deferred revenues is back to the level of Q1 '03, December, '03, and your guidance overall is below consensus, there were a few questions on the call about it that the midpoint is only 9% growth for the year. But on the other hand your comments are the most aggressive comments I remember hearing from you because you are very conservative in what you are saying. How do you bridge between the two things that on one hand you are very positive, you are saying that things will firm up soon, on the other hand the numbers and the guidance doesn't point this direction?

Well, the difference between maybe us and the external wall is that we are exposed to all the details. So Tal, we are fully aware of this discrepancy but when we reviewed the -- all our plants and looking at our market position and our relationship with the customer, if you are in the pipeline -- if you are in the deals that we are negotiating with our customers and as you know that projection that we provide is based on just accumulating and gathering all the activity with all the customers, so when we look at all that we, those are the numbers that we are guiding the market and we feel that based on the deals that we are negotiating now, based on the prospects and activities that we have reserved with customer, we feel that the guidance that we have right now reflects in I would say the right conservatism the expected reality.

Now regarding the deferred revenue, the deferred revenue is down, that's correct, due to certain large advanced papers from customers and might be that we should get used to a little bit lower deferred revenue in Amdocs due to the growth of the Company and the evolution of our business model. The fact that we are having more product right now, the fact that we are more involved in managed services, the fact that we are now signing a large deal which includes managed services and modernization, and we invest to some extent the up front money actually created some shift with the order 11 of the deferred revenue as the percentage of the total revenue of the Company, probably in the years to come will be lower than what it used to be in 2002 or 2001.

When you -- you said there are a few big contracts that could materialize in '08, you had two kind of periods, one time big contracts led to some margin pressure, other times big contracts had no impact on the margin, pressure -- on the margin, sorry, margin level. In this case when you look at the contracts in the pipeline, do you think that they could have an impact this way or another on the margin?

Well, the contract that we talked about, the impact on the profitability are in the numbers, in the guidance. That is to say, yes, usually when we sign a new contract at the beginning the profitability is not as high and we took that into consideration in our guidance. And we believe that after taking into consideration this large deal, scale, the profitability is going up. So overall we are doing better in the regular business and we are improving the profitability with all the activities that we acquired with Cramer, with Q pass, and others and we are doing better on managed services.

We will go next to Thomas Ernst at Deutsche Bank. Mr. Ernst, your line is open, we are not hearing you. Mr. Ernst, are you there? We are not hearing you. Please check your mute button, looks like you're muted. Mr. Ernst?

Oh, yes.

Now you're on, go ahead.

Sorry, this is actually (inaudible) on behalf of Tom Ernst. A couple of questions. One is, can you talk a little bit about the organic revenue growth in your core business with Amdocs 7, versus the contribution from Amdocs and Cramer, from and Q pass and Cramer, I should say?

Well, when actually, I don't have now the clear break down of the revenue from Cramer, Q pass in the rest of the business and let me tell you why. It's combined. For example, when we work for Telstra, when we work for British Telecom, we have a full suite of that OIBDA that part of it includes the Cramer activity, part of it includes the actives that were brought by Amdocs, now they are combined and we provide to all the suite services. It's a one large project. So to some extent it's impossible to differentiate between the two activities. And looking forward, we think that just part of the growth of the Company in 2008.

And then a related question, how much of the license revenue growth was with existing customers versus new footprint? I saw the announcement yesterday on T-Mobile International. Have you had other significant new wins that contributed?

We will, the growth in licenses is attributed to new levels that we want. As you know, we have substantial activity with Cramer and the rest of Amdocs. And some of it was with existing customer. So then we want to extend our activity, on the other in getting subsequent license fees and others and we said new functionality and new licenses. So I would say it's a combination.

We'll go now to Ted Jackson at Cantor Fitzgerald.

Thank you. Just a few point questions to help me true up my model. Number one is, could you tell me what operating cash flow was for the quarter? Number two is could you tell me either revenue level or at a percent of revenue level what directory publishing sales were?

Operating cash flow for the quarter was $107 million. If you want to deduct from that the CapEx amount, that was an additional $40 million spent on CapEx, net.

Thanks. And then how much, what was the percentage of revenue or the revenue amount in the quarter that came out of directory publishing?

About 10%.

Then just since I'm on this, could you give us an update relative to Sprint? I mean, it was supposed to be a big part in the back half of the year. It is nothing that is a problem from your delivery perspective but nonetheless they have pulled back in some of the implementation. Could you give us an update on what's going on with Sprint and your feel for where that account is going to be in 2008? And then I'm done. Thanks.

Well, in terms of Sprint, I would say that the project is going well, actually very well. We are meeting the requirements, meeting the milestones, and we are progressing with conversion plans and we believe that the completion of the conversion project is critical for the plans of Sprint and I think that they share the same view. And all in all we are meeting our milestones and we are growing the business at Sprint into new areas as well.

That does conclude our question and answer session for today. At this time I would like to turn the call back to the speakers for any closing comments.

All right. Thank you. To all those on the call thank you very much for attending the conference. Good night.

Thank you. That does conclude the call. We do appreciate your participation. At this time, you may disconnect. Thank you.