Amdocs Ltd (DOX) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to this Amdocs first quarter 2008 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, Jason. 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 effect of acquisitions and other significant items that may have a disproportionate affect 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. 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 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 risks as discussed in our earnings release today and at greater length in the Company's filings with the Securities and Exchange Commission including in our annual report on Form 20F for the year ended September 30, 2007 as filed on December 3, 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 are Dov Baharav, President and Chief Executive Officer of Amdocs Management Limited, Eli Gelman, Executive Vice President and Chief Operating Officer, and Tamar Rapaport-Dagim, Chief Financial Officer. Following our prepared remarks, 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 our results for the first quarter of fiscal 2008. Revenue grew to record $742 million while non-GAAP earnings per share grew to $0.56. We are executing on our plans for fiscal 2008 and we expect that we will achieve our goal for the year.

During the quarter we had a number of important wins and as a result a substantial increase in our backlog. At AT&T we found a major extension and expansion of our managed services business. This is one of the significant deals that we mentioned last quarter which should help us to achieve an acceleration of our growth rate in the second half of this fiscal year.

Under this new win, we will take on responsibility for supporting existing customer care and billing platforms, including systems that support the old BellSouth territory. We believe that we are the best choice for service providers who want to go to a managed services model. This is due to our unique dual expertise in both [IT systems] and business processes for our industry.

We are also pleased to expand our relationship with Sprint as we have been selected for a key role in their [zone] WiMAX initiative. Amdocs will provide customer experience system for ordering, service activation and provisioning, CRM, self-service and billing.

In addition to these wins and other renewal we are encouraged with the growing acceptance of our offering in emerging markets. This was demonstrated this quarter in wins with customers in India, Latin America and Asia. We see emerging market as growth area for Amdocs in 2008 and beyond.

We achieved our wins this quarter because we both execute and innovate. We introduced our customer experienced systems, or CES, blueprint in November and our CES 7.5 portfolio last week.

As you know, the key for a service provider to be successful in this transforming market is their ability to create a better customer experience by providing services that are simple for the consumer, valuable and personalized. This requires that they change the way that they do business by focusing on the customer.

We, Amdocs, are best suited to support carriers with our CES 7.5 offering and road map. This is the most comprehensive offering ever for the industry and will continue to widen the distance between am Amdocs and our competitors.

We are continuing to see demand for our products and services around the world. Our pipeline includes (inaudible) cable and satellite deals, new managed services deals, emerging market projects, strategic consulting initiatives and many other opportunities.

We hear the same things that you do regarding macroeconomic condition and we continue to monitor the potential impact on our industry and on Amdocs. When analyzing our business, we do a detail and bottom up basis, we have found that the deals that we signed and our ongoing dialogue with our customer regarding future business provide us with the basis for our reiteration of our guidance.

Furthermore, Amdocs has a unique business model that includes product services and many services which provide predictability and stability. This business model has proven to be fairly resilient and provide us with growth opportunities even when customers are more focused on cost cutting than on growth.

To summarize, we see growth in our market and the deals that we have. We find many business quarters and we are working now on building our plan for the rest of the year. We believe that the deals that we've signed and the negotiations that we have [with] with our customer will provide and are providing the basis for our reiteration and the acceleration in the second half of the year.

And by that, let me now turn the call over to Tamar for the financial review.

Thank you, Dov.

Our first quarter revenue was $742.3 million with percent in growth of 7.4%. Our non-GAAP EPS, which excludes acquisition-related costs and equity-based compensation expense net of related to tax effect, increased to $0.56 per diluted share. GAAP EPS was $0.44 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 results, which exclude acquisition-related items and equity-based compensation expense.

As we forecasted last quarter, licensed revenue decreased in 1Q. One reason was timing as we are finishing up some projects and some of the (inaudible) size in Q1are just getting started. We also had some customers with strong service activity but limited license in the quarter. We expect an increase in license revenue next quarter.

Operating margins were up slightly compared to 4Q. Our strong margins and services, as well as leverage on operating expenses, more than offset the impact of lower licenses.

Overall, we expect profitability in Q2 '08 to increase slightly when compared to Q1even after taking into account the new AT&T managed services deal. As expected, other income decreased this quarter due mainly to lower interest income from our investments and foreign exchange impact. We expect about the same level from this line item next quarter.

