Two months ago, Amdocs general manager Avinoam Naor declared that he expected the company to cross the billion dollar annual revenue line by the year 2003. "We anticipate continuing growth at a rate of over 35%," said Naor to news service Bloomberg. Such declarations are not common from the management of a company that insists on maintaining a low profile and avoids media exposure at any price.
Amdocs today presented its financial statements for the quarter to the end of September. They show that the company’s annual rate of sales (as derived from the last reported quarter) is approaching $500 million. Amdocs had sales turnover of $117 million in the quarter, 9% higher than in the previous quarter. The company also reported an improved operating profit rate, and posted a bottom line profit of $11.6 million, in line with the analysts’ projections.
Naor could also be happy with the company’s recent performance on Wall Street. Its shares were issued in June this year at a price of $14, rose to $16 for a short while, but fell in the global whirlwind to a low of $8.4. In the past month, the share has started to climb gradually, and it recently regained the issue price.
Of Amdocs’s quarterly revenue, $80 million (68%) is from billing and customer service systems, a field that is growing strongly worldwide, while the rest of its revenue came from telephone directory services.
Another, more usual breakdown which can be used to analyze Amdocs’s revenue is a split between services and software. Revenue from services is considered less profitable, while software sales are considered highly profitable (gross profit in this area reaches 98%). The proportion of software sales in total sales rose to 11% this year, and these sales amounted to $13 million, compared to only 9% in 1997, a change which translates into improved operating profitability.
Finance expenses fell, as expected, from $10 million to $2.3 million in the reporting quarter. It will be recalled that Amdocs used its issue proceeds to plug the hole in its shareholders’ equity that resulted from its huge dividend distribution.
Before the issue, Amdocs took out a loan of $315 million from parent company Aurec, earmarked for financing a massive, $480 million dividend to the shareholders.
As a result of the dividend distribution, shareholders’ equity remained negative even at the end of the reporting quarter (a $22 million deficit).
Amdocs is one of the world’s leading companies in the field of customer billing solutions for telephony companies, and integrated customer care service. Products and services from Amdocs and its competitors represent a significant part of the strategy of telephone companies keen to offer their customers a broad basket of services.
In the wake of privatization and deregulation processes taking place all over the world, some 1,000 new telephony companies have sprouted in Europe and the US. These companies wish to distinguish their services from those of the established monopolies, and so need value added services to offer their customers.
The ones who profit from the telephone companies’ pursuit of customers are, of course, billing equipment suppliers like Amdocs. Amdocs’s pool of customers in the US includes SBC, the largest domestic telephone company in the US today, after its merger with PacBell, Bellsouth, Bell Atlantic (which merged with NYNEX), US West, Ameritech, and GTE.
Amdocs’s relationships with its customers are a long-term affair, and so one may estimate the company’s performance in the short and medium term with a high degree of certainty. This can be seen from the following impressive statistic: 80% of Amdocs’s revenue for the coming year is assured under a signed contract or a near certain order.
However, it should be stressed that, despite its large number of customers (50), to 30% of the company’s revenue comes from just five customers. Its main customer, and dominant shareholder (24%) is SBC, which is responsible for about a quarter of Amdocs’s revenue.
Published by Israel's Business Arena on November 12, 1998