Amdocs Limited (DOX) Q3 2014 Earnings Report, Transcript and Summary

Welcome to the Amdocs Third Quarter 2014 Earnings Conference Call. My name is Bekeba [ph], and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I would now turn the call over to Matt Smith. Matt Smith, you may begin.

Thank you, Bekeba [ph]. Before we begin, I would like to point out that during this call, we will discuss certain financial information that is not prepared in accordance with GAAP. The company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period. Accordingly, management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the company's business and to have a meaningful comparison to prior periods. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's earnings release, which will also be furnished with the SEC on Form 6-K. Also, this call includes information that constitutes forward-looking statements. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained, or that any deviations will not be material. Such statements involve 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 and Exchange Commission, including in our annual report on Form 20-F for the fiscal year ended September 30, 2013, filed on December 9, 2013, and our Form 6-K furnished for the first quarter of fiscal 2014 on February 11, 2014, and our Form 6-K furnished for the second quarter of fiscal 2014 on May 15, 2014. Amdocs may elect to update these forward-looking statements at some point in the future. However, the company specifically disclaims any obligation to do so. Participating on the call with me today are Eli Gelman, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, Chief Financial Officer. With that, I will turn it over to Eli.

Thank you, Matt, and good afternoon to everyone joining us on the call today. We are pleased with our third fiscal quarter results, which reflects performance consistent with our overall expectations. Total revenue exceeds $900 million for the first time, and including a record revenue in the emerging markets. We secured a number of significant new wins with strategic customers across multiple business lines and geographies. Our free cash flow generation was robust, and we demonstrated disciplined operating execution, while bringing innovation to the market through our investment in R&D and in recent acquisitions. Let me now review the company's third fiscal quarter activity on a regional basis. Beginning with North America, where we delivered another solid quarter. Carriers continue to seek new ways to monetize their investment, and this is supporting customer demand for our next-generation solutions across existing buying centers, as well as within new growth areas. Along these lines, we are today delighted to announce that we secured new awards with 2 important North American carriers in the third fiscal quarter. First, Bell Canada has selected Amdocs Convergent Charging, powered by our superior Turbo Charging technology, as its next-generation charging solution. This arrangement is enabling support for Bell's converging line of businesses and reinforce a long-standing relationship with one of our largest carriers. Second, Telus, one of Canada's leading supplier and providers, will upgrade to the latest version of our charging and billing solution, allowing it to bill for IPTV and other new services, while resulting in greater efficiency and improved customer experience. We are pleased with the significant growth of the business and momentum that we have seen in North America over the last 12 months. We continue to see many opportunities to support our customers, but we expect that the growth rate we have recently enjoyed are not necessarily sustainable, considering factors such as the timing of new projects award, and normal fluctuations in account activity. Additionally, our short-term outlook remains subject to lingering uncertainties, resulting from the announced consolidation activities among North American wireless and Pay TV operators. Although we do not see any deterioration in this combined impact of this relative -- in this, relative to our assessment of last quarter. Moving to the emerging markets, where we delivered record revenue in the third fiscal quarter. These results reflect the progression of highly complex transformation project towards production. In light of this proof of performance, let me take a moment to remind you the significant opportunities we see ahead of us in the emerging markets. Major carriers in Latin America and Southeast Asia are continuing to make critical decisions on the directions of their long-term IT system infrastructures, as they navigate 2 important waves of changing industry dynamics. The first one, carriers are focusing investments