The effective tax rate in Q1 was again low at approximately 12%. We continue to 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 $59 million. Include the in the calculation of this number was approximately $35 million Cap Ex.

DSO at the end of the quarter was 65 days, up slightly from last quarter and billed accounts receivable increased slightly to $73 million in this quarter and deferred revenue was $166 million this quarter, a decrease of $8 million from last quarter. We expect that unbilled receivables and deferred revenue will fluctuate.

Our 12-month backlog which includes contracts, committed revenue from managed service contract, letters of intent, maintenance and estimated ongoing support activities, was up strongly to $2.3 billion at the end of the quarter, an increase of $130 million from the fourth quarter. A large portion of this increase was due to the new AT&T managed service deal.

During the quarter ended December 31st we used $72 million to repurchase approximately 2.2 million shares at an average price of $33.31 per share.

Looking forward our guidance for the second quarter of fiscal 2008 is for revenue of approximately 757 to $767 million and non-GAAP EPS of $0.57 to $0.59. Excluding the effect of the 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 $0.44 to $0.47 per share. Our EPS guidance for 2Q is based on a fully diluted share count estimate of approximately 222 million shares.

For fiscal 2008 we are reiterating our guidance of revenue of approximately 3.05 to $3.15 billion and non-GAAP EPS in the range of $2.29 to $2.39 excluding the effect of acquisition-related charges and excluding the effect of employee equity-based compensation expense of approximately $0.20 to $0.23 per share net of related tax effects. 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 223 million shares. I want to emphasize that the forecasted share count I just gave will 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, Tamar. At this time, let me open the call to Q&A.

Thank you. (OPERATOR INSTRUCTIONS) We'll go first to Liz Grausam at Goldman Sachs. Go ahead, please.

Thank you very much.

Dov, I know you touched a little bit on the on macroenvironment but, certainly, given how much volatility we're seeing in the market and concerns around U.S. spending and IT spending, wanted to hit a little bit on what your customers are seeing and what your pipeline is looking like considering you're seeing kind of a two-pronged, I think, demand pipeline of both cost reducing managed services contracts in kind of legacy environments, as well as support for new service lines such as Sprint's WiMAX.

So if you could kind of touch on those two points where carriers maybe looking to cut costs in the current environment but also where you see any volatility around project spending for new service launches across the industry.

Liz, you are touching exactly the two main factors in our activity and to some extent we try to emphasize during this conference call is the fact that when we are ignoring for a second what we hear in the news and what is going on in the microeconomic, we see strong demand to our products and services. And actually, the first quarter was a very good quarter regarding (inaudible) and you saw the backlog increase by $130 million.

And that is due to one, the fact that we can help our customers to achieve better results in this environment where they need to cut cost. So the managed services deals that we got with AT&T which help us to increase the backlog and actually reflects the trend in the industry to reduced [costs] and Amdocs can on one end provide them the efficiency, the effectiveness, in some cases even the modernization and at the same time to reduce the costs.

So our managed services capability provide the carriers predictability and cost reduction, it provides us predictability and visibility for the future so we feel more comfortable in this environment by increasing the component of managed services in our activity and encouraged by the demand to this managed services by our customers.

At the same time, they need to compete. So for that they need systems that ill enable them to improve the customer experience. We just rolled out customer experience 7.5, or Amdocs 7.5 which enables them to improve their customer experience.

This is a break through release of Amcdocs, very comprehensive, enables them to add the digital advertising and content to their offering to be more agile, to leverage business processes that Amdocs offers, and by that actually achieving better results and better customer experience in the market. So we think that this dual-pronged strategy is paying off for us and we hear the microeconomic, we think that we have a lot of assets that are preparing the Company for such periods.

And just to touch on the business model of the managed services given how large of a component that is of growth going in 2008 and the margin performance that you saw this quarter in services, do you feel the organization is now right sized from an offshore head count perspective, from a consulting and services standpoint to offer a low cost solution into the market?

And how are you competing against some of the more traditional services vendors like Accenture and IBM in these bids which are really a bit more cost-focused than we've traditionally seen you approach the market with?

We are, I would say, well equipped with our offshoring capabilities. We have more than 3,000 people in India and we open our second center in India. We have 1200 people in China.

But the important thing is Amdocs is not a body shop. And when we offer managed services, we offer to the carriers all the experience of Amdocs of managing a large-scale activity which requires an understanding of the business, understanding of the product, understanding of how saving can be achieved on one end and how the business results can be achieved on the other end.

