Amdocs Ltd (DOX) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the Amdocs fourth 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, Cynthia, 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 disproportionate affect that is not clear. 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 the use of our non-GAAP financial measures, including reconciliation of these measures, we'll 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 the our expectations will be obtained or the 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 & Exchange Commission including in our annual report on Form 20-F for the year ended September 30, 2007 as filed on December 3, 2007 and our Form 6-K furnished on February 11, May 6 and August 11, 2008.

Amdocs may elect to update these forward-looking statements at some point in the future, but however, the Company specifically disclaims any obligation to do so. Participating in the call today are Dov Baharav, President and Chief Executive Officer of Amdocs Limited, 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 business results for the fourth quarter of fiscal 2008 with revenue growing 14% to a record of $825 million and operating income growing 16%.

This good news was effected by extreme volatility in financial markets which had an adverse effect on our earnings per share in the quarter, and which we will be a headwind for revenue as we move in to fiscal 2009. Clearly, we are experiencing unprecedented market conditions. There have been rapid and large movements in foreign exchange rates and interest rates have declined to very low levels.

Credit markets have been in turmoil, and this will impact economic activity around the world. There is uncertainty as to how it will impact our customers and their spending decisions. As a result, while we cannot today commit to guidance for the full year, we are managing our expenses under the assumption that fiscal 2009 revenue could be flat to low single-digit percentage growth for the year with the goal of maintaining profitability at a level similar to what we saw in fourth quarter.

When we look at our business, we see strength. We are not seeing cancellation of existing commitments, and in fact in recent weeks we have continued to sign new important deals. We support mission-critical activities for the best customers in the world, including managed services under long-term contract, and this drives strong organic revenue with high visibility and a strong backlog.

Beyond that, our backlog of potential new business remains solid. Although in this environment it is likely that the pace of transformational projects will slow. The strength of our business was demonstrated by the wins we had in Q4 across line of business and geographies.

We see the cable and satellite market as an area that will be less effected by economic condition, and we are experiencing accelerated growth in our cable and satellite activity. In Q4, [Concka] made a strategic decision to deploy next gen customer (inaudible) based on Amdocs CS 7.5. Another customer in the cable and satellite market has shown their Amdocs enterprise for their capital. Amdocs also enjoyed growth in our managed services activity which [widely curbed earnings]. Amdocs signed a six-year agreement, including managed services to support [metal PCA], a provider of advanced wireless service,s leveraging our Amdocs CS 7.5 platform to bring new capability to this customer.

In New York, Amdocs was chosen by [Debutel] a larger provider of mobile services in Germany, to provide a single billing platform to support its consolidate operation. In spite of our momentum in emerging market, ITC selected Amdocs compact convergence offering for real-time charging and serviceability a core [subsidiary manancore]. OSS is a growth engine and service providers are moving to IP network to reduce costs and introduce new capabilities. Amdocs' market leading OSS platform drives our growth in this area as shown by our expanded business with Vodaphone in the (inaudible).

Today we announced our pending acquisition of ChangingWorlds, the formalization is crucial to service provider's success as they seek to strengthen their role in value change. Using ChangingWorlds, an organization for the technology in combination with our broad and strong portfolio, will allow service providers to power more relevant and personal customer experience across all touch points so that they can be more targeted in everything that they do from sales and support to the merchandising of their content across the three screens.

This time of uncertainty, we continue to focus on the long-term strategic position of Amdocs and our growth potential. We leverage our growth engine in cable and satellite, emerging market, OSS and managed services. This growth engine serve mission-critical activities for the world's leading companies.

We'll continue to invest our future in areas such as digital lifestyle so that when economic condition improve, we'll be even father in the lead. This investment includes both R&D spending, as well as strategic M&A, such as the pending ChangingWorlds acquisition. Now let me turn the call over to Tamar for the financial review.

