Amdocs Limited (DOX) Q4 2007 Earnings Call Transcript

Tom O'Brien - VP of IR Dov Baharav - President and CEO Ron Moskovitz - CFO Tamar Rapaport-Dagim - IncomingCFO

Ashwin Shirvaikar - Citigroup Liz Grausam - Goldman Sachs Daniel Meron - RBC CapitalMarkets Tom Roderick - Thomas WeiselPartners Shyam Patil - Raymond James Scott Sutherland - Wedbush Morgan Shaul Eyal - CIBC World Markets Ben Abramovitz - ICAP Securities Jason Kupferberg - UBS Tal Liani - Merrill Lynch Ted Jackson - Cantor Fitzgerald

Good day, everyone, and welcometo this Amdocs' Fourth Quarter 2007 Earnings Release Conference Call. Today'scall is being recorded and webcast. At this time, I'd like to turnthe call over to Mr. Tom O'Brien. Please go ahead sir. Tom O'Brien: Thank you, Hade. I am TomO'Brien, Vice President of Investor Relations for Amdocs. Before we begin, Iwould like to point out that during this call we will discuss certain financialinformation that is not prepared in accordance with GAAP. The company'smanagement uses this financial information in its internal analysis in order toexclude the effect of acquisitions and other significant items that may have adisproportionate effect in a particular period. Accordingly, management believesthat isolating the effects of such events enables management and investors toconsistently analyze the critical components and results of operations of thecompany's business and have a meaningful comparison to prior periods. For moreinformation regarding our use of non-GAAP financial measures, includingreconciliations of these measures, we refer you to today's earnings releasewhich will also be furnished to the SEC on Form 6-K. Also, this call includesinformation that constitutes forward-looking statements. Although we believethe expectations reflected in such forward-looking statements are based uponreasonable assumptions, we can give no assurance that our expectations will beobtained or that any deviations will not be material. Such statements involve risk anduncertainties that may cause future results to differ from those anticipated.These risks include but are not limited to, the effects of general economicconditions and such other risks as discussed in our earnings release today andat greater length in the company's filings with the Securities and ExchangeCommission, including in our Annual Report on Form 20-F for the fiscal yearended September 30, 2006 as amended and our Form 6-K furnished on August 06,2007. Amdocs may elect to update theseforward-looking statements at some point in the future, however, the companyspecifically disclaims any obligation to do so. Participating in the call todayare Dov Baharav, President and Chief Executive Officer of Amdocs ManagementLimited; Eli Gelman, Executive Vice President and Chief Operating Officer; RonMoskovitz, Chief Financial Officer, and Tamar Rapaport-Dagim, our Incoming CFO.Following our prepared comments, we'll open the call to Q&A. Now, let me turn the call over toDov Baharav.

Thank you, Tom. Good afternoon,ladies and gentlemen. We are pleased to report our results for the fourthquarter of fiscal 2007. Revenue grew 9% to $727 million, while non-GAAPearnings per share grew 8%. During the quarter, we had a number of importantwins. For example, a long-term agreement that expands and extends by four and ahalf years, our Card IP, our outsourcing services agreement with AT&T.Under the agreement, Amdocs will provide software development, modernization,consolidation, and other IT services to AT&T's advertising and publishingoperation. We are also selected by one ofthe largest wireless providers in Latin America to supply a mission criticalsystem, supporting a large conversion project. This deal may open the door formore businesses for us with this very important customer. 2007 was a good year for Amdocs.Revenue grew 14%, and non-GAAP EPS grew 16%. We believe Amdocs 7 is further increasingour leadership position in the marketplace from a product standpoint. For thefirst time in the industry, Amdocs 7 offers a single platform capable ofsupporting the complex requirements of traditional and next generation video,voice and data services. Amdocs 7 demonstrates the kind of innovation that willhelp us drive growth in 2008, including in the broadband, cable and satellitemarket. During 2007, Amdocs delivered newfunctionality in groundbreaking projects for key customer such as AT&T,Sprint and Telco. We believe that, as in the past, our exceptional deliveryperformance will lead to new and extensive business with our existingcustomers. During 2007, we integrated Cramerand Qpass into Amdocs. Cramer helps us accelerate our offering in the fastgrowing OSS market, so that we can provide full spec flow-through provision. Qpass positions Amdocs to beleader in the growing market for content, which is a key focus area for ourcustomers, as they seek new sources of revenue from areas like digitaladvertising. In 2007, we acquired SigValue toprovide us with an offering for the fast growing prepaid wireless activity inemerging markets, where most of the subscriber growth is expected to occur. The common denominator of allthis activity is that, it supports our growth strategy by expanding ouraddressable markets and positions Amdocs for success in 2008. When we look at the market todayand project what we expect to see in 2008, we see that the competition betweenservice providers remain intense. New product and services continue to beintroduced in order to attract and retain subscribers. At least now in 2007, leadingservice providers are continuing to spend on transformation projects in orderto upgrade their OSS and BSS to support digital services. Overall, we remainencouraged by the trends that we see. We expect that the market process willcontinue to drive consolidation in large IT transformation projects in 2008,and for years to follow, and that Amdocs is well positioned to win thesebusinesses. When we look specifically, it'sour focus for Amdocs 2008. We see continued growth. We expect to win additionaltransformation business in 2008. But we are not counting on a materialimprovement in the space of transformation, in order to reach our guidance. We are currently negotiating anumber of significant deals, which should be the catalyst that drives 2008growth, including an acceleration of growth in the second half of the year.These deals among other include telecom managed services deals, and opportunitiesin the broadband cable and satellite markets. We expect a modest increase inthe profitability of 2008, even after taking into account this potentialmanaged services deals. Our plan for 2008 also includesan increase in revenue related to content and emerging market. But thisactivities really position Amdocs for growth in 2009. To summarize. We see growth inour market, and the deals we are working on now, give us the confidence that wecan accelerate growth in the second half of fiscal 2008. Let me now turn the call over toRon and Tamar for the financial review.

