Amdocs Ltd (DOX) 2008 Q2 法說會逐字稿

Good day, everyone. Welcome to this Amdocs second quarter 2008 earnings release conference call. Today's call is being recorded and webcast. At this time, I'd like to turn the call over to Mr. Tom O'Brien. Please go ahead, sir.

Thank you, Robbie. 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'll 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 disproportion effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the Company's business and 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 reflect 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 and 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 20-F for the fiscal year ended September 30, 2007, as filed on December 3, 2007, and our Form 6-K furnished on February 11, 2008. Amdocs may elect to update these forward-looking statements at some point in the future however the Company specifically disclaims the 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 Tamar Rapaport-Dagim , Chief Financial Officer. Following our prepared comments, we'll open the call to Q&A. Now let me turn the over to Dov

Thank you, Tom. Good afternoon, Ladies and Gentlemen. We are pleased to report our results for the second quarter of fiscal 2008. Revenue goal to record of $774 million exceeding guidance while non-GAAP earnings per share grew to $0.58. We have exceeded our plan for the first half of our fiscal year. In 2008, overall, is shaping up to be an even better year than we originally planned. Let me explain why this is so.

We have seen little evidence of challenging economic conditions adversely affecting our customer buying decision; however, we recognize that there is uncertainty due to challenging economic conditions and we believe that we have incorporated this into our guidance for the rest of the year.

This was another good phase quarter for Amdocs as we add numerous leads across line of business in geographies. We were very pleased to win strategic (inaudible - highly accented) deal with a large North American Service provider. We believe this deal could open additional doors for us in the North American OSS market. In Europe, Amdocs signed an important CRM Bill with a large wireless carrier to help it improve its customer experience. This was an important win competitively as it strengthens our position with this customer. The Company had several wins with other wireless carriers including a consulting engagement to help a service provider introduce new, innovative offering.

Our strategic consulting business continues to grow and this helps to position Amdocs as the source leader in the industry. We added several new logos to our customer lease by winning deals in emerging markets including some based on Amdocs Compact Convergent Suite.

We also are expanding and strengthening our position in the broadband, cable and satellite market with several wins this quarter and a recent acquisition. We won a project with a large broadband cable operator in North America to provide sales service capability including eBill presentment and payment solution. The Company also won service projects related to requirement scoping which can be the initial phase of system transformation. Earlier this month, we announced the acquisition of Jacobs Rimell. This UK based OSS Company adds to our capability and may be a key element in our expansion in the broadband, cable and satellite market. We are committed to this market and we expect to be the main vendor to the market leaders.

One of the most encouraging developments this year is the expansion of our business with AT&T as we support the growing U.S. business mobility in many other areas, leveraging our advanced product. Our success in winning new business is based in part upon our unparalleled track record of delivery. Service providers can trust that Amdocs will successfully deliver on the largest most complex IT project in our industry. As an example of our capability we assumed responsibility for the large AT&T Managed Services project that we announced last quarter.

At Sprint, we are in advanced stages of converting subscriber over to the unified billing platform. Our managed services agreement includes billing operation and additional services around system development. The billing operation activity and related services that we perform are mission critical for Sprint. We believe that our assumption for revenue, for this customer in the second half for fiscal 2008 are conservative.

We have a strong and stable customer base of industry leaders. We believe that they will be the consolidator and they will continue to spend on strategic initiatives. Our business model is designed to provide [annual recurring] revenue and stability especially from our ongoing support and managed services activity. This business model provides Amdocs with the kind of hedge or Safe Harbor in challenging economic environment. The same model can drive revenue growth, as we sell additional product and services into our install base and win new customers. As a Company, we continue to expand geographically; this allows us to capture growth opportunities not only North America and Europe but also in emerging markets, which may not be facing the same economic pressures. We are expanding functionally in areas such as OSS and we'll continue in the right circumstances to use strategic M&A to help us achieve our goals.

As I mentioned, after the quarter closed we acquired Jacobs Rimell to expand our OSS offering for broadband. We have a wide and deep offering including our recently launched CEES 7.5 portfolio which has gained strong traction and acceptance in the market. Our offering combined with our geographic reach has resulted in a large pipeline of potential business which we believe will support our goals in the remainder of fiscal 2008 and beyond. By that the let me now turn the call over to Tamar for the financial review.