Thank you, Dov. Our fourth quarter revenue was $825 million, representing growth of 13.6%. Our non-gross profit EPS which excludes acquisition costs, restructuring charges and equity-based compensation expense, net of the related (inaudible) was $0.54 per diluted share. GAAP EPS was $0.38 per diluted share.

I'll spend a few minutes now on a few non-GAAP items. As we forecasted last quarter, license revenue increased in Q4. Operating margin was 17.9%, flat compared to Q3 and we see about the same in Q1 '09. For the year, operating margins were up 40 basis points. The improvement was driven by better profitability on our projects, and leverage on operating expenses, which more than made up from the shorter margin pressure from the new managed services deals.

Other income decreased compared to Q3, primarily due to foreign exchange losses. These losses were primarily due to reevaluation of assets and liabilities, dominated [in dollar comp] and cost us $0.08 of EPS. We have increased our balance sheet hedging program, which we think will greatly mitigate the future impact of currency fluctuations in the balance sheet, but it is impossible to eliminate all foreign exchange risks.

The effective tax rate in Q4 was 13.8%, in line with our guidance of 13% to 15%. At this time, we see the same range for fiscal 2009. Free cash flow in the quarter was $145 million; included in the calculation of this number was approximately $33 million in net CapEx. Free cash flow benefited this quarter from a large payment from a new customer that would have been over $100 million even [without this payment]. We're expecting free cash flow in Q1 to be $100 million or better.

DSO at the end of the quarter was 63 days, down from 65 days last quarter. The current balance in deferred revenue was $198 million at the end of Q4 and unbilled accounts receivable was $48 million. We expect fluctuations in this accounts on a quarterly basis. Long-term and billed accounts receivables was $47 million and long-term deferred revenue was $19 million.

When we look at the total of all our unbilled and deferred revenue accounts, we are on about the same overall net deferred revenue position as we were in last year. Our 12-month backlog which includes contract, committed revenue from managed services contracts, letters of intent and estimated ongoing support activities was $2.420 billion at the end of the quarter. Backlog at September 30 was negatively impacted by the strengthening of US dollar as well. (inaudible) If we use the foreign exchange rates from June 30, our backlog at the end of Q4 would have been nearly $50 million greater.

During the quarter ended September 30, we used $83 million to repurchase approximately 3 million shares at an average price of $27.72 per share. Given the uncertainty in the current economic environment, Amdocs will not continue it share buyback activity at this time. Looking forward, our guidance for the first quarter of fiscal 2009, is for revenue of approximately $785 million to $810 million and non-GAAP EPS of $0.54 to $0.57, excluding the effect of acquisition-related charges, and excluding equity-based compensation expense of approximately $0.05 to $0.06 a share net of related taxes.

As we mentioned in the press release today, anticipated decrease in Q1 revenue compared to Q4 '08 is entirely driven by foreign currency headwinds which significantly affects us as about 30% of our revenue is received in non-US dollar currencies. We will have diluted GAAP EPS after we complete preliminary (inaudible) for the ChangingWorlds acquisition. Our EPS guidance for Q1 is based on a fully diluted share count estimate of approximately [215] million shares. Now let me turn the call back over to Dov.

Thank you, Tamar. Amdocs is well-positioned to cope with the market we could see in 2009. We have a solid balance sheet, growth engine, cash flow, and great customers. We will weather the storm and continue build the Company for future growth. At this time, let me open the call to Q&A.

(OPERATOR INSTRUCTIONS). We will take our first question from Ashwin Vas Shirvaikar from Citigroup. Please go ahead.

Thank you. My first question is, having signed so many clients and contracts in the last two, three quarters, why can you not provide even a loose full-year outlook? Because it -- how much of the decision to not throw out a full-year outlook is related to currency versus market conditions?

Thank you, Ashwin for the question. Yes, we see encouraging signs in the market. We don't see cancellation of current activity. We signed many deals in the recent few months and even in the recent few weeks. However, the business we have signing might provide us a confidence regarding Q1 and Q2, but not Q3, and Q4.