toward an improved customer experience, as their best vehicle to increasingly compete for customers' loyalty. This is especially important during the slower -- due to the slower rate of subscriber growth and shift from prepaid to postpaid. Second, rapid economic development in these regions is translating into a rising middle class, and higher penetration of smart devices and multi-play offerings. Carriers, therefore, considering to replace their home-grown and legacy systems in favor of scalable modern platforms, which are also have been enabling them to support the higher level of operating complexity. Importantly, these waves of industry changes reflects the fundamental reasons for our expansion in the emerging markets over the last several years, as we invested in addressing these trends ahead of time. We believe that these trends will continue to support sustainable growth trajectory for Amdocs well into the future. With our track record and unique position in implementing customer experience solutions, we are winning influential deals with the largest carriers in the emerging markets. During the third fiscal quarter, we announced Telefónica selected Amdocs for a new quad-play transformation project in Chile and Peru. These wins follow on, on the heels of projects already under way at Telefónica Argentina, and demonstrate that our model of expansion, through strong execution, applies as well as in the emerging market as it does in the developed markets. Looking ahead, we are focused on continuing -- continuously improving our strategic position in these markets. We project continued growth, although we expect quarterly trends to exhibit lumpiness, primarily owing to the project orientation of our customers' engagements. Turning finally to Europe. Revenues were relatively stable on a sequential basis, and in line with our expectations. During the quarter, we made further progress with Vodafone Group, where we added another 2 affiliates to be supported under the Global Managed Services agreement we signed in fiscal 2013. This includes Vodafone's fixed line operation in the U.K. and Vodafone Group enterprise machine-to-machine line of operations. We are now supporting 7 Vodafone affiliates under this agreement. With respect to our outlook in Europe, we believe we are positioned to leverage opportunities on multiple fronts, although we expect difficult macroeconomics and regulatory conditions will continue to present challenges for the carriers in the region. To summarize our regional review, we are pleased with our performance over the past several quarters, including with respect to the number of wins we have secured with several strategic customers, across multiple business lines and geographies. In par to our geographic expansion, we are also focused on bringing innovative new offerings to the market by way of our R&D investments and acquisition strategies. This includes our recent initiatives in the area of network software, which we presented in detail at the network business investor briefing we had during the third quarter. The post-merger integration of Actix and Celcite is progressing in line with our original expectation, and we continue to see encouraging levels of customer engagements. We are also seeing demands for Amdocs Contact Convergence or ACC, a relatively new product, which can be offered on a private or public cloud to meet the less complex needs of small service providers. During the third quarter, we successfully brought ACC into production in a Southern European multi-play operator. With ACC, we are aiming to address the lower level of complexity of mobile virtual network operators, MVNOs, lower tier, regional service providers, as well as some simple adjacent markets. We see good momentum with this cloud-based product. But naturally, the size of the deals are relatively small. To wrap up, we are on track to deliver full year revenue growth towards the midpoint of our previously guided range of 5% to 8%. This outlook naturally reflects many moving parts. We remain highly focused on our overall execution. This includes securing new businesses, delivering complex transformation projects into production, integration of our recent acquisition, constantly expanding our product suite, improving our operating efficiencies and maintaining our commitment towards the balanced allocation of capital over the long term. Finally, we are pleased to advise you that we have scheduled our next Analyst and Investor Day for Tuesday, December 16, at the NASDAQ Marketsite Headquarter in New York City's Midtown, where we look forward to providing you with an update on our strategic objectives, as well as the 3-year model of the company. With that, I will turn the call over to Tamar.