Thank you, Dov. Our second quarter revenue was $774.3 million representing growth of 9.6%. Our non-GAAP EPS which excludes acquisition related cost and equity based compensation expense net of the related tax effects increased to $0.58 per diluted share. GAAP EPS was $0.46 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, license revenue increased in Q2. We expect an increase in license revenue again next quarter. Operating margins were up slightly compared to Q1, as we saw the benefit of lower operating expenses as a percent of revenue. This means that even though spending and operating expenses increased, we saw margin leverage as revenue grew even faster. This leverage more than compensated for the expected decrease in gross margin due mainly to the AT&T Managed Services deal. Overall we expect operating margins to increase slightly in the second half of fiscal 2008 when compared to Q2.

Other income this quarter was about the same as Q1 but we expect this to decrease next quarter due to a lower interest income from our investments. The impact of lower interest rates this quarter was offset to some degree by foreign exchange gains related to our hedging program. As you know, we have a conservative investment policy, for example, we do not hold any auction rate securities. Therefore, since the subprime crisis has begun, the impact of write downs on our results has been insignificant. The decline in interest rates this year was more severe than we had forecast when we first gave 2008 guidance. Despite the impact on our investment earnings we have met our earning guidance for the first two quarters. Looking forward the decline in interest rates is the main reason why we reduced the top end of our annual EPS guidance from 2.39 to $ 2.37.

The effective tax rate in Q2 was 13.8% in line with our guidance of 13 to 15%. Free cash flow in the quarter was $63 million. Included in the calculation of this number was approximately $34 million in that CapEx. Free cash flow was impacted by annual employee bonus payments which are made in January.

DSO at the end of the quarter was 67 days up slightly from last quarter. The current balances in unbilled accounts receivable decreased to $41 million this quarter while deferred revenue increased to $209 million compared to what we reported last quarter. Historically, from deferred revenue and unbilled receivables that offset each other within a single customer were shown on a net basis on the balance sheet without regard to their classification of current or long-term.

Beginning this quarter we will now show these on a growth basis, meaning we will not offset current and long-term amounts. In order to help you annualize the March 31 current balances in this account, if we had shown these on a growth basis in Q1, like we do now, the apples-to-apples comparison with Q2 is an increase in deferred revenue of approximately $60 million and a decrease in unbilled receivables of approximately $18 million.

Our 12 months backlog which includes contracts, committed revenue for managed services contracts, letters of intent, maintenance and estimated ongoing support activities was 2,360 million at the end of the quarter, an increase of $60 million from the first quarter.

During the quarter ended March 31, we used $50 million to repurchase approximately 1.7 million shares at an average price of $30.23 per share. Looking forward, our guidance for the third quarter of fiscal 2008, is for revenue of approximately $790 million to $ 805 million and non-GAAP EPS of $0.59 to $0.61, excluding the effect of acquisition related charges and excluding equity based compensation expense of approximately $0.06 to $0.07 per share net of the related tax effect. Diluted GAAP EPS is expected to be approximately $0.45 to $0.48 per share without taking into account potential purchase price adjustments relating to acquisition of Jacobs Rimell in April 2008.

Our EPS guidance for Q3 is based on a fully diluted share count estimate of approximately 220 million shares. For fiscal year 2008 we're updating our guidance. We expect revenue of approximately 3.09 to $3.15 billion and non-GAAP EPS in the range of 2.31 to $2.37, excluding the effect of acquisition related 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. Our guidance is not dependent on winning anyone specific new deal in Q3 or Q4.

Diluted GAAP EPS is expected to be approximately 1.81 to 1.90 per share without taking into account potential purchase price adjustments relating to the acquisition of Jacobs Rimell.

2008 GAAP guidance was impacted by change in tax rates related to acquisition accounting assumptions and also slightly higher equity based compensation expense. Our fiscal 2008 guidance is based on a fully diluted share count estimate of approximately 221 million shares. I want to emphasize that the forecasted share counts that I have just gave do not include the effect of any future share repurchases that we may conduct in 2008.

Now let me turn the call back over to Dov.

Thank you, Tamar. Now please let me turn the call over to Eli Gelman.