And given the fact that we -- that the world is facing such a -- an unbelievable financial turmoil and we see signs of a global recession, it -- I would say that there is uncertainty what will happen in the marketplace, and to -- at this point to provide full-year guidance would be a -- I would say a -- too much, and not -- and we do not feel comfortable with giving it. What we try to share with you, is, first of all, that the Q1 results was effected mainly by the foreign exchange, other than that it would be in line with Q4. Moving forward, as we said, the jury is still out how things will shape up. We are managing the business and control -- managing our expenses under the assumptions that we should generate the possibly the same level as Q4, given the new dollar revenue that we have in Q1.

Okay. And then a follow-up question on the balance sheet hedging that you mentioned. I know you had a program -- fairly extensive hedging program both for the -- both for earnings and for balance sheet, if I'm not mistaken. What changes are you making?

First of all historically, we're more focused on the hedging of the net exposure of cash flow coming in in the different currencies. With the different changes historically of 1% to 3% per quarter, the reorganization of the balance sheet was not a material amount on a quarter-to-quarter basis. However, with the drastic changes in currency that we have seen since December, we have decided to substantially increase our balance sheet hedge in order to greatly mitigate for such effects going forward. Unfortunately, even with the best hedging program, we cannot provide a safe -- a fully safe insurance against the impact of that the -- sorry, the impact of the currency will have, but I believe we are much better covered today than we were before this crisis happened.

And does the other income impact in 1Q as well, right?

But so a much lower extent, given the increase we have got already in December in the hedging program.

Okay. Thank you.

We'll take our next question from Tai Liani from Merrill Lynch. Please, go ahead.

Hi, this is actually Dan [Prowins] calling in on Tai's behalf. Just had a follow-up on the currency. I was hoping you could give more details on your investment strategy. Why are you keeping investments in non-US dollar investments?

We're keeping all the of our investments of the access cash and short-term portfolio in US dollar. The balance sheet evaluation has to do with proration of balances. For example, we run activities in different countries, in different currencies, so we must maintain a minimum level of cash just to support the ongoing operations. Paying salaries, receiving collections, and so forth, in and out on a daily basis. This minimum level still with currency change of 10% are creating some impacts. Yet, during September, we have increased significantly our hedging program against operating cash, against accounts receivable, and so forth in order to mitigate this going forward.

Okay. Thank you.

We will take our next question from Daniel Meron with RBC Capital Markets. Please go ahead.

Thank you. Dov, can you provide us with a little bit more of a sense on how much conservatism are you building in to your guidance here? It wasn't -- FX being what it is, if it wasn't for that -- for the economic picture, what kind of growth should we have been looking for based on the pipeline that you have in front of you and the signed contracts?

Well, Daniel, thank you for the question. To some extent, we indicated that all of the reduction in expected revenue for Q1 in comparison to Q4 is due to (inaudible). That is to say we had about $825 million revenue in Q4, and the guidance is between $785 million and $810 million so it's a -- maybe about $25 million or maybe more reduction in revenue or a range thereof. It means that the impact on the year of 2009 -- it's at least 3% because of [4X]. That the revenue with the value of 3% would be erased due to the foreign exchange adverse impact on us. Now that was based on October numbers. Mid-October range.

Now that was from October numbers -- mid-October range -- exchange rate. Now things might change and then it will have an impact on us. On top of that, you asked about the level of conservatism. We are humbled by what happened to the financial world and looking at the potential global recession and to say that we know what will happen four quarters from now, it it will not be a responsible move. We have encouraged by the agreement that we signed today by the activity with the customers. We -- in order to ensure the possibility, we managed the company with -- assuming that we have a lower level of revenue which derives a lower level of expenses and then we'll see what is happening after the first quarter.

Okay. Thanks, Dov. Just to follow up, you mentioned the -- that you are managing the costs here. What measures did you take or do you plan to take in order to mitigate that -- if it in headcount or other costs? If you can quantify that for us, that would be good.