Thank you, Eli. Third fiscal quarter revenue of $902 million was within our guidance range of $885 million to $915 million, with a positive impact from foreign currency fluctuations of approximately $3 million relative to the second fiscal quarter of 2014. Our third fiscal quarter non-GAAP operating margin was 16.7%, a decline of 10 basis points compared with the second fiscal quarter of 2014, and within our target range of 16% to 17%. Below the operating line, late interest and other expense was $700,000 in Q3. For forward-looking purposes, we continue to expect the net expense in the range of a few million dollars quarterly due to foreign currency fluctuations. If you look at non-GAAP EPS, it was $0.81 in Q3, compared to our guidance range of $0.75 to $0.81. If you looked at non-GAAP EPS in Q3, it was positively impacted by lower than usual net interest and other expense, and the non-GAAP effective tax rate, which was at the lower end of our anticipated range. Free cash flow was robust at $173 million in Q3. This was comprised of cash flow from operations of approximately $199 million, less $26 million in net capital expenditures and other. As a reminder, over the long term, free cash flow tends to convert at a rate on par with our non-GAAP net income. DSO of 76 days were flat with the prior quarter. Total unbilled receivable rose by $11 million as compared to the second fiscal quarter of 2014. Our total deferred revenue, both short and long term, increased by $38 million sequentially in Q3. Both of these items may fluctuate from quarter-to-quarter. Our cash balance at the end of the third fiscal quarter was approximately $1.2 billion. Our 12-months backlog, which includes anticipated revenue related to contracts, estimated revenue from Managed Services contracts, letters of intent, maintenance and estimated ongoing support activities, was $2.97 billion at the end of third fiscal quarter, up $30 million sequentially. During the third fiscal quarter, we repurchased $93 million of our ordinary shares under our current $500 million authorization plan. We had $74 million remaining under these authorization as of June 30. We also have an additional $750 million authorized, pursuant to our April 2014 share buyback program, to be executed at the company's discretion going forward. The additional authority does not have a stated expiration. Now turning to our outlook. We expect revenue to be within a range of $890 million to $920 million for the fourth fiscal quarter of 2014. We anticipate minimal sequential impact from foreign currency fluctuations as compared to Q3. Translating our fourth quarter to the full fiscal year, total revenue growth continues to track towards the midpoint of our previously stated guidance range of 5% to 8% on a constant currency and reported basis. Also within the full year outlook, and consistent with our prior expectations, we still anticipate revenue from our Directory business in fiscal 2014 to decrease in the double-digit percentage range, placing about a 1% drag on the total company results. We anticipate our non-GAAP operating margin for fiscal 2014 to continue to be within our long-term target range of 16% to 17%. We also expect our non-GAAP effective tax rate to be in the range of 13% to 15% for the full fiscal year. We expect the fourth fiscal quarter diluted non-GAAP EPS to be in a range of $0.75 to $0.81. Our fourth fiscal quarter diluted non-GAAP EPS guidance also incorporates an expected average diluted share count of roughly 161 million shares, in the likelihood of a negative impact from foreign exchange fluctuations in net interest and other expense. We excluded the impact of incremental future share buyback activity during the fourth fiscal quarter, as the level of activity will depend on market conditions. Factoring in our fourth fiscal quarter outlook, we believe we are on track to deliver on our guidance for diluted non-GAAP EPS growth of 6% to 9% for the full fiscal year 2014. With that, we can turn it back to the operator to begin our question-and-answer session.

[Operator Instructions] And our first question is going to come from Shaul Eyal out of Oppenheimer. Shaul Eyal - Oppenheimer & Co. Inc., Research Division: Two quick questions on my end. On the operating margin, I know it is within the range, but is it just a mix issue? Or just still staying the course in that respect?

I'll say there's nothing much to attribute to the plus-minus 10 basis points. We said that always that we manage the company within the range. We are tracking on the higher half of the range for some time now. And we don't see any -- anything to attribute to this minus 10 basis points. It's just part of different moving parts that are happening in every given quarter. Shaul Eyal - Oppenheimer & Co. Inc., Research Division: Fair enough. Eli, on the Bell Canada, on the Turbo, the Convergent Charging, Turbo Charging. Can you provide us with slight more color about the nature of this product? Is it part of the overall offering you guys have already going on with Bell Canada?