Thank you, Dov. After 21 fascinating years with Amdocs the time has come for for me to move on to the next phase of my life and career. Therefore, I am leaving my role as Chief Operating Officer effective immediately, but I will leave Amdocs only next January. I truly love this Company, and I will continue to support Amdocs as a Board members hopefully for many years to come. I plan to devote my time and energy to social welfare activity, and to some private business ventures. I'll miss the friends that I've made in the investment community, but I take the comfort in knowing that Amdocs is in great shape with a strong leadership team. I look forward to seeing you all at our Analyst Day in two weeks.

Thank you, Eli. On behalf of the Company, and personally, thank you for your years of service. Over the past few years, Eli has lead the management off our business division, M&A and strategy, and it is due to Eli and the teams that he has built that we have been able to enjoy the success that we have achieved. I will miss walking with Eli on a day-to-day basis but look forward to his continued contribution as a variable member of our Board of Directors. At this time, let me open the call to Q&A.

(OPERATOR INSTRUCTIONS). We'll take our first question from Ashwin Shirvaikar with Citigroup.

Nice quarter, guys, and it's good to see the revenue growth rate inflection point is coming through.

Thank you.

Eli I'm sorry to see you go but I look forward to seeing you in a couple of weeks here.

Thank you.

My question is, you've said in your comments that you're being conservative with the second half Sprint revenues. Does that imply that you're correspondingly conservative with the associated margins which should, I think go up disproportionately?

Well, when we estimate conservatism, it has an impact on the top line and to some extent on the bottom line, so we feel comfortable regarding the margin as well as the top line.

Okay, and one quick check. Does the guidance include Jacobs Rimell for the revenues?

It does, however this is a very small Company, and the overall numbers are minimal versus over revenue of Amdocs, so it's not to any significance.

Okay, great. Thank you for your comments. Much appreciated.

Thank you, Ashwin, very much.

Thank you. We'll take our next question from Liz Grausam with Goldman Sachs.

Thanks. I'd like to ask a few questions on the pipeline particularly as it pertains to three areas we spoke about at our tech conference a few months ago, being broadband, managed services as well as emerging markets being three spaces where you're seeing a lot of activity. Can you give us any update on your progress in the broadband market? You said you may have signed a few contracts but also maybe in some consulting engagements, and any sense on timing of when we could expect to see more activity pick up in that space for you guys?

Liz, thanks for the question. First of all, our pipeline looks good, very good. We are transforming projects into real wins. We have in the pipeline managed services opportunities both in North America and Europe in other places. We have cables in broadband deals and we consenting deals, OSS and pre-paid and post-paid, and of course, the emerging markets.

In terms of some specifics on specific broadband deals that I know that a lot of people are interested, first of all would like to say that our guidance for quarter three and quarter four is not dependent upon any significant or specific broadband deal. And we are working diligently in several opportunities in the broadband space and I'd be more than happy to share with you when we have anything concrete, but I think that it's the most important thing is that we're not dependent on it for the guidance that you gave for the rest of the year.

You couldn't have consulting engagements, Eli, within broadband such that you're getting in front of the customers early in their planning cycles?

This is difficult to many areas, but definitely true for the broadband and cable industry as well, and not only in North America, also in some other places.

And I would say that this consulting capability and Amdocs unique offering where we can bring today the broadband operator that need to cope with video, with voice, with data, we can leverage our experience in providing the same service for a wireline Company that are offering also wireless and daytime video and actually levered experience with this type of operator in their consulting, and our CES 7.5, it is the platform that can actually serve all of these say line of business in a unified way, so we see a lot of excitement around our offering so we feel good about our ability to grow the business and we see the growth now and we expect the growth to accelerate in this area.

Thank you. We'll go next to Tal Liani with Merrill Lynch.

Hello. I have a few questions. First, I hear, Dov, your explanations about conservatism but you beat the numbers by a $0.01 this quarter and this is Q2. You raised the numbers for next quarter by a $0.01 and still you maintain your full year guidance so that means you lowered basically the Q4 numbers by $0.02 and that's I think what the question is, why are you so conservatism with the earnings if your numbers are so good? Everything we hear on this call is just great so I'm just wondering what's the reason for this conservatism and then second, related, maybe not related, is you won major deals with AT&T or with players in the U.S. outsourcing deals and the question is in the past, you you had I think I asked the same question last quarter and I just want to better understand the impact on margins.