We actually are managing all activities of the Company, including the plans -- the growth plan of manpower, including an -- unfortunately we had to part from a 700 employees lately in areas that we saw that we have some surpluses and we are adjusting the activity. There are changes in the sources of revenue fore the Company. We have growth in OSS.

We have growth in managed services. We have growth in cable. We have growth in emerging market. In some areas like Yellow Pages, we do not experience the same growth. As a result of it, we have adjusting the activity accordingly and making sure that we keep the Company efficient.

Thank you, Dov. Good luck going forward.

Thank you.

We will take our next question from Shyam Patil with Raymond James. Please go ahead.

Thanks, guys. A question on the FX again. It looks like there's about 9 points of FX relative headwind next year. Are you assuming that revenue growth on a constant currency basis is somewhat flattish to '08 or are you assuming slowing as well?

What we said is that given the uncertainty in the marketplace, we do not give guidance for 2009. What we gave guidance is only for Q1, 2009. What we said is that in order to make sure that our expenses are kept in line with the dollar nominated reduced revenue, we assume that the level of revenues that we have in Q1 should be actually -- be up according to which we measure our expenses and we insist on getting same type of stability that we had in Q4.

Moving forward, that is our assumptions that what -- that's the way we should manage our expenses right now. We are encouraged by the connectivity. We have substantial growth engines, but we are not in a position to give guidance for full-year 2009.

Got it. And just a quick follow-up. Tamar, I think you guided to December quarter free cash flow of about $100 million. Could you maybe walk us through the operating cash flow in terms of what your assumptions are for the important working capital accounts, like deferred revenue and accounts receivable. Then should we expect the free cash flow net income gap to tighten throughout the year?

We're not guiding specifically to deferred revenue in AR balances of flat rates from quarter-to-quarter. But we are definitely guiding for Q1 cash flow to be at $100 million or better. What we're looking at within that is definitely a lot of focus to improve the realization of cash. You have seen that already in Q4. We are focused to continue that in to Q1 and keep that momentum as the year progresses.

Okay. Thank you.

We will take our next question from [Julio Conteros] with Goldman Sachs. Please go ahead.

Great. I just wanted to come back to the same question. I just wanted to see if I would ask at it little bit differently, trying to get at the same point here. What assumptions are built in to your fiscal 2009 comment where you expect revenue to be flat to low single-digit percentage. Maybe if you take a look at the existing book of business and add on top of that the new book of business. What exactly are you guys assuming gets you to flat to low single-digit revenue growth, excluding the currency impact?

Since we're not giving guidance, we wanted to give you color on how we actually run the expenses of the Company. When we look at the expenses, with have taken the approach that we need to return it based on the current revenue level that we see after the effect of foreign currencies which is flat to maybe low single-digit growth rate. We're being conservative on how we manage the expenses, putting a lot of focus on the efficiencies of the Company. While we see a lot of good signs of the activity with the customers, the fact that they continue to sign contracts with us, the fact that we see strong backlog for the next 12 months, is obviously encouraging us, as well as the strong balance sheet that we are entering in to this -- maybe difficult times with the right strong position to be at.

I think that's exactly what I'm trying to understand, especially because the recent rate of new announcements and new awards that are expected to ramp throughout the next fiscal year. What I'm trying to find a balance between being able to ramp all of the new work and still keeping expenses flat. What other levels, if you will, are available for you guys to pull back to actually maintain these flat expense projections?

In 2008, and I talked about the fact we were able to increase margin on our projects, because we were heavily focused on how we deliver the project and actually inserting new methodology of doing project to make it more efficient way. As well as flexibility of managing the expenses from the different development centers we have around the world, including low-cost countries. We introduce new methodologies of actually executing a project, flexibility of cost structure, as well as much more focus these days in terms of where we would like to invest the money and how we would like to invest it, including things on travel and other expenses within the Company to make sure we are running it in a very little way.

Okay. And just finally for me. The profitability targets -- the fourth quarter number that you guys are talking about is the 17.5% you cited on the beginning of the call here.

17.9%.