Shaul, the Turbo Charging and the new charging engines is part of the CES product line. It's a major component of the revenue management. It includes the ability to rate anything and everything in real time. That is to say that we discharging engine, they're not really distinguished between prepaid and postpaid, voice or data or video or content elements or what have you. You can combine any of the offerings in any permutation, based on any price plays you can think of, and it's all done in real time. So this is the winning revenue management engine of the world. It's the same engine that AT&T is using. The same engine that Sprint is now converting to, and now Bell and Telus. If we'll win Cricket, that probably will be the engine for them, because this is the engine for AO, the prepaid in AO. And also, it's the same product that is used in Brazil and Indonesia and Peru and any other place in Europe, anywhere, other place you can think of. So this is, by far, one of the most advanced product that we ever created. And it's built for high volume and high complexity. So high volume, complexity in real-time fault tolerant, this is quite an impressive component. And obviously, when someone like Bell is choosing to do it, that's a very important project. And now we are not upgrading any other component this early at the same time, but this is always also a gradual process we see in other customers.

And then our next question is going to come from Jason Kupferberg out of Jefferies.

This is Amit Singh for Jason. Just quickly on backlog. It grew solidly at 4.9% year-over-year this quarter. See if you could just help us dissect that backlog based on geographies, in which regions showed faster growth versus others?

We are not necessarily dissecting it by geographies, but I will say we've seen strong win rate across geographies. We gave a couple of examples from recent quarter wins in the prepared remarks, regarding both North America, in Latin America. We are also continuing to see good momentum in APAC and Europe. So it's actually a broad-based momentum that we're seeing. The nature of activity may range from one region to another. So in Europe, we're seeing a good momentum recently, and in Managed Services, for example, and in emerging markets, naturally, it will be more towards transformational projects. So the type of activity may differ, but overall, it's a broad-based activity.

I would say that the variance and the richness of the components of this backlog, rising level of backlog, is the one thing that would give me comfort level, because it's all different product lines, revenue management, RAN optimization, OSS, customer management and many others. All geographies, and some of them are delivery projects, some of them managed services projects, and so and so. And so this is exactly the type of variance I will like to see in the backlog. And that's what we see. So the fact that it's not coming from one place and one region, one item, is exactly the strength of it.

Great. So the good growth in backlog in all the other contracts and different regions that you speak of. So if you think about your organic revenue beyond, let's say, now fiscal '14, should we expect some sort of acceleration, so to speak, from here, for revenue growth?

So it's an excellent question, and that's exactly why we are scheduling an Analyst Day in December to provide a longer-term view of the company and a bit more detail in FY '15. And I would not try to be carried away with acceleration. You see, the industry, we are doing much better than the competitors, and we're doing better than many other players in the industry, but the industry, as a general term, is not accelerating. Overall, unweighted average of IT growth in telecom worldwide is about 2%. So we can grow double, maybe more than double of the rate, but we cannot generate business out of thin air. So -- but if you want the details, then we'll be more than happy to provide the details, you'll have to be patient until the Analyst Call on -- Day on December 16.

Sure, fair enough. And then, just one question, last from my side. What does AT&T acquisition of DTV, I mean as you move both of these clients are, I mean, both of companies are your clients. So is there any near-term and long-term impact on spending? I mean, have you seen any -- is this supposed to be in a hiccup? I mean, are you expecting any sort of hiccup from AT&T, or their long-term benefit from this merger?

So thank you for your question. Let me check it a little bit broader. We said last quarter and the quarter before that we expect overall North America to converge into few or fewer, very large multi-play carriers, and that's exactly what we are seeing in the last few quarters. The latest and greatest is AT&T and the ITV, but these are not the only one. There a lot of other moving parts that are still, in play, out there. In general, we still hold the opinion that this very large, complex, multi-play carriers have major challenges in consolidation and upgrade and creating a system that can support the future and there are very, very, very few companies that can help them. Actually, as I said, many times we know only one. Now the short term may present some challenges, because some competitors may try to sneak in and offer something very, very attractive. And because there is a -- there was a change in dynamics, or some people will go into the design phase, and for a few quarters, they will say, "Okay, don't do anything. Hold on until we finish the design." We've seen it before. We're still seeing long-term -- most of these things turn in -- they are turning usually into our benefits. We don't see, specifically to your question now, we don't see this type of spasm on any, either one of the signs. On the contrary, I think each one of them contemplates on activities that will be relevant, if there was growth of the merger, or if they will stay independent. And there are activities like this, and we are in dialogue on both sides. We are the one company that is allowed to talk with both sides. They cannot talk to each other in greater details, but we can. And we are trying very much to help prepare for an option that they will have an approval for, for this transaction.

