DOX Amdocs Ltd

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended December 31, 2023

 

Commission File Number 1-14840

 

AMDOCS LIMITED

Hirzel House, Smith Street,

St. Peter Port, Island of Guernsey, GY1 2NG

 

Amdocs, Inc.

625 Maryville Centre Drive, Suite 200 Saint Louis, Missouri 63141

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

FORM 20-F ☑ FORM 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

 

YES ☐ NO ☑

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _______

 

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AMDOCS LIMITED

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

 

FOR THE QUARTER ENDED DECEMBER 31,

2023

INDEX

 

PART I FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Changes in Equity	6
Consolidated Statements of Cash Flows	7
Notes to Unaudited Consolidated Financial Statements	8
Item 2. Operating and Financial Review and Prospects	20
PART II OTHER INFORMATION	27
Item 1. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	27
Item 2. Reports on Form 6-K	27
SIGNATURES	27

 

This report on Form 6-K shall be incorporated by reference into any Registration Statement filed by the Registrant that by its terms automatically incorporates the Registrant's filings and submissions with the SEC under Sections 13(a), 13(c) or 15(d) of the Securities Exchange Act of 1934.

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PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

AMDOCS LIMITED

CONSOLIDATED BALANCE SHEETS

(dollar and share amounts in thousands, except per share data)

 

		As of
		December 31, 2023				September 30, 2023
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	382,885			$	520,080
Short-term interest-bearing investments			218,043				222,451
Accounts receivable, net			1,029,294				944,477
Prepaid expenses and other current assets			215,914				224,622
Total current assets			1,846,136				1,911,630
Property and equipment, net			776,629				790,923
Lease assets			163,181				160,938
Goodwill			2,836,030				2,749,041
Intangible assets, net			204,562				181,539
Other noncurrent assets			645,128				631,582
Total assets		$	6,471,666			$	6,425,653
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	278,627			$	293,344
Accrued expenses and other current liabilities			749,882				634,742
Accrued personnel costs			216,037				214,695
Lease liabilities			41,361				39,960
Deferred revenue			149,826				170,634
Total current liabilities			1,435,733				1,353,375
Deferred income taxes and taxes payable			198,577				252,609
Lease liabilities			117,155				121,654
Long-term debt, net of unamortized debt issuance costs			645,844				645,696
Other noncurrent liabilities			472,004				485,387
Total liabilities			2,869,313				2,858,721
Equity:
Amdocs Limited Shareholders' equity:
Preferred Shares — Authorized 25,000 shares; £0.01 par value; 0 shares issued    and outstanding			—				—
Ordinary Shares — Authorized 700,000 shares; £0.01 par value; 287,379 and 286,330 issued and 116,502 and 117,348 outstanding, respectively			4,584				4,571
Additional paid-in capital			4,294,652				4,244,256
Treasury stock, at cost 170,877 and 168,982 ordinary shares, respectively			(7,379,838	)			(7,221,313	)
Accumulated other comprehensive loss			(6,452	)			(53,272	)
Retained earnings			6,646,799				6,549,517
Total Amdocs Limited Shareholders' equity			3,559,745				3,523,759
Noncontrolling interests			42,608				43,173
Total equity			3,602,353				3,566,932
Total liabilities and equity		$	6,471,666			$	6,425,653

 

The accompanying notes are an integral part of these consolidated financial statements.

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AMDOCS LIMITED

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(dollar and share amounts in thousands, except per share data)

 

		Three months ended December 31,
		2023				2022
Revenue		$	1,245,199			$	1,185,720
Operating expenses:
Cost of revenue			812,744				756,849
Research and development			89,207				95,726
Selling, general and administrative			142,504				143,222
Amortization of purchased intangible assets and other			16,410				15,313
Restructuring charges			—				24,536
			1,060,865				1,035,646
Operating income			184,334				150,074
Interest and other expense, net			(9,778	)			(4,963	)
Income before income taxes			174,556				145,111
Income tax expense			25,834				15,239
Net income		$	148,722			$	129,872
Net income attributable to noncontrolling interests			757				205
Net income attributable to Amdocs Limited		$	147,965			$	129,667
Basic earnings per share attributable to Amdocs Limited		$	1.27			$	1.07
Diluted earnings per share attributable to Amdocs Limited		$	1.26			$	1.07
Cash dividends declared per ordinary share		$	0.435			$	0.395

 

The accompanying notes are an integral part of these consolidated financial statements.

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AMDOCS LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(dollar amounts in thousands)

 

		Three months ended December 31,
		2023				2022
Net income		$	148,722			$	129,872
Other comprehensive income, net of tax:
Net change in fair value of cash flow hedges(1)			42,146				11,193
Net change in fair value of available-for-sale securities(2)			4,674				2,147
Other comprehensive income, net of tax			46,820				13,340
Comprehensive income		$	195,542			$	143,212
Comprehensive income attributable to noncontrolling interests			757				205
Comprehensive income attributable to Amdocs Limited		$	194,785			$	143,007

 

The accompanying notes are an integral part of these consolidated financial statements.

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AMDOCS LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(dollar and share amounts in thousands, except per share data)

 

		Ordinary Shares
		Shares				Amount				Additional Paid-in Capital				Treasury Stock				Accumulated Other Comprehensive Loss (1)				Retained Earnings				Total Amdocs Limited Shareholders’ Equity				Non- controlling Interests (2)				Total Equity
Balance as of September 30, 2023			117,348			$	4,571			$	4,244,256			$	(7,221,313	)		$	(53,272	)		$	6,549,517			$	3,523,759			$	43,173			$	3,566,932
Comprehensive income:
Net income			—				—				—				—				—				147,965				147,965				757				148,722
Other comprehensive income			—				—				—				—				46,820				—				46,820				—				46,820
Comprehensive income																											194,785				757				195,542
Employee stock options exercised			74				1				4,349				—				—				—				4,350				—				4,350
Repurchase of shares			(1,895	)			—				—				(158,525	)			—				—				(158,525	)			—				(158,525	)
Cash dividends declared ($0.435 per ordinary share)			—				—				—				—				—				(50,683	)			(50,683	)			—				(50,683	)
Issuance of restricted stock, net of forfeitures			700				9				—				—				—				—				9				—				9
Employee share purchase plan			275				3				19,967				—				—				—				19,970				—				19,970
Equity-based compensation expense related to employees			—				—				26,080				—				—				—				26,080				—				26,080
Distribution to noncontrolling interests (2)			—				—				—				—				—				—				—				(1,322	)			(1,322	)
Balance as of December 31, 2023			116,502			$	4,584			$	4,294,652			$	(7,379,838	)		$	(6,452	)		$	6,646,799			$	3,559,745			$	42,608			$	3,602,353
		Ordinary Shares
		Shares				Amount				Additional Paid-in Capital				Treasury Stock				Accumulated Other Comprehensive (Loss) (1)				Retained Earnings				Total Amdocs Limited Shareholders’ Equity				Non- controlling Interests				Total Equity
Balance as of September 30, 2022			120,842			$	4,548			$	4,105,900			$	(6,731,789	)		$	(72,476	)		$	6,211,586			$	3,517,769			$	42,509			$	3,560,278
Comprehensive income:
Net income			—				—				—				—				—				129,667				129,667				205				129,872
Other comprehensive loss			—				—				—				—				13,340				—				13,340				—				13,340
Comprehensive income																											143,007				205				143,212
Employee stock options exercised			247				3				14,590				—				—				—				14,593				—				14,593
Repurchase of shares			(1,183	)			—				—				(100,021	)			—				—				(100,021	)			—				(100,021	)
Cash dividends declared ($0.395 per ordinary share)			—				—				—				—				—				(47,635	)			(47,635	)			—				(47,635	)
Issuance of restricted stock, net of forfeitures			682				8				—				—				—				—				8				—				8
Equity-based compensation expense related to employees			—				—				19,490				—				—				—				19,490				—				19,490
Balance as of December 31, 2022			120,588			$	4,559			$	4,139,980			$	(6,831,810	)		$	(59,136	)		$	6,293,618			$	3,547,211			$	42,714			$	3,589,925