That's the number you are citing for the first quarter in terms of what you are targeting right now?

We are targeting to maintain that, yes.

Thanks, guys. Good luck.

Thank you.

We will take our next question from Tom Roderick with Thomas Weisel Partners. Please go ahead.

Thanks, and good afternoon. Dov, you commented on the lack of cancellations in the marketplace as perhaps a sign of strength-- at least a sign that things are holding in steady there. Is that an expectation that you hold as you look in to 2009, based own past cycles that we should see cancellations. When you think about the types of projects that could get canceled or delays, could you talk about which portion portions of your business you are trying to protect from that front?

Thank you, Tom. We indicated what we have seen so far, which is to say, our visibility is 100%. Looking forward, we see several layers of activity with some different -- I would say -- different confidence.

Basically before the long-term managed services agreements, which is -- and the managed services activity in the Company is about 40%, and that provide us very strong visibility and predictability. It's is our long-term contract. The largest carrier of this planet, which deliver to them mission-critical services which are essential for their operation, and that is something that they will not change. It's commitment of the customer. It's mission critical.

Now on top of it we have the reoccurring revenue of ongoing support for existing customers, which is again, mission-critical system and reoccurring revenues that we expect it to continue. Now the -- still -- maybe 20%, 30% of new projects that we have every year that actually we have not seen any cancellation. However, the main hesitation is, how many new projects will be converted in our pipeline from prospect to a contract? If the economic situation will worsen, then it might have an effect, an impact on us. However, if things will continue to be as they are, maybe we'll be able to actually convert this prospect to contract, and achieve our goals, and maybe exceed our goals.

The vast majority of activity is relatively secured, including the possibility in it there is certain percentage that it's -- I would say it's under a little bit high of risk. However, it includes growth engines that are needed even in times of pressure in the marketplace. First of all managed services. We help our customers to save money in this tough period, so we expect this segment of our activity to grow even though we evidenced just now prospect.

OSS, we are growing fast in OSS. Carriers are willing to replace their network in order to save money in order to move to IP in order to create new capabilities, and we have the leading OSS platform. We believe that represents an area of growth even in tough environment. Cable is not going to be affected in this marketplace as it has not been affected in 2002. Because people in a recession time will watch TV and not go to restaurants, and we believe that they -- given our recent wins in the cable industry, we will grow activity and we enjoy substantial growth in 2008, and we expect to accelerate the growth in 2009 even in this tough environment.

Emerging markets will continue to grow. We enjoy the growth in 2008, and we expect additional growth in 2009. Given that we believe that even the non-secured portion of our expected revenue is in good shape because it addresses the need of the industry in this tough situation. We feel good about the fundamental of the business, our ability to weather the storm, and our ability to generate growth beyond that.

Great, thanks, Dov. Tamar just a brief question for you on the backlog. I think you said it would have been up $50 million quarter-on-quarter -- currency. What was the absolute level of backlog when you factor in currency? And can you give the percentage of revenues coming in from Sprint and AT&T in the quarter? Thanks.

When we looked at the backlog and said that it would have been nearly $50 million higher, we compared it to the June 30 rate. In terms of percentage of revenue for Sprint and AT&T, we're not disclosing it at this stage. We will provide the full numbers for the year in our 20-F.

Okay. Thank you.

Thank you, Tom.

(OPERATOR INSTRUCTIONS). We will take our next question from Jason Kupferb with UBS. Please go ahead.

Thanks. I wanted to touch on FX a little bit more, and specifically on the operating margin impact here. I fully understand the revenue impact and I get the non-operating impact from the balance sheet revaluation. But I would have thought that some of the negative impact on the top line would have gotten reversed out on the cost side, but maybe that's where your hedges come in to play a little bit. If you can tear that a part a little bit and help us understand why there seems to be a net negative on your earnings even without taking into account the non-operating balance sheet reevaluation, that would be real helpful.