And then our next question is going to come from Tom Roderick out of Stifel. Tom M. Roderick - Stifel, Nicolaus & Company, Incorporated, Research Division: I wanted to follow up on the topic of network optimization, given that you guys had a nice session on that this quarter and it seems like both Celcite and Actix are tracking at least in line with expectations. When you're talking to carrier customers out there, how much of this is a poll, relative to what they're asking you for, as they go through architectural evolution? And then, as it relates to the interaction with the hardware stack and other players out there, kind of curious how you're able to position that relative to other network equipment providers.

So Tom, thank you for the question. First of all, I would say that we see interest and we see activities and dialogue and also POs, purchase orders, from all around the world. And sometimes, these are carriers that we don't have a lot of business with, so it's an interesting angle into new carriers. Some time, we are initiating these activities. Sometime, they're actually calling us. But we see a major interest every time we go to talk to people. And as a matter of fact, we almost need to put some priority in the activity that we have right now, because we don't want to spend -- to spread the engineers and assess people too thin. This specific quarter, we saw wins in different geographies, from North America all the way to APAC. And in terms of our ability to what with different houser stack, that's actually part of the strength of the offering, that we are indifferent to the nets, to the network equipment providers, and also to the hybrid. Very few -- actually, I don't think that there is any other one that can do a good job on hybrid scenarios. So: A, we are doing a better job on each one of the hybrid stacks. And that's why we can win against Ericsson, optimizing their own network or while we're optimizing their own network or ALU or whatever. Then we have the ability to do it across net. We have the ability to do that across technologies, 3G, 4G and the like. And last but not least, we are the only one out there that is in -- really not conflicting. Because you can imagine that the net, optimizing their own network, have an issue if they find a way to save a lot of hardware. It's nice on the software side, but they are being "penalized" by selling much less hardware. And we are the only one out there that is indifferent to the nets, and carriers actually understand it. Now, the fact that now we can offer it as a product or as a service or as any combination thereof, is a very powerful ingredient by itself. So altogether, it's a very strong offering. It's a very accountable proposition. The accountability is that we take responsibility for what we do. Then I think about it, they all said that they can start small and grow over time. You can take one city on one technology, let's say, 3G and wherever. And then expand on geographies and expansion technology and expand on net, and so on, so forth. So altogether, we are happy with this thing, and our customers are happy as well, which is even more important. Tom M. Roderick - Stifel, Nicolaus & Company, Incorporated, Research Division: Great. Eli, maybe one quick follow-up on the topic of network optimization. I think you guys had talked about that group contributing somewhere in the ballpark of $100 million for this year. Can you confirm that, that, on track meets or in line means on track to hit or achieve, or hit or exceed those targets? And how we ought to think about the capability of that group to grow, as you look out the next couple of years here?

So we didn't really guide specific numbers, but it is significant revenue. It's probably north of $100 million put together. Meeting or being happy with the results is quite simple, is that we are meeting or exceeding our business plan. And then, in both revenue, EBIT and everything else, and in wins. We have to -- people should have to come up with new purchase orders and new growth. We see it as a growth engine. In other words, we see this engine growing faster than the average growth of the company. I think it's a little bit too early to say, if it's twice as fast or whatever, from the average growth of the company, but we see it as a growth engine for the company. So that's kind of -- we're giving you a little bit of color around that. But I have to tell you that, already, I cannot distinguish something that stops there, and ends up with something else because we combined it. This is actually showing a strategic move. It's combined with the rest of the offering. Some of it is with our OSS. Some of it with our Managed Services deals. And maybe today, but definitely very soon, it will be hard to separate between the components, but I try to give you some color on this segment of the business.