____________

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

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AMDOCS LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(dollar amounts in thousands)

 

		Three months ended December 31,
		2023				2022
Cash Flow from Operating Activities:
Net income		$	148,722			$	129,872
Reconciliation of net income to net cash provided by operating activities:
Depreciation, amortization and impairment			45,861				61,071
Amortization of debt issuance cost			149				145
Equity-based compensation expense			26,080				19,490
Deferred income taxes			(6,683	)			(16,973	)
Loss from short-term interest-bearing investments			548				639
Net changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net			(66,657	)			(197,381	)
Prepaid expenses and other current assets			4,452				16,069
Other noncurrent assets			(10,538	)			(848	)
Lease assets and liabilities, net			(5,340	)			(1,251	)
Accounts payable, accrued expenses and accrued personnel			95,787				82,136
Deferred revenue			(25,930	)			(6,194	)
Income taxes payable, net			(18,066	)			(11,242	)
Other noncurrent liabilities			(5,998	)			7,693
Net cash provided by operating activities			182,387				83,226
Cash Flow from Investing Activities:
Purchase of property and equipment, net (1)			(43,743	)			(33,703	)
Proceeds from sale of short-term interest-bearing investments			8,534				3,734
Net cash paid for business acquisitions			(77,329	)			-
Other			928				(835	)
Net cash used in investing activities			(111,610	)			(30,804	)
Cash Flow from Financing Activities:
Repurchase of shares			(158,525	)			(100,021	)
Proceeds from employee stock option exercises			4,428				14,589
Payments of dividends			(51,053	)			(47,735	)
Distribution to noncontrolling interests			(1,322	)			-
Payment of contingent consideration from a business acquisition			(1,500	)			(453	)
Net cash used in financing activities			(207,972	)			(133,620	)
Net decrease in cash and cash equivalents			(137,195	)			(81,198	)
Cash and cash equivalents at beginning of period			520,080				573,377
Cash and cash equivalents at end of period		$	382,885			$	492,179
Supplementary Cash Flow Information
Cash paid for:
Income taxes, net of refunds (2)		$	51,255			$	42,366
Interest (3)			12,055				8,308

 

 

The accompanying notes are an integral part of these consolidated financial statements.

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Amdocs Limited (the “Company”) is a leading provider of software and services to communications, entertainment and media service providers of all sizes throughout the world. The Company and its consolidated subsidiaries operate in one segment and design, develop, market, support, implement and operate its open and modular cloud portfolio.

 

The Company is a Guernsey limited company, which directly or indirectly holds numerous subsidiaries around the world, the vast majority of which are wholly-owned. The majority of the Company’s customers are in North America, Europe, Asia-Pacific and the Latin America region. The Company’s main development facilities are located in Brazil, Canada, Cyprus, India, Ireland, Israel, Mexico, the Philippines, the United Kingdom and the United States.

 

The unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP and are denominated in U.S. dollars.

 

In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of the unaudited interim consolidated financial statements have been included herein and are of a normal recurring nature. The preparation of financial statements during interim periods requires management to make numerous estimates and assumptions that impact the reported amounts of assets, liabilities, revenue and expenses. Estimates and assumptions are reviewed periodically and the effect of revisions is reflected in the results of operations for the interim periods in which changes are determined to be necessary.

 

The results of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full fiscal year. These statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with GAAP. These statements should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended September 30, 2023, set forth in the Company’s Annual Report on Form 20-F filed on December 13, 2023 with the U.S. Securities and Exchange Commission, or the SEC. There have been no material changes to the Company’s significant accounting policies from its Annual Report on Form 20-F for the fiscal year ended September 30, 2023.

Reclassification

 

From time to time, certain immaterial amounts in prior year financial statements may be reclassified to conform to the current year presentation.

On December 14, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, “Improvements to Income Tax Disclosures”, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU will be effective for the Company's annual report for fiscal year 2026 and allows adoption on a prospective basis, with a retrospective option. This ASU will only have an impact on the Company's income tax disclosures. The Company is currently evaluating the impact of the adoption on its consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), “Improvements to Reportable Segment Disclosures,” which enhances the disclosures required for operating segments in the annual and interim consolidated financial statements. This ASU will be effective for the Company's annual report for fiscal year 2025 and for interim period reporting beginning in fiscal year 2026 on a retrospective basis with early adoption permitted. The Company is currently evaluating the impact of the adoption on its consolidated financial statements.

In March 2020, the FASB, issued ASU No. 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides temporary optional expedients and exceptions on certain contract modifications, hedge relationships and other transactions that reference London Inter-Bank Offered Rate (“LIBOR”) or other reference rates expected to be discontinued due to the reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2024. The Company expects that the adoption of this ASU will not have a material impact on its consolidated financial statements.

 

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In August 2021, the FASB, issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The ASU requires companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. As of October 1, 2023, the Company prospectively adopted this ASU and there was immaterial impact on the Company’s consolidated financial statements.

 

 

During the three months ended December 31, 2023, the Company completed the acquisition of Astadia, which specializes in mainframe-to-cloud migration and modernization, for an aggregate net consideration of approximately $75,000 in cash, and a potential for additional consideration which may be paid later based on achievement of certain performance metrics. In allocating the total consideration based on the preliminary estimated fair values for Astadia, the Company recorded $88,845 of goodwill, $27,677 of customer relationships to be amortized over approximately six years, $8,001 of core technology to be amortized over approximately four years, and $1,784 of trademark to be amortized over approximately three years.

Contract Balances

The following table provides information about accounts receivable, both billed and unbilled and deferred revenue:

 

		As of
		December 31, 2023				September 30, 2023
Accounts receivable - billed (net of allowances for credit losses of $21,752    and $19,801 as of December 31, 2023 and September 30, 2023, respectively)		$	747,421			$	732,979
Accounts receivable – unbilled (current)		$	281,873			$	211,498
Accounts receivable – unbilled (non-current)		$	32,310			$	45,176
Total Accounts receivable - unbilled		$	314,183			$	256,674
Deferred revenue (current)		$	(149,826	)		$	(170,634	)
Deferred revenue (non-current)		$	(658	)		$	(805	)
Total Deferred revenue		$	(150,484	)		$	(171,439	)

 

Revenue recognized during the three months ended December 31, 2023, which was included in deferred revenue (current) as of September 30, 2023 was $116,112. Revenue recognized during the three months ended December 31, 2022, which was included in deferred revenue (current) as of September 30, 2022 was $187,655.

As of December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations that are unsatisfied or partially unsatisfied was approximately $5.5 billion. Remaining performance obligations include the remaining non-cancelable, committed and fixed portion of these contracts for their entire duration and therefore it is not comparable to what the Company considers to be next 12 months backlog. Given the profile of contract terms, the majority of this amount is expected to be recognized as revenue over the next three years.

Disaggregation of Revenue

The Company considers information that is regularly reviewed by its chief operating decision makers in evaluating financial performance to disaggregate revenue.

The following tables provide details of revenue by nature of activities and by geography:

Revenue by nature of activities

 

		Three months ended December 31,
		2023				2022
Managed services arrangements		$	722,459			$	699,826
Others			522,740				485,894
Total		$	1,245,199			$	1,185,720

 

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Geographic Information

 

		Three months ended December 31,
		2023				2022
North America (mainly United States)		$	838,135			$	812,690
Europe			181,420				168,666
Rest of the world			225,644				204,364
Total		$	1,245,199			$	1,185,720

 

The Company accounts for certain assets and liabilities at fair value. Fair value is the price that would be received from selling an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.

The three levels of inputs that may be used to measure fair value are as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities;

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or other inputs that are observable (model-derived valuations in which significant inputs are observable) or can be derived principally from, or corroborated by, observable market data; and

Level 3: Unobservable inputs that are supported by little or no market activity that is significant to the fair value of the assets or liabilities.