As Dov said, some of the currencies that dominate the non-US dollar activity on the revenue side also have impact on the expense side. For example, if you are looking at Canadian dollar, we have both revenue and expenses. However, in many of these currencies, the net exposure of taking the revenue expense in these currencies is actually a positive margin. What we're trying to do is through our hedging program, mitigate that exposure sensitivity to the currency exchange risk. Indeed if you look at Q4 , the impact is mainly the (inaudible) of balance sheet, not the impact on the EBIT -- not the impact on the operating margin. Even though we cannot 100% mitigate that impact -- ability with our hedging program, does a pretty good job in terms of doing a less -- much less of an impact on the

Okay. You said for Q1, there will still be a little bit of an impact from revaluation, but it sounds like that won't be very much. Yet, you are saying the revenues are going to be the same as Q4 in constant currency, but the EPS -- that's where I'm getting a little bit confused. I don't see how the margins are being protected.

Beyond the issue of the foreign currencies, we need to understand the interest rates are going down dramatically over this period, as well as our -- a way of actually investing the money given the volatile terms in the financial markets. We take even taken a more conservative approach in terms of how we invest our excess cash and run to safety in the way -- the few -- the last two months. That in addition to the fact that interest rates, the Fed funds are going dow. We're putting a more conservative approach in our investments, even though it may have some impact on the yield, it impacting the EPS as well.

All right. Just on the sales cycle quickly. What I'm trying to get a handle on is how much of your uncertainty around fiscal '09 is because of things you are already experiencing versus dynamics that you expect you might start to experience at some point in the future?

I would say the majority of the uncertainty is regarding what might effect us during the year. So far, we have not experienced any cancellation. We continue to sign deals. There is one unknown that we don't know and probably will know later. To what extent a new prospect appear? To what extent we are able to get an inflow of new prospect? That's something that will take time to realize and we cannot quantify right now. I would say, if we just work backward, it doesn't look so bad. We see this sign and we see connectivity continue. We have a nice flow of cash flow from our customer and so the test was not so bad, excluding the foreign exchange.

Moving forward, looking at what is going on, looking at the recession, asking ourselves -- and looking at some maybe early signs of manufacturers that they project reduction of their gross rate and they are looking at their activity. There are some signs that might indicate potential impact. We don't know. We want to be caution.

Thank you.

We will take our next question from Karl Keirstead with Kaufman Brothers. Please go ahead.

Good afternoon, just a couple of clarifications. You have said that the target we should use for operating margins in fiscal '09 should equal the fourth quarter fiscal '08 margins. But I want to be very clear on what margin benchmark you are referring to in the fourth quarter. Are you talking non-GAAP operating margins before the $12 million restructuring charge? Maybe you could clarify?

Yes. We are talking -- we are guiding for Q1 for similar profitability for operating line on the non-GAAP basis is 17.9%.

That's the assumption we should use for the full year fiscal '09 as well?

We are not guiding for the full year. We are managing our expenses and our internal plans in order to maintain profitability and in order to keep a cautious outlook when we are looking on the expense side.

Another clarification, just to be clear. I know it's been hit on a couple of times. If you took an $0.08 FX hit in the September quarter, your $0.54 to $0.57 non-GAAP EPS estimate for the December quarter, what exactly is the FX hit you are anticipating there if we estimate perhaps $0.02? Is that about right?

It could be up to $0.02. But we need to take in to consideration that we're doing forecasting based on mid-October rates. As we know the volatility these days is such that it's moving drastically from one week to another.

Okay. Great. Your fiscal '09 revenue guidance, does that include any revenue contribution from the acquisition you announced today?

It's insignificant for Q1.

Okay. Lastly, the $12 million restructuring charge. You didn't touch on that. What is that? Is that the headcount reduction that you alluded to today?

The reduction in force. Yes.

Thanks very much.

Thank you.

Thank you.

We'll take our next question from Sterling Auty with JPMorgan. Please go ahead.

Thanks. I know you are not giving guidance for the full year, but based on the comments in the press release about flat to low single-digit growth and trying to maintain the margins, would you expect EPS to increase through the year or is the FX that volatile that it could bounce around?