In the past you had some outsourcing deals that resulted in margin pressure and some outsourcing deals that resulted in no margin pressure, so can you classify these specific deals on two levels? First, will revenues kind of accelerate throughout the life of the project or is it pretty much said since the beginning? And second, what about margins some do you have to build big data centers, etc?

So this is my second question about the deals, the outsourcing deals and the third and last question is about the Yellow Page business. Recently I started to get more questions from investors and I think that if we ignore this area for many many years maybe it's time to just kind of discuss it. There is concern these guys are going to go out of business in a few years. What's the size in your business? What's the contribution to margins and what do you think will happen over the next few years? Thank you.

Tal, thank you for the questions. Let me address the earnings per share issue. As of Q2, we actually met the mid point of the guidance we gave for $0.58 and as for the whole year the reason that we are keeping the mid point of the $2.34 per share has to do with the fact that we are seeing lower interest rates today versus what we had when we gave the original guidance for the year. As you know the Fed Funds rates reduced from 525% to already 225% and unfortunately, there are some expectations for farther reduction in the interest rates. Since we are investing conservatively we are impacting the overall financing we're doing by that.

Overall, going back to your second question, the margins of managed services, we are having to categorize roughly two types of deals, one such as the one in Sprint where we take over responsibility for Data Center Operations as well as investments into the (inaudible) of the data centers and other type such as the ones we have with AT&T including the largest deals that we signed this year does not include any Data Center Operations.

So the margin expansion in this deal is coming mainly from the fact that we're taking over responsibility for the overall scope of the services, committing to the SLAs from day one and building the cost efficiencies and the improvement of business processes and tweaking of the software over time, so over time we should expect margin expansion in this deal as well as any other managed service deal that we're taking upon ourselves.

And let me address your Yellow Pages question. As we released (inaudible) listed, in the past it's about 9% of our revenue and it is a stable business and we even though some of the publishers are under some pressure, mainly the pressure on the share price is due to the fact that they're highly leveled; however, he're a quite stable business. We are involved deeply in helping hem to move to online advertising, which is another source of revenues that balance to some extent the reduction in the printing side. And to some extent we have a good position in the market, we are winning more customers, we are expanding the activity with each customer by gaining more services, more managed services deals with the same customer, and all of this combination of more customers, more services to the existing customers, moving to the online and even where new services are all actually helps us to maintain the revenue and we might increase it. Given our I would say quite unique position in this industry as the leader by far of the industry.

Great. Thank you and congrats on a great quarter.

Thank you.

Thank you.

We'll go next to Tom Roderick with Thomas Weisel Partners.

Hi, thank you, good afternoon. In the press release, you've got the line about requirement scoping and doing some additional services work on which is typically a precursor to transformation projects. Can you give us a sense historically what requirement scoping has meant in some of your prior transformation projects? How early do you get engaged in the overall process relative to the overall process of winning and moving forward on a transformation project and any additional details you can offer around the requirement scoping language would be helpful, thanks.

Thank you, Tom for the question. Let's see how much I can give you but historically, usually when we are talking about defining the scope and the transformation process that a carrier needs to go through is usually translated in many many cases to larger projects and these projects includes usually some conversion activity, new software installation, new modernization, and it's the typical first phase of larger projects. We did not specifically point out any specific project here, so I can not relate to it but we have generally, we have several of those, the definition projects going on at any given, in any given time, and we cannot relate right now to the timeline when we believe that potentially we can translate this design phase and scoping phase into transformation but it is usually bottom line a good sign.

Okay, and turning to Jacobs Rimell as an acquisition here, I guess it's my understanding that the majority of work they do is on the multi-play side, triple play side for Comcast, and if I look at the type of billing that you're engaged in with Comcast now it would seem to not necessarily be on that side so can you talk about how you currently work with Jacobs Rimell in the context of Comcast as a customer and how that relationship plays out going forward?

Well, Tom, maybe I should first of all say that JR is essential to the provisioning process of the new services in the carriers that are installed. The two larger carriers are in North America is Comcast and in Europe is across Europe is UPC. Both are large customers and we have several other customers through the acquisition, and the fact that I'm saying it's an essential part of the provisioning, any time you need to provide a new and provision a new service such as digital TV , such as VoIP, voice-over-IP, and other new services, this software that JR is providing, now Amdocs is providing is actually responsible for the flow through provisioning, from the ordering all the way to the fact that you can actually consume the service. That is to say that it's mission critical component and it means that there are software and services around it and it means that it usually provides you some strategic importance to the carrier or the MSO that you are serving. We strongly believe that this acquisition is not only a good expansion for our product set. It's also potentially a good expansion of our relationship with the customer that I

Thank you. We'll go next to Peter Jacobson with Brean Murray.