The following tables present the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and September 30, 2023:

 

		As of December 31,2023
		Level 1				Level 2				Level 3				Total
Available-for-sale securities:
Money market funds		$	198,091			$	—			$	—			$	198,091
Corporate bonds			—				145,618				—				145,618
U.S. government treasuries			42,131				—				—				42,131
Supranational and sovereign debt			—				17,260				—				17,260
Asset backed obligations			—				5,816				—				5,816
Municipal bonds			—				7,218				—				7,218
Total available-for-sale securities			240,222				175,912				—				416,134
Equity Investments			—				—				46,451				46,451
Derivative financial instruments, net			—				10,036				—				10,036
Other liabilities			—				—				(61,761	)			(61,761	)
Total		$	240,222			$	185,948			$	(15,310	)		$	410,860

 

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		As of September 30, 2023
		Level 1				Level 2				Level 3				Total
Available-for-sale securities:
Money market funds		$	308,354			$	—			$	—			$	308,354
Corporate bonds			—				150,310				—				150,310
U.S. government treasuries			41,138				—				—				41,138
Supranational and sovereign debt			—				16,792				—				16,792
Asset backed obligations			—				7,115				—				7,115
Municipal bonds			—				7,096				—				7,096
Total available-for-sale securities			349,492				181,313				—				530,805
Equity Investments			—				—				47,985				47,985
Derivative financial instruments, net			—				(36,832	)			—				(36,832	)
Other liabilities			—				—				(24,627	)			(24,627	)
Total		$	349,492			$	144,481			$	23,358			$	517,331

 

Available-for-sale securities that are classified as Level 2 assets are priced using observable data that may include quoted market prices for similar instruments, market dealer quotes, market spreads, non-binding market prices that are corroborated by observable market data and other observable market information. The Company’s derivative instruments are classified as Level 2 as they represent foreign currency forward and option contracts valued primarily based on observable inputs including forward rates and yield curves. The Company did not have any transfers between Level 1 and Level 2 fair value measurements during the three months ended December 31, 2023. Level 3 liabilities relate to certain acquisition-related liabilities, which were generally valued using a Monte-Carlo simulation model and based on estimates of potential pay-out scenarios, valued every quarter. These liabilities were included in both accrued expenses and other current liabilities and other noncurrent liabilities as of December 31, 2023 and September 30, 2023. The increase in Level 3 liabilities was primarily attributable to changes recorded against goodwill in connection with the recent acquisition, partially offset by payments of certain acquisition-related liabilities and changes in the fair value recorded in the consolidated statement of income during the three months ended December 31, 2023.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, accrued personnel costs approximate their fair value because of the relatively short maturity of these items, for the fair value of the Senior Notes, see Note 14.

Available-for-sale securities consist of the following interest-bearing investments:

 

		As of December 31,2023
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Money market funds		$	198,091			$	—			$	—			$	198,091
Corporate bonds			152,650				—				7,032				145,618
U.S. government treasuries			44,831				—				2,700				42,131
Supranational and sovereign debt			18,565				—				1,305				17,260
Asset backed obligations			6,022				—				206				5,816
Municipal bonds			7,504				—				286				7,218
Total(1)		$	427,663			$	—			$	11,529			$	416,134

 

 

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		As of September 30, 2023
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Money market funds		$	308,354			$	—			$	—			$	308,354
Corporate bonds			160,370				—				10,060				150,310
U.S. government treasuries			44,782				—				3,644				41,138
Supranational and sovereign debt			18,566				—				1,774				16,792
Asset backed obligations			7,423				—				308				7,115
Municipal bonds			7,513				—				417				7,096
Total(1)		$	547,008			$	—			$	16,203			$	530,805

 

 

As of December 31, 2023, the unrealized losses attributable to the Company’s available-for-sale securities were primarily due to credit spreads and interest rate movements. The securities that have unrealized losses as of December 31, 2023 also had unrealized losses as of December 31, 2022. The Company assessed whether such unrealized losses for the investments in its portfolio were caused by expected credit losses. Based on this assessment, the Company did not recognize any credit losses in the three months ended December 31, 2023 and 2022. Realized gains and losses on short-term interest-bearing investments are included in earnings and are determined based on specific identification method. The Company does not intend to sell these investments. In addition, it is more likely than not that the Company will not be required to sell them before recovery of the amortized cost basis, which may be at maturity.

As of December 31, 2023, the Company’s available-for-sale securities had the following maturity dates:

 

		Market Value
Due within one year		$	257,895
1 to 2 years			102,411
2 to 3 years			55,828
		$	416,134

 

The Company’s risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The Company does not enter into derivative transactions for trading purposes.

The Company’s derivatives expose it to credit risks from possible non-performance by counterparties. The Company utilizes standard counterparty master netting agreements that net certain foreign currency transactions in the event of the insolvency of one of the parties to the transaction. These master netting arrangements permit the Company to net amounts due from the Company to a counterparty with amounts due to the Company from the same counterparty. Although all of the Company’s recognized derivative assets and liabilities are subject to enforceable master netting arrangements, the Company has elected to present these assets and liabilities on a gross basis. Taking into account the Company’s right to net certain gains with losses, the maximum amount of loss due to credit risk that the Company would incur if all counterparties to the derivative financial instruments failed completely to perform, according to the terms of the contracts, based on the gross fair value of the Company’s derivative contracts that are favorable to the Company, was approximately $19,116 as of December 31, 2023. The Company has limited its credit risk by entering into derivative transactions exclusively with investment-grade rated financial institutions and monitors the creditworthiness of these financial institutions on an ongoing basis.

The Company classifies cash flows from its derivative transactions as cash flows from operating activities in the consolidated statements of cash flows.

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The table below presents the total volume or notional amounts of the Company’s derivative instruments as of December 31, 2023. Notional values are in U.S. dollars and are translated and calculated based on forward rates as of December 31, 2023 for forward contracts.

 

		Notional Value*
Foreign exchange contracts		$	2,222,280

 

 

* Gross notional amounts do not quantify risk or represent assets or liabilities of the Company but are used in the calculation of settlements under the contracts.

The Company records all derivative instruments on the consolidated balance sheets at fair value. For further information, please see Note 6 to the consolidated financial statements. The fair value of the open foreign exchange contracts recorded as an asset or a liability by the Company on its consolidated balance sheets as of December 31, 2023 and September 30, 2023, is as follows:

 

		As of
		December 31, 2023				September 30, 2023
Derivatives designated as hedging instruments
Prepaid expenses and other current assets		$	2,481			$	968
Other noncurrent assets			16,150				331
Accrued expenses and other current liabilities			(11,169	)			(32,295	)
Other noncurrent liabilities			(527	)			(7,050	)
			6,935				(38,046	)
Derivatives not designated as hedging instruments
Prepaid expenses and other current assets			16,937				10,586
Accrued expenses and other current liabilities			(13,836	)			(9,372	)
			3,101				1,214
Net fair value		$	10,036			$	(36,832	)

 

Cash Flow Hedges

In order to reduce the impact of changes in foreign currency exchange rates on its results, the Company enters into foreign currency exchange forward and option contracts to purchase and sell foreign currencies to hedge a significant portion of its foreign currency net exposure resulting from revenue and expense transactions denominated in currencies other than the U.S. dollar. The Company designates these contracts for accounting purposes as cash flow hedges. The Company currently hedges its exposure to the variability in future cash flows for a maximum period of approximately three years. A significant portion of the forward contracts outstanding as of December 31, 2023 is scheduled to mature within the next 12 months.

The effective portion of the gain or loss on the derivative instruments is initially recorded as a component of other comprehensive income, net, a separate component of equity, and subsequently reclassified into earnings in the same line item as the related forecasted transaction and in the same period or periods during which the hedged exposure affects earnings. The cash flow hedges are evaluated for effectiveness quarterly. As the critical terms of the forward contract or option and the hedged transaction are matched at inception, the hedge effectiveness is assessed generally based on changes in the fair value for cash flow hedges, as compared to the changes in the

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fair value of the cash flows associated with the underlying hedged transactions. Hedge ineffectiveness, if any, is recognized immediately in interest and other expense, net.