And then, our next question is going to come from Mark Sue from RBC Capital Markets.

Perhaps at a high level, do you feel your discussions with carriers, particularly the wireless operators that are undergoing the network transformations, it's -- the discussion is less about OpEx savings, and is it changing to about more service velocity? Are you finding that you're taking a broader suite of your products as well? Maybe if you could give us a sense of which customers are forward-thinking and taking -- looking at it more strategically, and whether do you still have opportunities?

So Mark, it's a very good question. If -- I'll try to do it shortly, as we are on the clock here. Look, what you see around the world, first of all, is the trend that we see in North America. We are talking about larger, more complex galaxy, mega carriers around the world. There are fewer of them, but they are very, very competitive, they are very, very big. Just to name a few of them, Vodafone is one of those. Telefónica is one of those, both in Europe and Latin America. Singapore Telecom, all across Southeast Asia, the Philippines, Indonesia, Australia, Thailand, you name it. And the same thing goes with America Mobile, which has several operators, operating companies, in Latin America and in Europe now. So when you talk -- and obviously, these are our, really target, because this provides the disproportionate amount of revenue and EBIT of telecom in the world. So the potential is accordingly. We are going after these sophisticated carriers. First, because the money is there. And secondly, because the complexity is there. And we thrive on very complex offering. So all of those that I just mentioned are, having a strategic view of the world, they invest in the future, they invest in multi-play, they invest in multi-countries and so on and so forth. Obviously, each one of them, at a certain point, also want to operate around the railroad better, okay? So the more complex and the more sophisticated the company is, the more you talk about strategic moves, investing in the future and so on, and so. Obviously, I did not mention AT&T. I did not mention many other companies that are in the same group. Now on the other hand, you may see an operator in a specific country in Europe or someone who the growth is gone that would put more effort on just efficiencies. The beauty of Amdocs is what we build our product set and our offering in general, that we can apply different tools to different cases. So if it's all about efficiencies, we'll apply more of the Managed Services approach. We'll apply more of the order to activation, end-to-end service. We will apply more radio optimization to optimize the network. So this will be the elements. And it should go to the order, almost all the other -- to the extreme, we will apply multi-channel customer management that allow very high level of customer sophistication, customer interaction with -- on many touch points across the carrier offering. We'll apply multi-play, that is to say, wireless, broadband, Pay TV, wearables, machine-to-machines, Connected Cars, stuff like this, so this all, multi-play. Again, the beauty of what we did throughout the years and definitely in recent years, we build our offerings in such a way that we can apply different tools, in different scenarios, in different timing. Sometime, it starts with one and move to the other. And that's actually the long answer to your -- the short long answer to your question.

That's actually helpful. And if I take your comments and I relate it to your business, the business has been defined internally by linear scale headcount -- headcount by headcount. And as -- so as the networks continue to evolve, are there considerations to look at increasing efficiency and optimization? Kind of getting that multiplier effect within your business over the longer term?

So look, the fact that we are developing software today in a very different way, and we apply the same version of software in many cases, let's say, 5 years ago, it will be -- if we will sell 10 copies of the same version of revenue management, we'll be very happy. Now, probably, we have several dozens, probably north of 50, implementation of 81, 91 range of revenue management. So efficiencies are done: A, by developed ones, implement many -- that's 1 direction; the second one, is the fact that we are operating our activities in large centers. We basically do most of the delivery of the projects and definitely most of the Managed Services of the organization in large operation in large operating facilities, if you can call it this way. So that's another way of getting away from the linearity of everything. Now if you're talking about the network, the network we are trying to, through software, to place a lot of people. That's part of the whole trick on network software, is to place a lot of people, a lot of technicians, the RF radio engineers and so on and so forth. So as I can actually address your question from many different angles, but I would try just -- try to give you a feeling for the direction. Most likely, we'll have to continue that off-line. So thank you, Mark.