I think that's one of the elements that you should take in to consideration is that the interest income, just because of the lower yields -- the saturation from 525 Fed fund rate summer of '07 and now we are at 1%. Given the conservative way of how we invest the money, there is definitely an impact on the final income we are making. This is another factor to put in to in terms of the tax. We are guiding to the same range of 13% to 15% and we do not see currently any reason for that to change.

Okay. Again, up to $0.02 impact on FX in the December quarter, that again, would be from the balance sheet sheet item so it would flow through the other income line not above the line.

That's correct.

Okay. What was the total headcount reduction -- so the $12 million for the restructuring. I missed that. It covered how many people?

It was about 500 people.

All right. Thank you.

We will take our next question from Marianne Wolk with Susquehanna. Please go ahead.

First of all, was there any cutback in work orders by your clients? In the last down you were really successful in increasing demand for managed services by leveraging your balance sheet. I believe you signed Bell Canada in that time frame. Are you planning to do something similar? Is there any increase for demand in managed services that you're seeing among your client base?

Marianne, thank you for the question. We have not seen any cancellation of four quarters by our customers. The activity continues there. Regarding managed services, yes, we see increasing demand. I would say that we -- first of all, we established a special unit, headed by a management member that is focusing and building our offering, and the -- actually making our activity more efficient on one end and actually building our capability of globalizing and increasing our selling capabilities. What we have seen so far, a lot of interest by many customers to consider it, especially given the current situation. Our expectation is to see an increase, a meaningful increase in the managed services activity in 2009.

Thank you.

Thank you.

We will take our next question from Ted Jackson with Cantor Fitzgerald. Please go ahead.

Thanks very much. I also want to thank both of you for providing such a lucid description of what is impacting your business. I have two questions for you, very straightforward. One is I'm curious if you could give the percentage of direct republishing revenue and whether or not it grew or declined in the quarter.

Director business accounts for approximately 9% of our business in 2008. It's actually experiencing decline as we look forward in to Q1.

Okay. And then moving over to the licensing revenue which was up nicely in the quarter. Could you comment a bit about what drove the increase and what we can expect out of that as we look in to first quarter?

It would -- contributed to that is the combination of the different wins we talked about this quarter, the metro PCS and so forth. We had very good activity in terms of signing new and continue it to the license line. Looking forward, we are not guiding for this number and it depends on the number of new wins that we sign, as well as some level that we have from the ongoing project that is recognized based on the percentage of completion. It's hard to tell the combination of both, whether it will be better or slightly lower than what we had in Q4.

Any chance you could give geographic breakdown for revenues for the quarter?

When we look at Q4 specifically, we're seeing Europe at about a -- close to 20%. We see emerging markets slightly short of 10% already for the quarter, and the rest is mainly North America.

Thanks very much.

Thank you.

Thank you, Ted.

We'll take our next question from Larry Berlin with First Analysis. Please go ahead.

Couple of things quickly. What was depreciation in the quarter?

It was about $25 million.

Okay. Okay. The second in the -- back to the FX issue. If you are hedging, does the hedge itself or losses from the hedge works to counter of accounts through the revenue so reducing revenue over time or profit or increase your revenue at some point from the hedges?

What we're doing is we're actually hedging the net exposure. We're looking in each currency -- what is the status of revenue minus expenses in that currency. Then actually after evaluating what is the net exposure, defining our hedging against that.

Okay. Thank you very much, guys.

Thank you, Larry.

This will conclude today's question-and-answer session. I will now turn the conference back over to management for closing comments.

Our business remains strong and economic uncertainty leaves the condition and -- we are in a position to continue our long history of growth. We are the choice of and strategic partner for the leaders in our industry. Thank you, and have a good night.

Ladies and gentlemen, this will conclude the Amdocs's fourth quarter 2008 earnings release conference call. We thank you for your participation, and you may disconnect at this time.