The effect of the Company's cash flow hedging instruments in the consolidated statements of income for the three months ended December 31, 2023 and 2022, respectively, which partially offsets the foreign currency impact from the underlying exposures, is summarized as follows:

 

		Losses Reclassified from
		Accumulated Other Comprehensive Loss (Effective Portion)
		Three months ended December 31,
		2023				2022
Line item in consolidated statements of income:
Revenue		$	355			$	815
Cost of revenue			(6,130	)			(7,212	)
Research and development			(2,040	)			(2,007	)
Selling, general and administrative			(2,096	)			(1,965	)
Total		$	(9,911	)		$	(10,369	)

 

The activity related to the changes in net unrealized gains (losses) on cash flow hedges recorded in accumulated other comprehensive loss, net of tax, is as follows:

 

		Three months ended December 31,
		2023				2022
Net unrealized losses on cash flow hedges, net of tax, beginning of period		$	(34,677	)		$	(46,580	)
Changes in fair value of cash flow hedges, net of tax			32,854				1,367
Reclassification of net losses into earnings, net of tax			9,292				9,826
Net unrealized gains (losses) on cash flow hedges, net of tax, end of period		$	7,469			$	(35,387	)

 

Net gains from cash flow hedges recognized in other comprehensive income, net were $35,060 and $1,387, or $32,854 and $1,367 net of taxes, during the three months ended December 31, 2023 and 2022, respectively.

Of the net unrealized gains related to derivatives designated as cash flow hedges and recorded in accumulated other comprehensive loss as of December 31, 2023, a net loss of $8,359 will be reclassified into earnings within the next 12 months and will partially offset the foreign currency impact from the underlying exposures. The amount ultimately realized in earnings will likely differ due to future changes in foreign exchange rates.

The ineffective portion of the change in fair value of a cash flow hedge, including the time value portion excluded from effectiveness testing for the three months ended December 31, 2023 and 2022, was not material.

Other Risk Management Derivatives

The Company also enters into foreign currency exchange forward and option contracts that are not designated as hedging instruments under hedge accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures and certain revenue and expense transactions.

These instruments are generally short-term in nature, with typical maturities of less than 12 months, and are subject to fluctuations in foreign exchange rates.

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The effect of the Company's derivative instruments not designated as hedging instruments in the consolidated statements of income for the three months ended December 31, 2023 and 2022, respectively, which partially offsets the foreign currency impact from the underlying exposure, is summarized as follows:

 

		Losses Recognized in Income
		Three months ended December 31,
		2023				2022
Line item in consolidated statements of income:
Cost of revenue		$	2,935			$	1,232
Research and development			850				174
Selling, general and administrative			944				260
Interest and other expense, net			(6,134	)			(11,408	)
Income taxes			(617	)			(204	)
Total		$	(2,022	)		$	(9,946	)

 

Accrued expenses and other current liabilities consist of the following:

 

		As of
		December 31, 2023				September 30, 2023
Ongoing accrued expenses (1)		$	361,315			$	277,037
Project-related provisions			52,686				55,569
Dividends payable			50,683				51,053
Taxes payable (2)			78,424				47,470
Derivative instruments			25,005				41,667
Other (1)			181,769				161,946
Accrued expenses and other current liabilities		$	749,882			$	634,742

(1) Certain amounts were reclassified from "other" to "ongoing accrued expenses" to conform the prior period to the current year presentation.

(2) For further details, please see Note 11 to the consolidated financial statements.

As of December 31, 2022, the Company incurred restructuring charges of $24,536, primarily associated with alignment of the Company’s workforce around its global site strategy, as well as the optimization of the Company’s hybrid work model. These charges were paid or adjusted as of September 30, 2023. On August 2, 2023, the Company announced it is taking proactive and appropriate measures to optimize expenditures and resource allocation in response to the prevailing level of economic uncertainty and industry pressure. These measures include, among others, a workforce reduction aligned with the Company’s global site strategy and work model. During the fourth quarter of fiscal year 2023, the Company incurred restructuring charges of $46,365, primarily associated with employees' severance expenses and exit charges associated with office space reductions. As of December 31, 2023, the majority of charges were paid. The Company expects to pay the vast majority of the remaining amount in fiscal year 2024.

 

The provision for income tax expense for the following periods consisted of:

 

		Three months ended December 31,
		2023				2022
Current		$	32,517			$	32,212
Deferred			(6,683	)			(16,973	)
Income tax expense		$	25,834			$	15,239

 

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The Company's effective income tax rate varied from the statutory Guernsey tax rate as follows for the following periods:

 

		Three months ended December 31,
		2023				2022
Statutory Guernsey tax rate			0	%			0	%
Foreign taxes (1)			14.8				10.5
Effective income tax rate			14.8	%			10.5	%

 

As a Guernsey company subject to a corporate tax rate of zero percent, the Company's overall effective tax rate is attributable to foreign taxes. The change in rate is primarily driven by discrete items in the respective period presented as outlined below.

 

 

Foreign taxes in the three months ended December 31, 2023 included a benefit of $54,667 relating primarily to release of gross unrecognized tax benefits due to settlements of tax audits, and expiration of the periods set forth in statutes of limitations in certain jurisdictions. The majority of the release was offset by an increase in taxes payable and tax payments, and, as a result, a net benefit of $20,880 was included within income tax expense for the period.

 

Foreign taxes in the three months ended December 31, 2022 included a recognition of tax benefit of $8,566 resulting from internal structural changes in certain jurisdictions in which the Company operates.

Foreign taxes in the three months ended December 31, 2022 also included a benefit of $3,747 relating to release of gross unrecognized tax benefits due to settlements of tax audits and expiration of the periods set forth in statutes of limitations in certain jurisdictions.

Foreign taxes in the three months ended December 31, 2022 also included a benefit of $3,666 relating to changes in tax regulations in certain jurisdictions.

As previously disclosed in the Company’s Annual Report on Form 20-F for fiscal year 2022, our primary Israeli subsidiary has elected, during fiscal year 2022, to pay the reduced corporate tax on all of its “previously exempt earnings” based on a temporary order of the Israeli budget law. Following this election, payment of this tax, was made during the three months ended December 31, 2022. The impact of this election on income taxes was already reflected in prior periods.

 

As of December 31, 2023, deferred tax assets of $69,305, derived primarily from tax credits, net capital and operating loss carry forwards related to some of the Company's subsidiaries, were offset by valuation allowances due to the uncertainty of realizing tax benefit for such credits and losses.

 

The total amount of gross unrecognized tax benefits, which includes interest and penalties, was $154,276 as of December 31, 2023, all of which would affect the effective tax rate if realized.

 

As of December 31, 2023, the Company had accrued $25,854 in income taxes payable for interest and penalties relating to unrecognized tax benefits.

 

The Company is currently under tax audit in several jurisdictions for the tax years 2007 and onwards. Timing of the resolution of audits is highly uncertain and therefore, as of December 31, 2023, the Company cannot estimate the change in unrecognized tax benefits resulting from these audits within the next 12 months.

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The following table sets forth the computation of basic and diluted earnings per share:

 

		Three months ended December 31,
		2023				2022
Numerator:
Net income attributable to Amdocs Limited		$	147,965			$	129,667
Net income attributable to Amdocs Limited and dividends    attributable to participating restricted stock			(2,679	)			(2,014	)
Numerator for basic earnings per common share		$	145,286			$	127,653
Undistributed income allocated to participating restricted stock			1,759				1,274
Undistributed income reallocated to participating restricted stock			(1,748	)			(1,265	)
Numerator for diluted earnings per common share		$	145,297			$	127,662
Denominator:
Weighted average number of shares outstanding - basic			116,841				120,652
Weighted average number of participating restricted stock			(2,115	)			(1,874	)
Weighted average number of common shares - basic		$	114,726				118,778
Effect of dilutive equity-based compensation awards			695				848
Weighted average number of common shares - diluted			115,421				119,626
Basic earnings per common share attributable to Amdocs Limited		$	1.27			$	1.07
Diluted earnings per common share attributable to Amdocs Limited		$	1.26			$	1.07

 

For the three months ended December 31, 2023 and 2022, 21 and 12 shares, respectively, on a weighted average basis, were attributable to antidilutive outstanding equity-based compensation awards. Shares attributable to antidilutive outstanding stock equity-based compensation awards were not included in the calculation of diluted earnings per share.