[Operator Instructions] And our next question is going to come from Tal Liani out of Bank of America Merrill Lynch.

Just a few small questions. The first one is, the growth for this year includes, as far as I remember, some acquisitions. What is the organic growth for this year, if you strip out the acquisitions? And then, without giving specific guidance, as you look into the next years, do you think that this organic growth should change, up or down, and why? And second, so that's a question on kind of the growth environment. Just about the quarter, I have some questions on -- financial expense was lower than expected. Taxes were lower than expected, and share count was lower than expected. If you can comment on these 3 items.

Okay, Tal. So when we guided for the year, we talked about the acquisitions contributing about 2% to 3% of the revenue growth. And we are tracking slightly ahead of that. We are continuing to see good performance on the acquired assets as well, as in the rest of the business, of course. Then taking that and fast-forwarding into fiscal '15, I think it's a bit too early. We'll come back with that guidance in November, and of course, the Analyst Day in December, talk about the 3-year horizon of our dynamics of growth. Going then to your second question about the different line items in the P&L. Hedging activity and the cost of hedging is highly dependent on different changes in many currencies in which we operate. So while we have seen in prior quarters, a higher impact of the currency fluctuations and the hedging cost, this quarter was actually lower. As we've said in the prepared remarks, we don't think this is a new level. We actually expect -- or should take, projecting for next quarter again, a few million dollars of finance expense, primarily due to currency impact. Looking on the tax rate, it tends to fluctuate from quarter-to-quarter. We've seen it last year. We continue to see it this year. However, we continue to believe that the annual range of 13% to 15% effective tax rate is the one to expect for our business. And then, on the share count, usually, one quarter ahead, we guide without buyback activity within that specific quarter. So that we have a slight impact on the -- in the share count, but we didn't move that much, actually. So if you exclude all these items and just look on the operating activity, we were tracking slightly ahead on the top line. Actually, we've met the midpoint of the EPS range we've talked about. And then, we have a couple of upside points coming from items below the operating line, which brought us to the higher end of the EPS range guided to the $0.81.

And then our next question is going to come from Sterling Auty out of JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Yes. I know it's sometimes is tough to read in the license service mix, but given the percentage completion, is there any tie here that we can look at, between the $11 million in license revenue, and maybe some projects completing and coming out of the bottom of the funnel, versus the $30 million increase in backlog? You had some notable signings during the quarter. I was almost wondering why the backlog may not have been up a little bit more.

So thank you for the question. I think the relevance of the license revenue line is actually becoming less and less, as we move more into models of Managed Services. Most of our deals these days are bundled. We don't sell license standalone, as you know. We typically sell bigger and bigger transformational deals in which the license is just once more part of the overall value. We sell additional development and maintenance services. And we continue and push, and you see that, to transfer more of our customers' activity into the Managed Services model. So the license is becoming almost an irrelevant data point, and we're actually thinking about this disclosure item for the years to come, is that actually bringing any value, if at all. Having said all of that, I would say the only relevance of license is actually is the future elements of maintenance, and subsequent license fee that are coming later on. But other than that, we don't see any connection between license and indicating any future activity or license and operating margin. Now moving to the backlog. We -- as we said always, backlog is defined very strictly by us. Whenever it goes to maintenance or recurring activity, then we don't necessarily wait for the signed contract. But whenever it's a new activity, a new project, only when it's fully binding and signed, that's when we include it into the backlog. We are also talking about next 12 months backlog. So some of the deals we are signing, obviously, have a much longer horizon than what we report within the 12-months backlog. So there are different factors that impact of what goes in into the next 12-months backlog and what's not. And while we see it as a long-term indicator for the progression of the business and the visibility, I wouldn't take it as much as now plotting that as an accurate indicator of what is going to be the next 12-months' growth on the revenue side. It's also a good indication for the sustainability of the business, as we've seen in the downturn of 2008, '09, while a top line revenue for 1 year in 2009 was down 6% on constant currency basis, the backlog hardly moved. So it's also an indication of the sustainability of our business. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Okay. And then, the one follow-up is for Eli. The competitive landscape, we've seen some notable names like Telecom Italia, et cetera, maybe doing some things on the converge to Managed Service area, with Comverse and others. How would you characterize the competitive environment in the developed markets? Obviously, you're seeing what you're doing in the emerging markets. But the developed markets, both Europe and elsewhere?