So we feel that we have the right tools to manage it and bring the saving to the customer and on the other end we have a strong basis in offshore and in consulting in order to enable it.

Thank you. We'll take our next question from Sterling Auty with JPMorgan. Go ahead, please. Pardon the interruption. We seem to have a little bit of technical difficulty. Mr. Auty, if you could press star one again. We'll go again to Sterling Auty. Go ahead, sir.

My question is first, can you talk about the new AT&T contract in terms of when it will actually start contributing revenue? Will it start in the second quarter or is it actually only in the back half of the year? And then I have a follow-up.

The (inaudible) starts later this quarter. So all of this is already embedded into the back of the (inaudible).

Okay.

And then the follow-up is on the macro. Can you talk about how sensitive your revenue might be to when AT&T talks about consumer slowdown, how should we think about the current structure of your business and how sensitive it might be to wireless subscribers growth or a slowdown in wireless subscriber growth?

Sterling, thanks for the question because it allows us to actually share with you the fact that we are relatively nonsensitive to the number of subscribers. When I'm saying that (inaudible) there are some contracts, or pieces of contracts like with a managed services where the carrier are paying (inaudible) bill and therefore there will be much less subscribers that will eventually pay us less.

But in most of the projects that we are dealing with, we are less sensitive to their subscriber count because we are providing projects on basis of the overall application, the overall licenses, conversions and activities of this nature that are not directly related, or linearly related to the number of subscribers. So we are related to it but not very sensitive.

Great. Thank you.

Thank you. We'll take our next question from Tom Ernst with Deutsche Bank. Go ahead, please.

Good afternoon. Thank you for taking my question.

One quick, I missed the backlog number. Would you mind repeating that?

And then my main question was reflecting back on what's happened over the last year or so, you've talked about a couple of key customers holding up some projects and it seems like some of your big customers have come back to the table.

As you look forward what do you think from your new growth initiatives might give us a spark of upside to perhaps get growth back into the double digits? Would it be some of the selling down into the infrastructure, the provisioning upselling into the content space, or perhaps the cable industry? What do you see in the pipeline that gives you the most encouragement?

Tom, first of all, the backlog grew up by $130 million, 1-3-0 in terms of the $2.3 billion.

Now in terms of the growth, we do not believe it will come from one certain area only. One of the strengths of Amdocs and why we believe Amdocs is a relatively safe harbor for the telecom industry when the weather change is because we actually enjoy several dimensions of our business. And the reason why we believe that it can get to the double digits is a combination of certain several growth engines.

One that Dov mentioned, which is the managed services and AT&T is definitely a very significant tailwind in this direction. The other ones would be the broadband and the cable business. We're making progress there. We're working on new things in this area so that might provide some of the growth.

Then on top of it, you need to remember that Amdocs is in the best position to address consolidation and convergence needs of the large carriers of the world and this convergence is still a very important component in their offering and the consolidation continues. And as we've seen in this last quarter all over the world from France Telecom and AT&T buying new assets and so on and so forth.

On top of it, we have the emerging market. We had significant number of wins in the last couple of quarters in the emerging markets including this last, this quarter one and we see demands for our business and services end products in the emerging markets.

And on top of all of that, probably in the later on in the year and the following years the digital commerce and aspect of content related subject where we invest quite a lot of money into our R&D [as well]. So the bottom is that we feel it's going to be a combination of many aspects and that's part of the strength of Amdocs.

Eli, it's interesting that you mentioned managed services first because over the last couple or three years that business has stayed constant as a percentage of your revenue. Are you seeing a pipeline build of big opportunities there?

We see, yes, we see a strong pipeline on the managed services. Obviously, AT&T moved from the pipeline to contract, but we see several other opportunities in the managed services around the world, yes.

Thank you. We'll take our next question from Scott Sutherland with Wedbush Morgan. Go ahead, please.

Hi. Great. Thank you and good afternoon.

Good afternoon, Scott.

A couple of questions. First, maybe can you talk about the few inputs that might have caused the gross margin to expand on the services? Was ii just more efficiency of the number of IT professionals, was it the offshoring? What went in there?

It was a combination of several factors. Obviously, as we are using more offshoring as well as our delivery organization that is building methodologies and efficiencies into our project managers into our project management.