From time to time, the Company’s Board of Directors can adopt share repurchase plans authorizing the repurchase of the Company’s outstanding ordinary shares. On May 12, 2021, the Company’s Board of Directors adopted a share repurchase plan for the repurchase of up to a $1.0 billion of the Company’s outstanding ordinary shares with no expiration date. The May 2021 plan permits the Company to purchase our ordinary shares in the open market or through privately negotiated transactions at times and prices that the Company considers appropriate. On August 2, 2023, the Company’s Board of Directors adopted a share repurchase plan for the repurchase of up to an additional $1.1 billion of the Company’s outstanding ordinary shares with no expiration date. The August 2023 plan permits the Company to purchase our ordinary shares in the open market or through privately negotiated transactions at times and prices that the Company considers appropriate. In the three months ended December 31, 2023, the Company completed the repurchase of the remaining authorized amount of ordinary shares under the May 2021 plan and initiated repurchases of the Company’s outstanding ordinary shares pursuant to the August 2023 plan. In the three months ended December 31, 2023, the Company repurchased 1,895 ordinary shares at an average price of $83.65 per share (excluding broker and transaction fees). As of December 31, 2023, the Company had remaining authority to repurchase up to $942,169 of its outstanding ordinary shares under the August 2023 plan.

In December 2011, the Company entered into an unsecured $500,000 five-year revolving credit facility with a syndicate of banks (the “Revolving Credit Facility”). In December 2014, December 2017 and March 2021, the Revolving Credit Facility was amended and restated to, among other things, extend the maturity date of the facility to December 2019, December 2022 and March 2026, respectively. As of December 31, 2023, the Company was in compliance with the financial covenants and had no outstanding borrowings under the Revolving Credit Facility.

In June 2020, the Company issued an aggregate principal amount of $650,000 in Senior Notes that will mature in June 2030 and bear interest at a fixed rate of 2.538 percent per annum (the “Senior Notes”). The interest is payable semi-annually in June and December of each year, commencing in December 2020. The Company incurred issuance costs of $6,121 in relation with the Senior Notes, which are being amortized to interest expenses over the term of the Senior Notes using the effective interest rate. The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all existing and future senior indebtedness of the Company, including any indebtedness the Company may incur from time to time under the Revolving Credit Facility.

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The total interest expense recognized in connection with the Senior Notes for the three months ended December 31, 2023 and 2022 were $4,313 and 4,309, respectively. The accrued interest on the Senior Notes is included in accrued expenses and other current liabilities and was immaterial as of December 31, 2023. As of December 31, 2023, the noncurrent outstanding principal portion was $650,000.

The total estimated fair value of the Senior Notes as of December 31, 2023 was $562,016. The fair value was determined based on observable data, such as quoted prices for similar liabilities in active markets of Senior Notes as of December 31, 2023 and is deemed a Level 2 liability within the fair value measurement framework.

As of December 31, 2023, the Company had additional uncommitted lines of credit available for general corporate and other specific purposes and had outstanding letters of credit and bank guarantees from various banks totaling $95,366. These were supported by a combination of the uncommitted lines of credit that the Company maintains with various banks.

Equity Incentive Plan

In January 1998, the Company adopted the 1998 Stock Option and Incentive Plan (the "Equity Incentive Plan"), which provides for the grant of restricted stock awards, restricted stock units and stock options and other equity-based awards to employees, officers, directors, and consultants. Since its adoption, the Equity Incentive Plan has been amended on several occasions to, among other things, increase the number of ordinary shares issuable under the Equity Incentive Plan. In January 2020, the maximum number of ordinary shares authorized to be granted under the Equity Incentive Plan was increased from 67,550 to 70,550. In February 2024, the maximum number of ordinary shares authorized to be granted under the Equity Incentive Plan was increased from 70,550 to 73,550. The amendment to the Equity Incentive Plan and will become effective upon the filing of a Form S-8 Registration Statement with the U.S. Securities and Exchange Commission. Awards granted under the Equity Incentive Plan generally vest over a period of three to four years subject to service based conditions or a combination of service and performance-based conditions and stock options have a term of ten years. Also, in accordance with the Equity Incentive Plan, options were issued at or above the market price at the time of the grant.

During the three months ended December 31, 2023, the Company granted 696 restricted stock and 39 restricted stock units. The weighted average fair values associated with these grants were $74.13 per restricted stock and $77.06 per restricted stock unit.

Employee Share Purchase Plan

On November 8, 2022, the Company’s Board of Directors adopted, subject to shareholder approval, the Amdocs Limited 2023 Employee Share Purchase Plan (the “ESPP”). The ESPP was subsequently approved by our shareholders at the annual general meeting of shareholders in January 2023. The approved number of shares that may be issued under the ESPP will not exceed in the aggregate 2,400 ordinary shares. Under its terms, the ESPP became effective upon the filing of a Form S-8 Registration Statement with the U.S. Securities and Exchange Commission. On February 13, 2023, the Company filed a registration statement on Form S-8 registering the offer and sale of 2,400 ordinary shares issuable under the ESPP. As of December 31, 2023, 275 ordinary shares have been issued under the ESPP.

 

Under the ESPP, eligible employees have the right to purchase ordinary shares at the end of each purchase period based on their accumulated payroll deductions during the purchase period of a specified percentage of eligible compensation up to 10% (subject to a limitation to accrue the right to purchase ordinary shares up to twenty-five thousand dollars in any calendar year). Each purchase period lasts six months in duration, with purchases occurring in December and June. The purchase price per ordinary share will equal the lesser of 85% of the fair market value of our ordinary shares at either the beginning of the purchase period or the end of the purchase period.

 

During the three months ended December 31, 2023, the Company issued 275 ordinary shares to employees under the ESPP at a price of $72.56 per share.

Equity-based Compensation Expense

Equity-based payments to employees, including grants of employee stock options, restricted stock, restricted stock units and ESPP are recognized in the statements of income based on their fair values.

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Employee equity-based compensation pre-tax expense for the three months ended December 31, 2023 and 2022 was as follows:

 

		Three months ended December 31,
		2023				2022
Cost of revenue		$	13,527			$	8,655
Research and development			1,867				1,484
Selling, general and administrative			10,686				9,351
Total		$	26,080			$	19,490

 

The Company recognizes compensation costs for its equity incentive grants using the graded vesting attribution method. As of December 31, 2023, there was $99,648 of unrecognized compensation expense related to unvested stock options, unvested restricted stock and unvested restricted stock units which is expected to be recognized over a weighted average period of approximately one to two years, based on the vesting periods of the grants.

 

As of December 31, 2023, there was $3,740 of unrecognized compensation expense related to the ESPP which is expected to be recognized over the remaining purchase period.

The Company’s Board of Directors declared the following dividends during the three months ended December 31, 2023 and 2022:

 

Declaration Date		Dividends Per Ordinary Share				Record Date		Total Amount				Payment Date
November 7, 2023		$	0.435			December 29, 2023		$	50,683			January 26, 2024
November 8, 2022		$	0.395			December 30, 2022		$	47,635			January 27, 2023

 

The amounts payable as a result of the November 7, 2023 and November 8, 2022 declarations were included in accrued expenses and other current liabilities as of December 31, 2023 and 2022, respectively.

On February 6, 2024 the Company’s Board of Directors approved the next quarterly dividend payment and set March 29, 2024 as the record date for determining the shareholders entitled to receive the dividend, which is payable on April 26, 2024. On February 2, 2024, at the annual general meeting of shareholders, the Company’s shareholders approved an increase of approximately 10% in the rate of the quarterly cash dividend from $0.435 per share to $0.479 per share. As a result, the April 26, 2024 cash dividend will be paid at the increased rate of $0.479 per share.