I would say, as I said in the emerging markets, quite clear that we have a very, very nice win rate, but it's actually quite true to the developed market as well. There are a lot of deals that were assigned many, many years ago with some of our competitors. And when you want to deviate from -- if you don't have a -- really reason to transform, people usually tend to stay as long as they can. I would argue that some of the platforms that people are using from our competitors are really not sustainable in the future, because they cannot invest in their new products and new offerings. But I don't think -- I don't -- I'm not surprised at all that some companies, especially in areas that do not have any major changes, and they don't have any reason to go through a transformation, would just try to put some of their legacy system on a life-support mode, and extend the contracts. But we're now bidding in several areas in developed market, but within APAC or developed market within Europe, and some other carriers do believe in their future, and they want to transform from this type of competitors. And then, I think that we will see the same dynamics that we see in other places, that we have a very significant win rate. After saying all that, we don't have 100% of the win rate of the market. I mean, nobody expects us to, but it still enjoy significant win rate, whenever it comes to new platform, transformation, half transformation or what have you, and the life-support mode is something that you would expect to see, especially in areas that -- have very low dynamics.

And then our last question is going to come from Andrew Flis out of Robert W. Baird. Andrew Flis - Robert W. Baird & Co. Incorporated, Research Division: Thinking about software-defined networking and network optimization, after the AT&T Domain 2.0 announcement, did you see interest kind of go broadly from carriers across all geographies? Or are carriers in developed markets more interested in making that kind of a transformation at this time?

So it's a very good question. I think that, in general, I don't know if it's a statistically accurate because I didn't check every carrier around the world, but Domain 2.0 is considered to be, right now, the most advanced attempt to virtualize major network functions. Everybody is watching it, and especially in the developed markets, everybody in North America is watching it. Everybody in Europe is watching it. And definitely, the emerging markets are slightly behind. But once, it will be cracked, let's put it this way, or become practical, I'm sure there will be a lot of followers. And it's a natural thing. It's a major attempt to virtualize network functions. AT&T, which is an early adopter in many, many topics, is also an early adopter in this case. It is led by, personally by no less than the CTO of the company, John Donovan. A very complex undertaking. You have to be smart and brave at the same time to do things like this. But the reward, or potential reward are enormous. And that's why I put there -- I think they put their energy and their effort to that. We are definitely glad to be chosen to be part of this project. It's a leading-edge, cutting-edge, whatever you like to call it. And I would say that we see already -- and that's only -- it measures in a very few months, for very big quarters. We see already interest in some other -- with some other major carriers. It's only -- I can think only right now, it's safe to say only with major carriers, but we see already a dialogue that we developed with the second wave. And I think that once it is successful, I think you will see the third and the fourth wave as well. So bottom line, AT&T is going to be known as the leader. We see some activities already with few others in Europe and in other places in North America. And then -- and we believe it actually is going to happen. It's just a matter of whether it will be within a year, or 2 years, or 3 years, but it's going to happen. And we have a nice progress so far in terms of the development and the engineering side of it, but it's too early to share it with you guys.

And we have no additional questions at this time. So at this time, I'd like to turn the call back over to Matt Smith for closing remarks.

Thank you, Bekeba [ph] , and thank you very much for joining our call this evening, and to your continued interest in Amdocs. We look forward to hearing from you in the coming days. And if you do have any additional questions, please call the Investor Relations group. Have a great evening, and with that, we'll conclude the call.

Thank you.

Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.