We gain on the service possibility, however, some of it had to do also with some fluctuations of foreign exchange that you see offset to that in the (inaudible) income line so we believe that it's a combination of several factors, not necessarily sustainable at that level going forward, we have some pressure coming from a demand service deal. That is built already into the guidance that we provided.

My second question is, you've talked, I guess, last quarter you talked a lot more bullishly about the broadband opportunities and can you talk a little bit about, are you gaining share, are you winning smaller deals or are there some big deals out there that you can still win [now] in the pipeline?

Scott, we talked about several deals last quarter. No doubt that the most significant of these deals was AT&T managed services deal and several others were won also during this quarter. We did not specify them by name.

We're still working in our pipeline on deals in the broadband and we believe that these deals would be important for our growth.

Thank you. We'll take our next question from Priscilla Law with Merrill Lynch. Go ahead, please.

Yes. Hi. This is Tal Liani. You can hear me?

Yes, Tal.

Good. Thank you. I have a few questions, I'm going to try to bundle them all together the two questions I can get them all into the call.

The first one is about AT&T. First, what is the percentage of AT&T of sales given or what could it be given that you've won a few significant deals with AT&T? And if you can sum it all up, AT&T, wireless and wireline as much as you give disclosure to it.

And then specifically on this recent deal, some of your managed services deals, you have to make investment, you have to sort of acquire it, quotation marks, acquire the business from the carrier and then you manage it, you put some money into innovation, modernization of the operations and recruit more people, et cetera, and some you don't.

So can you classify this project, how much effort does it require on your side? I understand it's a very long-term deal so if you can also speak about the margin linearity of the contract. So that's my first question.

So maybe, Tal, just to try to shed some light on the deal and it's multiple project in mainly customer care and billing and when we are looking at our potential inactivity, it looks like we gain a lot of success with mobility. We had a lot of success with the wireline and there is still big potential in AT&T.

There are many areas that we do not have yet any activity, we have a small percentage. I would say not big percentage of the expenses so we think that we can help AT&T moving forward, doing more stuff.

Regarding the margins the linearity of the margins and the level of investment that is needed, this deal does not include any large cash investment, it does not include the data centers so it doesn't have the same characteristic of the Sprint deals so there would be no up front knowledge investment. However, as every other (inaudible), in the initial stages we will have low margins, as Tamar said, and which will grow later on to get to the margin of the Company and we will start seeing the improvement in the near future.

So all of the pressure on the margin, of course, are in the guidance already, so the numbers that we presented are including all the impact of this deal.

Super. By the way, did you disclose in the past AT&T percentage of your revenues?

In the annual 20F we have disclosed that.

Which is --

22%.

And that includes also the wireless side so Cingular, AT&T side as well as the wireline side?

Includes all activities (inaudible) of all product line.

Some pages including wireless.

Okay.

My second question is about the opportunities for 2008. Can you discuss the opportunities in the cable market, satellite market, how much of it do you think will materialize in 2008, at least what are your expectations given that it looks like there is some pressure on some of the carriers there to modernize the systems as soon as possible? So how realistic is it to expect some deals already in 2008?

And then just tidbits on the P&L, income tax payable went down substantially if you can explain it and also, financial income went down, just these two items. Thanks.

Tal, I'll try to give you an answer on the first part, on the second (inaudible) question.

In terms of the broadband and cable and satellite, we believe that we will sign new deals in this space in '08 and (inaudible) revenue that we can recognize actually, according to the right proportion of the right probability are in our guidance and numbers. The need there is on one hand quite imminent and on the other hand, this is a relatively conservative industry so we take this into account when we calculate the probability.

You also have to consider the competitive landscape as well. We are the only company that invested and still investing heavily to make its BSS and OSS systems compatible to the broadband, cable, direct broadcast and other broadband MSOs. And as such, we have an imminent, an obvious, clear advantage on the functionality side and the scalability side (inaudible).

So we believe that we will see more of these in this broadband space. And we also believe that the new announcement of Amdocs CES customer experience system 7.5, which we did only last week, would be an additional accelerator as it is the first and only system that covers the whole space of broadband, wireless, wireline and the other line of businesses, deal with the digital commerce, have a common user interface, common enterprise product catalog and many other features, better integration, many other features that it has and it should help us also in this space.

Regarding income tax payable, we've implemented this quarter a new accounting guidance that is called FIN 48 that deals with tax reserves. Overall the implementation did not impact the balance of the tax reserves but it required some clarification between short-term liability to long-term liability so this is the change in the balance you see.