Thanks. I was wondering if you could explain the revenue trend lines generally ex-Sprint associated with the billing conversion project off of the convergent system. Is the migration work kind of steady state until that's completed in terms of revenue or is it more of a bell curve where you might have peaked perhaps months ago, and then customization, is there additional incremental customization work that occurs after you actually convert those subscribers over maybe offsetting the decline and the migration work?

So, Peter, let me try to address it and at the same time, protect the customer (inaudible - highly accented). So, first of all we said that we will, we have pricing with the customer and it is to say that the incremental customer is charged with a lower price so as a result of it we are less sensitive to the incremental or the last customer or for additional customers and as we said, we are in advanced staging and converting a subscriber to the unified billing platform.

Regarding the services that are needed in order to enable all of this convergence, we perform some services and probably some of them we will be done with some of the services and on the other end, we might have another service , because the customer will have to compete in the market and he has to compete in the market and come with and come with new will as a result drive some new services. So on the whole, we take all of the amount of services and the revenue from processing the billing for the subscriber and all of the other services that are a part of a price and our guidance include everything includes them in a conservative

Okay, thank you.

Thank you.

We'll take our next question from Daniel Meron with RBC Capital Markets.

Thank you, Dov. First of all, just wanted to wish Eli good luck going forward and then just a couple of questions. First of all, my checks indicate that there's somewhat of a pick up at least in the interest level of customers in the marketplace. Is this something that you are actually seeing right now? If so where is the strength coming from an, can we assume that the level, high level of conservatism within your numbers right now?

We see interest by customers picking up and you ask if this is from emerging market, I would say they're with the substantial pick up. Managed services is an area that we expect growth and also leveraging our other growth engine like a OSS and broadband that we expect here. Of course, all that is propelled by the consulting services. We have now about 1500 people in our consulting division which help us to get very early in the process to engagement with the customer and have an impact, helping him to think and to decide what he wants to do and later on enable us to provide him a quality solution. So, our numbers for the year, usually as you know, based on most likely scenario, and we applied the right level of optimism and conservatism.

Okay, thanks, Dov, and then just a quick follow-up. Tamar, can can you give us a sense of the impact on the foreign exchange fluctuation on your guidance here, the shekel strengthened by about 9% and year to date you do have some material operations and also elsewhere in the world. Can you just give us some color on what, to what level there is an impact on this quarters performance and the outlook for 2008 and also how should we think about this going forward? How much of your revenue right now is coming from dollar versus expenses in dollars? Thanks.

Sure, Daniel. As you know, the concept of acting globally is not new to Amdocs and we have always been exposed to foreign currency other than the U.S. Dollar and try to mitigate that to an extensive hedging program. Historically we have been able to manage our constant exposure so the net effect of these fluxation are on income of quarterly minimal and we'll continue to monitor that on an ongoing basis and in the future, if we will see that this is impacting the overall cost of doing business in certain areas, we will adjust accordingly.

In terms of where we do business around 70% of our business is done in North America and driven in terms of the revenue by the U.S. Dollar, and so on the top line side, we are exposed to other currency other than the U.S. Dollar but the U.S. Dollar is the main one. On the cost side as we are sourcing work from global places around the world from India, from China, from Israel, from Cypress and I can go on, this is obviously impacting the overall cost structure as well as the cost of of labor and there are many other factors that we take into consideration.

Thank you.

Thank you, Daniel.

We'll go next to Sterling Auty with JP Morgan.

Yes, thanks, guys. So my two questions the first one is back to the Sprint side , is there a way of just splitting out how much of the revenue coming from Sprint is that subscriber built processing portion and how much is the other services that you

Well, thank you for the question. As we mentioned before, we serve Sprint in their mission critical area, generating the revenue, serving and enabling them and building customer care. The majority of our revenue from Sprint is related to this activity. And we believe that we will enable them to do this important activity in the future and I would say we have quite confidence in our ability to generate revenue in the future according to the importance of our activity there, and we looked very carefully at our numbers and we believe that our guidance reflect our future revenue with Sprint.