Legal Proceedings

The Company is involved in various legal claims and proceedings arising in the normal course of its business. The Company accrues for a loss contingency when it determines that it is probable, after consultation with counsel, that a liability has been incurred and the amount of such loss can be reasonably estimated. At this time, the Company believes that the results of any such contingencies, either individually or in the aggregate, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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Item 2. Operating and Financial Review and Prospects

Forward Looking Statements

This section contains forward-looking statements (within the meaning of the United States federal securities laws) that involve substantial risks and uncertainties. You can identify these forward-looking statements by words such as “expect,” “anticipate,” “believe,” “seek,” “estimate,” “project,” “forecast,” “continue,” “potential,” “should,” “would,” “could,” “intend” and “may,” and other words that convey uncertainty of future events or outcome. Statements that we make in this document that are not statements of historical fact also may be forward-looking statements. Forward-looking statements are not guarantees of future performance, and involve risks, uncertainties and assumptions that may cause our actual results to differ materially from the expectations that we describe in our forward-looking statements. There may be events in the future that we are not accurately able to predict, or over which we have no control. You should not place undue reliance on forward-looking statements. Although we may elect to update forward-looking statements in the future, we disclaim any obligation to do so, even if our assumptions and projections change, except where applicable law may otherwise require us to do so. Readers should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of this report.

Important factors that may affect these projections or expectations include, but are not limited to: the effects of macro-economic conditions, prevailing level of macro-economic, business, and operational uncertainty, including as a result of geopolitical events or other global or regional events such as the recent attacks in Israel and evolving conflict and the COVID-19 pandemic, as well as the current inflationary environment, and the effects of these conditions on the Company’s customers’ businesses and levels of business activity; including the effect of the current economic uncertainty and industry pressure on the spending decisions of our customers; our ability to grow in the business markets that we serve; our ability to successfully integrate acquired businesses; adverse effects of market competition; rapid technological shifts that may render our products and services obsolete; potential loss of a major customer; our ability to develop long-term relationships with our customers; our ability to successfully and effectively implement artificial intelligence and Generative AI in our offerings and operations; and risks associated with operating businesses in the international market. For a discussion of these and other important factors and other risks, please read the information set forth under the caption “Risk Factors” in our Annual Report on Form 20-F for fiscal year 2023, filed on December 13, 2023 with the U.S. Securities and Exchange Commission.

Overview of Business and Trend Information

Amdocs is a leading provider of software and services for approximately 400 communications, entertainment and media industry and other service providers in developed countries and emerging markets. Amdocs also holds relationships with hundreds of content owners and distributors around the globe. Our software and services, which we develop, implement and manage, are designed to meet the business imperatives of our customers, create value for society and make our increasingly connected world more empowering by unlocking our customers’ innovative potential and enabling them to transform their boldest ideas into reality and focus on providing amazing customer experiences. Our offerings enable service providers to efficiently and cost-effectively engage their customers, introduce new products and services, automate service and network operations, monetize connectivity and content, support new business models and generally enhance their understanding of their customers.

We believe the demand for our solutions is driven by our customers’ continued migration to the cloud, deployment of 5G networks and transformation into digital service providers to provide connectivity services, content and applications (apps) on any device through digital and non-digital channels. Regardless of whether service providers are bringing their first offerings to market, scaling for growth, consolidating systems or transforming the way they do business, we believe that they seek to differentiate themselves by delivering a customer experience that is simple, personal, contextual and valuable at every point of engagement and across all channels.

Our offerings, grouped by technology capabilities such as commerce and care, catalog management, monetization, subscription management and content management, IoT, AI and Generative AI (GenAI), service and network automation and network deployment and optimization, are designed to meet the challenges facing our customers as they roll out 5G networks, migrate to the cloud and transform into digital service providers within the framework of a hybrid IT environment, which requires them to rapidly introduce new cloud-native applications while still operating legacy systems. Our software is designed to enable modular expansion as a service provider evolves, and its microservices-based architecture enables the rapid deployment of complex applications as suites of independently deployable services that can be frequently upgraded via DevSecOps. Amdocs amAIz, our enterprise-grade GenAI framework, combines our carrier-grade architecture and telco-specific expertise and empowers service providers to deploy GenAI use cases. Our comprehensive line of services is designed to address every stage of a service provider’s lifecycle. They include consulting, delivery, quality engineering (testing), operations, systems integration, network services, experience-driven services, data, cloud and content services. Our managed services provide multi-year, flexible and tailored IT business processes and applications management services, including application development, modernization and maintenance, IT and infrastructure services, testing and professional services that are designed to assist customers in the selection, implementation, operation, management and maintenance of their IT systems.

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We conduct our business globally, and as a result we are subject to the effects of global economic conditions and, in particular, market conditions in the communications and media industry. In the three months ended December 31, 2023, customers in North America accounted for 67.3% of our revenue, while customers in Europe and the rest of the world accounted for 14.6% and 18.1%, respectively. We maintain and support development facilities in Brazil, Canada, Cyprus, India, Ireland, Israel, Mexico, the Philippines, the UK and the United States.

We derive our revenue principally from:

Our results of operations are affected by general economic conditions, including macro-economic conditions, and the level of economic activity in the industries and markets that we serve. In addition, the prevailing level of macro-economic, business, and operational uncertainty, as well as the current inflationary environment and foreign exchange rates fluctuation, may continue to present challenges in future periods and may affect the spending decisions of our customers. Although we try to mitigate the foreign currency exchange rates impact on our results through our hedging policy, we cannot assure that we will be able to effectively limit all of our exposure.

Revenue Recognition, we recognize revenue under the five-step methodology required under ASC 606, which requires us to identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations identified, and recognize revenue when (or as) each performance obligation is satisfied.

As a significant portion of our revenue is satisfied over time as work progresses, the annual and quarterly operating results may be affected by the size and timing of the initiation of customer projects as well as our progress in completing such projects.

For our primary revenue categories, related performance obligations, and associated recognition patterns please see Note 5 to our consolidated financial statements.

Revenue generated in connection with managed services arrangements is a significant part of our business, generating substantial, long-term recurring revenue streams and cash flow. Managed services arrangements include management of data center operations and IT infrastructure, application management and ongoing support, management of end-to-end business processes, and managed transformation that includes both a transformation project as well as taking over managed services responsibility. Revenue from managed services arrangements accounted for approximately $722.5 million and $699.8 million in the three months ended December 31, 2023 and 2022, respectively. Managed services engagements can be less profitable in their early stages; however, margins tend to improve over time, and this improvement is seen more rapidly in the initial period of an engagement, as we derive benefit from the operational efficiencies and from changes in the geographical mix of our resources.

Recent Accounting Standards

Please see Note 2 to our consolidated financial statements.

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Results of Operations

The following table sets forth for the three months ended December 31, 2023 and 2022. Certain items in our consolidated statements of income are reflected as a percentage of revenue (figures may not sum because of rounding):

 

		Three months ended December 31,
		2023				2022
Revenue			100	%			100	%
Operating expenses:
Cost of revenue			65.3				63.8
Research and development			7.2				8.1
Selling, general and administrative			11.4				12.1
Amortization of purchased intangible assets and other			1.3				1.3
Restructuring charges			—				2.1
			85.2				87.3
Operating income			14.8				12.7
Interest and other expense, net			(0.8	)			(0.4	)
Income before income taxes			14.0				12.2
Income tax expense			2.1				1.3
Net income			11.9	%			11.0	%
Net income attributable to noncontrolling interests			0.06				0.02
Net income attributable to Amdocs Limited			11.9	%			10.9	%

 

 

Three Months Ended December 31, 2023 and 2023

The following is a tabular presentation of our results of operations for the three months ended December 31, 2023 compared to the three months ended December 31, 2022. Following the table is a discussion and analysis of our business and results of operations for such periods.