As to finance income, our portfolio has some sensitivity to interest rates. We incurred some reduction in the interest income on the portfolio this quarter and if rates continue to decline, that may impact us later on.

In terms of the foreign exchange we alluded to, we have an extended hedging policy but we're not bullet-proof so some crazy fluctuations in currencies that we saw this quarter, the Canadian dollar, the Australian dollar and so on did have some impact on the (inaudible) income line.

Thank you. We'll take our next question from Peter Jacobson with Brean Murray. Go ahead, please.

Thank you.

Can you just describe generally what the mix is between wireless and wireline revenue and maybe a distinction on trends that you see in those two markets?

We see around 40 to 45% on the wireless and around 30 to 35% out of our total revenue on the wireline. Around 10% coming from the broadband and satellite and 10% from directory business and it has been similar in that respect to 4Q of '07. All of the services are converging over time so not necessarily the differentiation will be sustainable going forward.

So you think that mix is representative going forward?

What I'm saying is that over time some of the carriers converged this business lines so we may have projects where our solution is implemented both on the wireless and wireline side. It's not necessarily a run of separate business lines.

We see many carriers today move to internal structure where they're more focused on the business enterprise customers versus the consumer customers rather than what is the type of network that they're providing.

Thank you very much.

Thank you. We'll go next to Karl Kierstead with Kaufman Brothers. Go ahead, please.

Hi. Good afternoon.

I know you touched on license sales but it came down sequentially by quite a margin so could you add more color? And when you say it's going to recover in the March quarter could you give a little bit more specificity as to what level it might rebound to? And then I've got a follow-up. Thank you.

License revenue depends on the level and mix of the business and the project that we sign. Many of our license sale is included in the project includes both license and services and therefore recognize based on the progress in the project.

Going forward, we expect a pick up based on the wins we had already in 1Q. So we know that the project that we won already that has started and going to impact the revenue already in 2Q.

One accelerator to the license revenue could be the CES 7.5. This new comprehensive rollout to the market already captured several substantial orders and we believe that very soon we'll start implementing the system in large projects which will help the license revenue.

Okay. Thank you.

And then as a follow-up, in the September quarter your European revenue stream fell off quite a bit down to about, I think, 18.5% of revenues. Did it stabilize at that level in the December quarter? Could you add a little color? Thank you.

In the December quarter, it's short of 20%. I don't think not necessarily it's stabilizing at that level, it may change from quarter-to-quarter.

Thank you. We'll take our next question from Ben Abramovitz with ICAP Securities. Go ahead, please.

Good afternoon. Thank you for taking the question.

I'm curious more about trends. Your DSOs are in the mid 60s now, they're at the highest levels they've been for several years and continue to trend higher. Deferred revenue, I know you said would fluctuate, but also has been declining, now, for actually several years.

And I'm curious, when you look at those trends at what point do you expect them to flatten out or reverse and what's been driving these trends or what would continue to drive these trends?

Regarding DSO, we expect it to go down back in second quarter so that is more of a one-time fluctuation versus the 60, 62 we had for several quarters now.

With respect to the deferred revenue, while we are continuing to win new business and see the increase in our backlog, we expect that new business will not necessarily come along with up front advance payment as was the case in the past. Customers in this environment are less willing to pay up front for projects and licenses and we see more matching between the progress of the deal than the project and the payments milestones from the customers.

So do you expect this quarter to be the peak for DSOs for a while?

We expect next quarter to be lower.

Thank you. We'll take our next question from Shyam Patil. Go ahead, please.

Thank you.

It sounded like last quarter you were expecting to sign a couple of large deals during the first half of this fiscal year which would contribute revenue during the second half of the year, perhaps even one of them being cable, but now it's sounding like you're talking about one large deal, which is AT&T, and then some smaller ones. Did the larger one get pushed out or was it smaller in scope? Could you just talk about that a little?

Well we mentioned last quarter that we were working on several deals. We did not specify the size of them and what we are sharing with you now is that one of the more significant ones in this list was AT&T.

And we had other deals that some of them we won, some of them we're still working on them and we're still working on broadband deal as well. And as soon as we'll be able to conclude each one of them, we'll share it with the market.

Okay.

And Tamar, could you talk a little bit about cash flow? It was below net income again. You know, when should we expect that to change? What's driving that right now?