Okay, and then you touched upon it a bit but I wanted to hear maybe a little bit more color specifically about Europe. We're seeing pick up in some of the larger transformational deals here in North America. Can you give us an update as to what you're seeing out of the Tier 1 carriers and service providers in Europe and do you think we'll start to see a step up both from an OSS as well as a BSS and related areas?

Well, in terms of Europe, I would say Europe is lagging behind the U.S. The main and one of the main reasons for that is that the Tier 1s do not have the same level of competition from the broadband and cable companies. In the U.S, they have cable, strong cable companies going after (inaudible - highly accented) and in Europe, it's not so evident. On the other hand, we make a steady progress with some of the Tier 1 carriers in Europe and on top of it, so we see good progress but it's rather slow progress and again, all this is reflected in the best way we can as the best estimate in our numbers. The other component that we see today more in Europe that we did not see several quarters ago are more openness to managed services and the project of this kind where Amdocs can actually gain some business there as well.

Thank you, we'll go next to Jason Kupferberg with UBS.

Thanks, good afternoon, guys and congratulations on the top line upside. I think that was clearly unexpected so nice job there had and maybe that begs a question here, if you guys could give us some updated thinking in terms of generally why this current economic downturn might be a bit different than the last one in terms of the impact not only on Amdocs but also your customers as well, because clearly, from a revenue perspective, performance is ahead of expectations this time around.

Well, probably you compare this downturn to 2002. We think it says very few familiarity but it is completely different crisis. In 2002, it was driven by over capacity. It was the internal on one end and telecommunication bubble where we saw (inaudible - highly accented) all of the over capacity, cable as it were all out all over the globe. So in 2002, actually, the CapEx in North America has been reduced by 50% due to the collapse of many internet activity , it's not the case now. There is a shortage of capacity and many companies are holding now a cable over the oceans, and we just heard the results of Google today where they improved their revenue by 31% year-over-year. We heard about IBM improving, so it is, there is no any over capacity in the telecommunication and there is no internal bubble, so yes, there is a macro economy crisis. It's driven from the real else indicate and the financial services area, and there is a question whether it will spill over to the telecommunication and I would say that we took into consideration that there will be some impact there and it is in our guidance .

When we monitor the activity of our customer, we do not see any adverse impact on that activity. No one customer actually reported or shared with us that had he're effected and as a result changes the way that they operate. So as I said, we are looking forward to some uncertain its and we are taking them potentially impact, we take it

Jason, just to add to Dov's point about the market, Amdocs itself from its offering and abilities is very different Company as well. We did not have consulting in 2002, we did not have OSS in 2002, we did not have content, managed services was a completely different level which was usually a great buffer and a geography spend on emerging Markets in China and other places, so also Amdocs is very different Company and to face if the unlikely event CapEx Will start dropping, we still have much better buffers today than we had before.

Thanks for the color. It's very helpful. Just to switch gears for a second, Tamar, if you can touch on free cash flow and DSO briefly, any updated expectations for full year fiscal 08 free cash flow? You're up about 14% I think year-to-date now. Is that kind of a similar year-over-year increase we should expect for the full year and as you mentioned I think DSO ticked up a little bit this quarter probably contrary to your expectations. What should we look for in the second half there? Thanks.

As far as free cash flow, we guided in the beginning of the year and still have the same view that free cash flow in '08 will improve versus '07. And as to DSO, we did see some impact this quarter from the new managed services deal at AT&T and while we don't have a full quarter of revenue in Q2 we do have most of what we expect to be average receivable in the balance of the quarter and that's mechanically caused some DSO increase. Going forward on the DSO, we will see some fluctuation but I'm not expecting any significant changes going into Q3 on that front.

Thank you. We'll go next to Sean Lavin with Oppenheimer & Co.

Thank you, hi, good afternoon, guys and congratulations on a great quarter. A couple of quick questions. With respect to the Jacobs Rimell acquisition were you guys pushed to pursue the acquisition or did you pull for it, oral of the above?

Thanks for the question. We basically were in the market to look for components that we'll be able to accelerate our OSS in general and our broadband presence specifically and we looked at several alternatives and we felt it was a combination of the product and customer base would give us the best impact, and that's how we got to execute the deal.