 

		Three months ended December 31,								Increase (Decrease)
		2023				2022				Amount				%
		(in thousands)
Revenue (1)		$	1,245,199			$	1,185,720			$	59,479				5.0	%
Operating expenses:
Cost of revenue			812,744				756,849				55,895				7.4
Research and development			89,207				95,726				(6,519	)			(6.8	)
Selling, general and administrative			142,504				143,222				(718	)			(0.5	)
Amortization of purchased intangible assets and other			16,410				15,313				1,097				7.2
Restructuring charges			—				24,536				(24,536	)			(100.0	)
			1,060,865				1,035,646				25,219				2.4
Operating income			184,334				150,074				34,260				22.8
Interest and other expense, net			(9,778	)			(4,963	)			(4,815	)			(97.0	)
Income before income taxes			174,556				145,111				29,445				20.3
Income tax expense			25,834				15,239				10,595				69.5
Net income		$	148,722			$	129,872			$	18,850				14.5	%
Net income attributable to noncontrolling interests			757				205				552				269	%
Net income attributable to Amdocs Limited		$	147,965			$	129,667			$	18,298				14.1	%

 

(1) Geographic Information:
		Three months ended December 31,								Increase (Decrease)
		2023				2022				Amount				%
		(In thousands)
North America (mainly United States)		$	838,135			$	812,690			$	25,445				3.1	%
Europe			181,420				168,666				12,754				7.6
Rest of the world			225,644				204,364				21,280				10.4
Total		$	1,245,199			$	1,185,720			$	59,479				5.0	%

 

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Revenue. Revenue increased by $59.5 million, or 5.0%, to $1,245.2 million in the three months ended December 31, 2023, from $1,185.7 million in the three months ended December 31, 2022. The increase in revenue for the three months ended December 31, 2023, was attributable to increased activity across all regions and included immaterial impact of foreign exchange fluctuations.

In the three months ended December 31, 2023, revenue from customers in North America, Europe and the rest of the world accounted for 67.3%, 14.6% and 18.1%, respectively, of total revenue, compared to 68.6%, 14.2% and 17.2%, respectively, in the three months ended December 31, 2022.

Revenue from customers in North America increased during the three months ended December 31, 2023, to a new record level, while total revenue increased at a slightly higher rate, which resulted in a decrease of revenue from customers in North America as a percentage of total revenue. The increase in revenue from customers in North America in absolute amount was primarily attributable to higher revenue from key customers in North America.

Revenue from customers in Europe increased during the three months ended December 31, 2023, as a result of an increase in managed services arrangements, as we expand our presence in this region.

Revenue from customers in the rest of the world increased in the three months ended December 31, 2023, primarily in Asia-Pacific region.

Cost of Revenue. Cost of revenue consists primarily of costs associated with providing services to customers, including compensation expense and costs of third-party products, as well as fee and royalty payments to software suppliers. Cost of revenue increased by $55.9 million, or 7.4%, to $812.7 million in the three months ended December 31, 2023, from $756.8 million in the three months ended December 31, 2022. While the increase in cost of revenue in absolute amount was commensurate with revenue growth, the Cost of revenue as a percentage of revenue increased to 65.3% in the three months ended December 31, 2023, from 63.8% in the three months ended December 31, 2022. Our Cost of revenue was positively impacted by foreign exchange fluctuations.

Research and Development. Research and development expense is primarily comprised of compensation expense. Research and development expense decreased by $6.5 million, or 6.8%, to $89.2 million in the three months ended December 31, 2023, from $95.7 million in the three months ended December 31, 2022. Research and development expense decreased as a percentage of revenue from 8.1% in the three months ended December 31, 2022, to 7.2% in the three months ended December 31, 2023. The decrease is attributable to accelerated research and development investments in prior periods. We continue to invest in our cloud offerings, 5G and network related innovation, AI and GenAI capabilities and further developing our digital offerings. Our research and development efforts are a key element of our strategy and are essential to our success, and we intend to maintain our commitment to research and development. However, increase or decrease in our revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin.

Selling, General and Administrative. Selling, general and administrative expense, which is primarily comprised of compensation expense, slightly decreased in absolute amounts by $0.7 million, or 0.5%, to $142.5 million in the three months ended December 31, 2023, from $143.2 million in the three months ended December 31, 2022. Selling, general and administrative expense slightly decreased as a percentage of revenue from 12.1% in the three months ended December 31, 2022, to 11.4% in the three months ended December 31, 2023. The slight decrease in absolute amounts was primarily attributable to a decrease in the account receivable allowances, which were partially offset by selling, general and administrative expense attributable to recent completed acquisitions. Selling, general and administrative expense may fluctuate from time to time, depending upon such factors as changes in our workforce and sales efforts and the results of any operational efficiency programs that we may undertake.

Amortization of Purchased Intangible Assets and Other. Amortization of purchased intangible assets and other in the three months ended December 31, 2023, slightly increased by $1.1 million, or 7.2% to $16.4 million from $15.3 million in the three months ended December 31, 2022. The slight increase in amortization of purchased intangible assets and other was primarily attributable to an increase in amortization of intangible assets due to recent completed acquisitions and to an increase in acquisition-related costs, partially offset by a completion of amortization of previously purchased intangible assets.

 

Restructuring Charges. There were no restructuring charges in the three months ended December 31, 2023, while there were $24.5 million of such charges in the three months ended December 31, 2022. Please see Note 10 to our consolidated financial statements.

Operating Income. Operating income increased by $34.3 million, or 22.8%, in the three months ended December 31, 2023, to $184.3 million, or 14.8% of revenue, from $150.1 million, or 12.7% of revenue, in the three months ended December 31, 2022. The increase in operating income was attributable primarily to restructuring charges recognized in the three months ended December 31, 2022, while such charges were not recognized in the current period. Our operating income was also positively affected by foreign exchange impacts.

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Interest and Other Expense, Net. Interest and other expense, net, changed from a net expense of $5.0 million in the three months ended December 31, 2022 to a net expense of $9.8 million in the three months ended December 31, 2023. The increase in interest and other expense, net, was primarily attributable to an increase in foreign exchange fluctuation charges.

Income Tax expense. Income tax expense for the three months ended December 31, 2023 were $25.8 million on pre-tax income of $174.6 million, resulting in an effective tax rate of 14.8%, compared to effective tax rate of 10.5% in the three months ended December 31, 2022 and compared to effective tax rate of 14.7% in fiscal year 2023. Our effective tax rate may fluctuate between periods as a result of discrete items that may affect a particular period, please see Note 11 to our consolidated financial statements.

Net income attributable to Amdocs Limited. Net income increased by $18.3 million, or 14.1%, to $148.0 million in the three months ended December 31, 2023, from $129.7 million in the three months ended December 31, 2022. The increase in net income is primarily attributable to an increase in operating income, partially offset by an increase in income tax expense.

Diluted Earnings Per Share. Diluted earnings per share increased by $0.19, or 17.8%, to $1.26 in the three months ended December 31, 2023, from $1.07 in the three months ended December 31, 2022. The increase in diluted earnings per share was primarily attributable to an increase in net income in the three months ended December 31, 2023, and to a lesser extent a decrease in the diluted weighted average number of shares outstanding which resulted from share repurchases. Please see also Note 12 to our consolidated financial statements.

Liquidity and Capital Resources

Cash, Cash Equivalents and Short-Term Interest-Bearing Investments. Cash, cash equivalents and short-term interest-bearing investments, totaled $600.9 million as of December 31, 2023, compared to $742.5 million as of September 30, 2023. The decrease was mainly attributable to $158.5 million repurchase of our ordinary shares pursuant to our repurchase program, $51.1 million of cash dividend payment, $43.7 million for capital expenditures, net and $77.3 million payments for business acquisitions, partially offset by $182.4 million positive cash flow from operating activities and $4.4 million of proceeds from stock option. Net cash provided by operating activities amounted to $182.4 million and $83.2 million in the three months ended December 31, 2023 and 2022, respectively. The operating activity amount in the three months ended December 31, 2022 was impacted by timing of quarter-end holidays, but payments were subsequently received during the second quarter of fiscal year 2023.

Our free cash flow for the three months ended December 31, 2023 was $138.7 million and is calculated as net cash provided by operating activities of $182.4 million for the period less $43.7 million for capital expenditures, net.

Free cash flow is a non-GAAP financial measure and is not prepared in accordance with, and is not an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures with similar names used by other companies. Non-GAAP measures such as free cash flow should only be reviewed in conjunction with the corresponding GAAP measures. We believe that free cash flow, when used in conjunction with the corresponding GAAP measure, provides useful information to investors and management relating to the amount of cash generated by the Company’s business operations.