There are a couple of factors impacting that. One is the accelerated Cap Ex investment, we still have, so Cap Ex is higher than depreciation.

Secondly, with the consolidation of our customers and the fact that they're getting stronger, as I said before, and not necessarily we see the same trends that we were able to get from (inaudible) as we had in the past. Some of the managed services deals we've signed in the past included modernization and other factors but not necessarily matching in terms of the progress to the milestone payments.

As we said in the past, we do expect overall cash flow for the year to be better than '07 and the Cap Ex will continue to be at similar level overall for the year to what we saw in 2007.

Thank you. We'll take our next question from Jason Kupferberg with UBS. Go ahead, please.

Thanks and good evening, guys.

Got another question on the pipeline here. Among the deals that have yet to close that you initially identified as part of the overall bucket last quarter, are the ones that still remain outstanding still expected to close more or less within the time frames that you originally anticipated?

Yes.

Okay. That was an easy one.

And as far as margins go, non-GAAP operating margins, thinking about fiscal '08 versus fiscal '07, I believe last quarter the expectation was for the full-year that we would see some modest year-over-year improvement. I'm assuming that that's still the case, just wanted to confirm that given that you now have, obviously, and actual quarter under your belts and a slew of new wins.

That's still the case. We still expect a modest improvement overall for the year versus '07.

Thank you. We'll take our next question from Tom Roderick with Thomas Weisel Partners. Go ahead, please.

Hi. Thanks and good afternoon.

Dov and Eli, you both mentioned seeing some nice growth out there in the emerging markets. Can you offer some quantification regarding what percentage of revenues you're seeing from some of these emerging markets, maybe specifically focusing on the big ones like Brazil, Russia, India and China? And can you give us some sense as to how fast those segments are growing for you?

Tom, overall we see short of 10% the emerging markets out of total revenue. So while it's a fast-growing segment for us, starting from a lower baseline, we see progress in Latin America, in Africa, in Southeast Asia, so it's based on many regions, not only one, and on many customers existing ones, as well as the new [logos].

Okay. Great. And Tamar, a question for you here.

On the, just on the some of the bigger deals that you signed last year, maybe specifically thinking about the AT&T deal that was originally signed back in April of '07, can you give us a sense for whether that from a margin standpoint that has begun contributing in a positive manner to the overall operating margin structure?

And then as we look at the new AT&T deal, how many quarters would you think it should be until we start seeing that contract contribute positively to the overall corporate structure on margin? Thanks.

I always say that the initial period of the deals, and it's typically one to two years, have some pressure on the margins and we see the improvement over time. I cannot relate specifically to one quarter versus the other. What I can definitely say that we are on track in terms of the improvement versus what we planned originally when we went into the deal.

Thank you. We'll take our next question from Wil Power with Robert W. Baird. Go ahead, please.

Great. Thanks for taking the question.

I guess maybe two parts on Sprint. Of course last week announced a round of cost cutting, reducing internal head count and also suggested they're going to rely less on outside contractors and, I guess, I wonder how you're assessing the risk verse opportunity there and whether you have any early indications from Sprint as to how that might impact you?

In Sprint, maybe I'll give you some a few data points. First of all, the conversion project is going well and on track. We don't see any slowdown to that because that's an important component of Sprints' strategy and we do not expect any changes there.

In general, we provide Sprint with mission critical systems whether it's the call center or the billing and other components of their business. So we can, we assume right now that all the work that we planned for this fiscal year will recognize and will complete the work.

We are basically believe that they may cut in some areas, but we are as important to Sprint today, maybe more than ever, and the new projects, we are basically taking them with some probability into new projects. In any case, all the revenue that, and the projections that we have forward for Sprint are in the forecast that we provided for Q2 and the rest of the year.

Okay.

And then how should we think about the margin impact of the Sprint zone deal? I mean, is that typical of other deals where you'll have some, and maybe not dissimilar from AT&T where you have some up front margin pressure, any color there?

It's a licenses and services deal and it should be normal deal for us. It's not similar to diminished services AT&T deal.

Thank you. We'll take our next question from Marianne Wolk with Susquehanna Capital. Go ahead, please.

Thanks. Dov, I had a question for you.

The last time we saw economic pressure back in that 2001-2002 time frame, it started to show up in the software license area, I believe, first and I just wanted to get some assurances that that's not why we're seeing softer license revenue this quarter. And to that end, when you're talking about a rebound in licenses in the March quarter, are you talking about going back to September's level? A more of a modest pick up from where we are now?