Fair enough. Tamar, with respect to the cash balance, obviously you're hedged for how many quarters? Is it two or three quarters down the road?

Hedging program is depending by currency and visibility we have in the current it will determine the duration that we're hedging on and overall as farther you go the lower visibility we have and there for, we useless derivatives to hedge longer term. We are also using extensively natural hedge mechanisms to obviously address that concern, so for example, if I'm using Canada, while we have customer base in Canada and also expense base we'll also try to create natural hedges in areas like that.

Thank you. We'll go next to Scott Sutherland with Wedbush Morgan Securities.

Hi, this is Kerry for Scott. Most of my questions have been asked but Amdocs has benefited a great deal from convergence and the consolidation in the telecommunications market. Do you see that consolidation is going to slowdown now, the big guys have acquired some of these smaller and need to digest them and then if so, where do you think the next wave of consolidation will come from? Is it the broadband market?

Thank you for the question. We are not basing all of our business on consolidation. It is to say consolidation is maybe one element and as we said looking forward we believe that the growth will come from broadband and there we don't need consolidation, we need transformation and given the challenges of the cable and satellite operator, to provide video, data, voice, if they need to transform the system, transform their infrastructure, the business processes, and that will provide one growth engine for the Company and emerging market is another growth engine for the Company, so consolidation, yes, it was and it is one of the growth area. It might continue to this extent or another but we think that we have a quite good growth engines that can support our growth and we feel quite comfortable with our guidance for 2008.

Thank you and maybe just one last comment about it. Usually when we penetrate to a Company that has been consolidating another Company, it's not a one-time project. Usually these projects leads to other projects. We see the same carrier.

Okay, thank you very much.

Thank you.

Thank you. We'll take our next question from Ted Jackson with Cantor Fitzgerald.

Thanks all my questions have been answered but a couple quick ones for my model. One is did you say CapEx for the quarter was $34 million?

Yes, it's 34 million.

Could you tell me what depreciation was for the quarter and then just going into your comments on interest rate going forward, what kind of rates of return are you expecting in terms of interest rates on your cash for 2008? That's it, thanks.

In terms of depreciation, it's 20 million plus overall. It does not change significantly versus previous quarter, and in terms of the yield specifically, we are seeing decline and overall you should expect similar to returns to what you would see in the other conservatively invested portfolios, we're not guiding as to specific yields on that.

Thank you. We'll go next to Tom Ernst with Deutsche Bank.

Hi, this is Gaetan Toulemonde on behalf of Tom. Just one question on the new customer activity you're seeing. Can you provide some details on where the activity is regionally as well as sort of what type of cable broadband?

As a matter of fact we see activity truly all around the globe. We have activities in the emerging markets and we have activities in Europe, in North America, in Latin America, and truly all around the globe in China. In terms of type of application, type of carriers, and I could not single out any one of them. All of the above you mentioned the dimensions. The broadband, wireless, convergence, and pre-paid activity truly all around. I think it's part of the strength of Amdocs. We are within the Telecom where we're diversified and we can enjoy both diversification of geography and application, and type of carriers and type of services, that's part of the strength that we have.

And you do have enough customer activity to keep 1500 consultants busy?

Yes, and we actually are recruiting so if you know a good consultant we would like to get their names.

Thank you.

We have time for one final question. We'll go next to Larry Berlin with First Analyst.

Good evening, guys, how are you today?

Good, good.

Good. First just a couple of wrap up questions. What was the geographic break down for revenue for the quarter?

It's roughly speaking it's 2/3 in North America and around 18% in Europe. The rest of the world is the balance of that.

67 and 18, from a hundred so we got that, 15. Also, what was your employee count at the end of the quarter ? The total number of

It's over 17,000.

Okay. And then lastly, on the cable broadband side of the business , has there had been any interest in the license in source model from the cable providers or are they primarily interested the outsourced managed service side of

We see both. We see some of the operators are looking for license and services deal and some of them of managed services and in some cases, it's a combination.

Thank you. And that does conclude today's question and answer portion. I'd like to turn the call back over to Amdocs for any additional or closing comments.

Thank you, this is Tom O'Brien, on behalf of the Management of the Company and employees of Amdocs. thank you for joining the call. This concludes today's call.

That does conclude today's call. You may disconnect your lines at this time.