We believe that our current cash balances, cash generated from operations, our current lines of credit, loans, Senior Notes and our ability to access capital markets serve as sources of liquidity if needed and will provide sufficient resources to meet our operational needs, loan and debt repayment needs, fund share repurchases and the payment of cash dividends for at least the next twelve months.

We have short-term interest-bearing investments comprised of marketable securities and bank deposits. We classify all of our marketable securities as available-for-sale securities. Such marketable securities consist primarily of money market funds, corporate bonds, U.S. government treasuries and supranational and sovereign debt, which are stated at market value.

We believe we have conservative investment policy guidelines. Our interest-bearing investments are stated at fair value with the unrealized gains or losses reported as a separate component of accumulated other comprehensive loss, net of tax, unless a security is impaired due to a credit loss, in which case the loss is recorded in the consolidated statements of income. Our interest-bearing investments are priced by pricing vendors and are classified as Level 1 or Level 2 investments, since these vendors either provide a quoted market price in an active market or use other observable inputs to price these securities. During the three months ended December 31, 2023 and 2022, we did not recognize any credit losses. Please see Notes 6 and 7 to the consolidated financial statements.

Revolving Credit Facility, Loans, Senior Notes, Letters of Credit, Guarantees and Contractual Obligations. In December 2011, we entered into the unsecured $500.0 million Revolving Credit Facility. In December 2014, December 2017 and March 2021, the Revolving Credit Facility was amended and restated to, among other things, extend the maturity date of the facility to December 2019, December 2022 and March 2026, respectively. As of December 31, 2023, we were in compliance with the financial covenants and had no outstanding borrowing under the Revolving Credit Facility.

 

 

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In June 2020, we issued an aggregate principal amount of $650.0 million in Senior Notes that will mature in June 2030 and bear interest at a fixed rate of 2.538 percent per annum (the “Senior Notes”). The interest is payable semi-annually in June and December of each year, commencing in December 2020. We incurred issuance costs of $6.1 million in relation to the Senior Notes, which are being amortized to interest expenses over the term of the Senior Notes using the effective interest rate. The Senior Notes are our senior unsecured obligations and rank equally in right of payment with all of our existing and future senior indebtedness, including any indebtedness we may incur from time to time under the Revolving Credit Facility. As of December 31, 2023, the noncurrent outstanding principal portion was $650.0 million. Please see Note 14 to our consolidated financial statements.

As of December 31, 2023, we had additional uncommitted lines of credit available for general corporate and other specific purposes and had outstanding letters of credit and bank guarantees from various banks totaling $95.4 million. These were supported by a combination of the uncommitted lines of credit that we maintain with various banks.

We have contractual obligations for Long-term debt and accrued interests, our non-cancelable operating leases, purchase obligations, pension funding and unrecognized tax benefits, summarized in the disclosure of contractual obligations set forth in our Annual Report on Form 20-F for the fiscal year ended September 30, 2023, filed on December 13, 2023 with the SEC. Since September 30, 2023, there have been no material changes in our aggregate contractual obligations mentioned above.

Acquisitions. During the three months ended December 31, 2023, we completed the acquisition of Astadia, which specializes in mainframe-to-cloud migration and modernization, for an aggregate net consideration of approximately $75.0 million in cash, and a potential for additional consideration which may be paid later based on achievement of certain performance metrics.

Capital Expenditures. Generally, the majority of our capital expenditures consist of purchases of computer equipment, and the remainder is attributable mainly to building and leasehold improvements. Our capital expenditures were approximately $43.7 million in the three months ended December 31, 2023 and were mainly attributable to investments in our operating facilities and our development centers around the world.

Share Repurchases. From time to time, our Board of Directors can adopt share repurchase plans authorizing the repurchase of our outstanding ordinary shares. On May 12, 2021, our Board of Directors adopted a share repurchase plan for the repurchase of up to a $1.0 billion of our outstanding ordinary shares with no expiration date. The May 2021 plan permits us to purchase our ordinary shares in the open market or through privately negotiated transactions at times and prices that we consider appropriate. On August 2, 2023, our Board of Directors adopted a share repurchase plan for the repurchase of up to an additional $1.1 billion of our outstanding ordinary shares with no expiration date. The August 2023 plan permits us to purchase our ordinary shares in the open market or through privately negotiated transactions at times and prices that we consider appropriate. In the three months ended December 31, 2023, we completed the repurchase of the remaining authorized amount of ordinary shares under the May 2021 plan and initiated repurchases of the our outstanding ordinary shares pursuant to the August 2023 plan. In the three months ended December 31, 2023 we repurchased 1.9 million ordinary shares at an average price of $83.65 per share (excluding broker and transaction fees). As of December 31, 2023, the we had remaining authority to repurchase up to $942.2 of our outstanding ordinary shares under the August 2023 plan.

Cash Dividends. Our Board of Directors declared the following dividends during the three months ended December 31, 2023 and 2022:

 

Declaration Date		Dividends Per Ordinary Share				Record Date		Total Amount in millions				Payment Date
November 7, 2023		$	0.435			December 29, 2023		$	50.7			January 26, 2024
November 8, 2022		$	0.395			December 30, 2022		$	47.6			January 27, 2023

 

On February 6, 2024 our Board of Directors approved the next quarterly dividend payment and set March 29, 2024 as the record date for determining the shareholders entitled to receive the dividend, which is payable on April 26, 2024. On February 2, 2024, at the annual general meeting of shareholders, our shareholders approved an increase of approximately 10% in the rate of the quarterly cash dividend from $0.435 per share to $0.479 per share. As a result, the April 26, 2024 cash dividend will be paid at the increased rate of $0.479 per share.

Our Board of Directors considers on a quarterly basis whether to declare and pay, if any, a dividend in accordance with the terms of the dividend program, subject to applicable Guernsey law and based on several factors including our financial performance, outlook and liquidity. Guernsey law requires that our Board of Directors considers a dividend’s effects on our solvency before it may be declared or paid. While the Board of Directors will have the authority to reduce the quarterly dividend or discontinue the dividend program should it determine that doing so is in the best interests of our shareholders or is necessary pursuant to Guernsey law, any increase to the per share amount or frequency of the dividend would require shareholder approval.

 

 

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Currency Fluctuations

We manage our foreign subsidiaries as integral direct components of our operations. The operations of our foreign subsidiaries provide the same type of services with the same type of expenditure throughout the Amdocs group. The U.S. dollar is our functional currency according to the salient economic factors as indicated in the authoritative guidance for foreign currency matters. We periodically assess the applicability of the U.S. dollar as our functional currency by reviewing the salient indicators.

During the three months ended December 31, 2023 and 2022, approximately 70% to 80% of our revenue and approximately 50% to 60% of our operating expenses were in U.S. dollars or linked to the U.S. dollar. If more customers seek contracts in currencies other than the U.S. dollar and as our operational activities outside of the United States may increase, the percentage of our revenue and operating expenses in U.S. dollar or linked to the U.S. dollar may decrease over time, which may increase our exposure to fluctuations in currency exchange rates. In managing our foreign exchange risk, we enter from time to time into various foreign exchange hedging contracts. We do not hedge all of our exposure in currencies other than the U.S. dollar, but rather our policy is to hedge significant net exposures in the major foreign currencies in which we operate, when cost-effective.

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PART II OTHER INFORMATION

 

Item 1. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

 

Ordinary Shares

 

The following table provides information about purchases by us and our affiliated purchasers during the three months ended December 31, 2023 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:

 

Period		Total Number of Shares Purchased				Average Price Paid per Share(1)				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2)
10/01/23-10/31/23			753,381			$	82.29				753,381			$	1,038,667,012
11/01/23-11/30/23			395,302			$	80.95				395,302			$	1,006,667,921
12/01/23-12/31/23			746,106			$	86.45				746,106			$	942,169,030
Total			1,894,789			$	83.65				1,894,789			$	942,169,030

____________

 

 

Item 2. Reports on Form 6-K

 

The Company furnished or filed the following reports on Form 6-K during the three months ended December 31, 2023:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	AMDOCS LIMITED
	/s/ Matthew E. Smith
	Matthew E. Smith
	Secretary and Authorized Signatory
Date: February 20, 2024

 

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