And then the second question I had was more about the cable business that you had described last quarter, this large deal that was out there. Has that currently, is that currently in the reported backlog or do you expect that maybe to be signed sometime over the next few quarters and is there anything holding up that deal? Is there any economic reason why that might not be signed? Thanks.

Okay. So when, well the, we should refer to the history. First of all, when we are looking at our activity with our customer, we see strong demand to our services and our products and when we are analyzing the performance of some of our customers like AT&T (inaudible) we do not see what we have seen in 2002.

However, I think that Amdocs today is not Amdocs of 2002 and when we are ready for maybe a weaker market, our managed services activity is much larger and stronger with the deals that we've signed, so, and given the long-term agreements and the fact that that provides cost cutting to our customers, actually [it] guarantees a level of revenue, level of margins and growth because if you compare what we have now and what we left, it might actually create growth in an environment that might be that it's not so strong.

Secondly, the offerings that we have today to the market to our customer that enables them to compete better, for example, the CES 7.5 is another strong element that might help us in moving forward. Now we have consultings that we didn't have before. We have the OSS that we didn't have before.

We are focusing on emerging markets. There is growth in the emerging markets. The growth in the emerging market will continue and that is another growth area.

So when we are looking at all of these element we feel that we are well equipped and given the wins that we have in 1Q, which are quite substantial, we reiterated the guidance for 2008 after very detailed discussion. We are not bulletproof, but in, I would say, challenging environment, Amdocs has a very strong ability to be resilient to the challenges in the market and in looking at the numbers as we see them today and the discussions that we have with the carriers today, we see growth in 2008 and acceleration growth in the second half of the year.

Thank you. We'll take our next question from Ashwin Shirvaikar with Citigroup. Go ahead, please.

Hi. Thank you and nice quarter.

My question is with regards to the Vodaphone business that you have. Is Vodaphones' acquisition in India automatically part of your backlog or will you have to negotiate that separately with IBM because that can be a pretty big deal for you guys.

Yes, Ashwin, unfortunately, nothing comes automatic for us. So it's not in the backlog and we will have to work on it separately as we do with any new components (inaudible) because of Vodaphone.

Okay.

And as you look at your pipeline beyond the broadband deal, what functional areas are clients looking at more? I know you mentioned cost cutting becomes more important, but Cramer was exceptionally strong over the last 12 months and (inaudible) Q-pass is finally coming through. What areas are there if you would go from top three areas down, what would those be?

I would not say that we can rank it by priority, but we do see in the pipeline CRM and self-service deals. We see new billing, including the ABC, the enterprise product catalog, which is a unique product of Amdocs and we see OSS and other network related OSS and BOS.

We have several components in this product line. And basically, what we have today is these three applications and then on top of that we have managed services which is in a way a cross application and (inaudible) services which is cost application so you can measure it in these two dimensions maybe.

Thank you. We'll take our final question from Daniel Meron with RBC Capital Markets. Go ahead, please.

Hi. This is Tom Erlich. I'm calling for Daniel Meron.

I'd like to ask about the new Engage! ascend open innovations initiatives you've recently launched and could you elaborate on how this goes into the future of Amdocs? How do you see this go into your strategic plans?

Well, maybe for some of you that have not heard about this idea, Amdocs is leveraging its presence in the market and the relationship with the major carriers by bringing some small technology companies and R&D and start-ups help them bring their ideas to the carriers. That might help us in enriching our offering, helping our customers and that can be a win-win for the carriers, the operator for the and start-ups for the small companies and for Amdocs by increasing our revenue and reaching our offering and providing us some upside.

So this is some activity that is part of our R&D effort that where we by that actually enriching our offering and we have now very innovative offer to the market and by engaging all of the start-up with their ideas we are shortening time to market and by that, actually being able to offer faster, better solution to our customer to generate revenue and be successful in this market.

Okay. And on the final note, would you consider this initiative to be some sort of, I don't know, M&A opportunity?

Well in the past we invested, for example, in SigValue a minority investment it's a start-up and later on we bought it, so it might happen again. Yes, we might invest in a very small amount of money which might be translated later on to a full M&A opportunity.

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

All right. On behalf of Amdocs, thank you very much for attending. This concludes the call tonight.

This concludes today's teleconference. You may now disconnect, and have a nice evening.