Thank you, Dov. Our fourthquarter revenue was $726.7 million, representing growth of 9.2%. Our non-GAAPEPS, which excludes acquisition-related costs and equity-based compensationexpense net of related tax effect, was up 8%, to $0.54 per diluted share. GAAPEPS was $0.43 per diluted share. I'll spend a minute now on a fewP&L items. Please note that I'm referring to our non-GAAP results, whichexclude acquisition-related items, and equity-based compensation expense. License revenue grew again thisquarter, due in part to strong subscriber growth in our customer base, and alsofrom OSS sales.This line item will fluctuate as we have more product sales than in the past. Atthis time, we are projecting license revenue to be at the lower level nextquarter, but license is expected to grow as the year progresses. Operating margins were upslightly compared to Q3, as the decrease in growth margin was offset byfavorable trends in R&D and SG&A. Overall, we expect profitabilityin Q1 '08 to increase slightly compared to Q4. Other income decreased thisquarter, and is projected to slightly decrease next quarter due to lower focusin interest income. The effective tax rate in Q4 isagain relatively low at approximately 14%, giving Amdocs effective tax rate ofjust under 13% for the fiscal year in 2007. The rate this year was positivelyeffected by the successful resolution of the tax audit. We expect that ournon-GAAP effective tax rate for fiscal 2008, excluding the tax effect ofacquisition-related costs and equity-based compensation expense, to be in therange of 13% to 15%. Free cash flow in the quarter was$68 million. Included in the calculation of this number was approximately $40million in CapEx. DSO at the end of the quarter was62 days, the same as last quarter. Unbilled accounts receivable increasedslightly to $63 million this quarter. Deferred revenue was $174 millionthis quarter, a decrease of $70 million from last quarter. The majority of thisdecrease relates to customers. As we mentioned to you in Q2 '07,for example, when deferred revenue increased by $63 million, primarily due to alarge advance from customer, we predicted that this balance will decrease. During Q4, we executed on somedeliverables, which were related to some large advance payment, causing thedeferred revenue balance to decrease. Since significant advance payments aredifficult to predict, they are not received in most cases, this line item wouldfluctuate from quarter-to-quarter. Our best estimate today is that the deferredbalance at the end of Q1 will fluctuate slightly from Q4 level. And now, let me turn the callover to Tamar. Tamar Rapaport-Dagim: Thanks, Ron. First let me commenton a couple of 2007 items which will also effect 2008. Beginning with backlog. Our 12 months backlog, whichincludes contracts, committed revenue from managed services contracts, lettersof intent, maintenance and estimated ongoing support activities was $2.170billion at the end of the quarter, an increase of $40 million from the thirdquarter. We understand that backlog is animportant metric for investors, to use when analyzing Amdocs. And we willcontinue to provide this metrics to you. As we have discussed over the lastyear or so, we're seeing more business for Amdocs that is not fully reflectedin backlog. For example, some claim that license revenue is recognizedrelatively quickly. Also we have some customers that come into project onephase at the time. So, while the actual amount of work that we do might be verylarge, the commitments at any given point in time is relatively small, andtherefore, the amount that we can put into backlog reflects only a part of theproject. However, since for confidentiality reasons, we cannot share with youthe details about our processing information that we use internally, we intendto continue to provide 12 months backlog as a tool for your use. CapEx for 2007 was approximately$165 million. We expect a similar level of spending in 2008, as we continue toinvest in managed services project, and support the overall growth of ourbusiness. Depreciation in 2007 was $86 million, and is expected to increase in2008. In August 2007, we announced thatour Board of Directors had authorized the $400 million share buyback. Duringthe quarter ended September 30, we used $50 million to repurchase approximately1.4 million shares, at an average price of $35.30 per share. From October 1st to yesterday, weused another $18 million, under our 10b5-1 plan, to repurchase approximately538,000 additional shares at an average price of $33.76 per share. As we havesaid in the past, our first priority for our cash is for strategic M&A andmanaged services deal, but we also intent, under the right circumstances, tocontinue to execute on our buyback plans. Looking forward, our guidance forthe first quarter of fiscal 2008 is for revenue of approximately $735 millionto $745 million, and non-GAAP EPS of $0.55 to $0.57, excluding the effect ofacquisition-related charges and excluding equity-based compensation expense ofapproximately $0.05 per $0.06 per share, net of related tax effect. Diluted GAAP EPS is expected tobe approximately $0.43 to $0.46 per share. Our EPS guidance for Q1 is based onfully diluted share count estimate of an approximately 223 million shares. For fiscal year 2008, ourguidance is for revenue of approximately $3.05 billion to $3.15 billion. Andnon-GAAP EPS in the range of $2.29 to $2.39, excluding the effect ofacquisition-related charges, and excluding the effect of employee equity-basedcompensation expense of approximately $0.20 to $0.23 per share, net of relatedtax effect. Diluted GAAP EPS is expected tobe approximately $1.82 to $1.95 per share. Our fiscal 2008 guidance is based ona fully diluted share count estimate of approximately 225 million shares. Iwant to emphasize that the forecasted share count that I have just given doesnot include the effect of any future share repurchases that we may conduct in2008. So, let me turn the call backover to Dov.

Thank you, Ron and Tamar. Thistime, let me open the call to Q&A.

Thank you. Ourquestion-and-answer session is conducted electronically. (OperatorInstructions). And our first question will go to Ashwin Shirvaikar. Please goahead, from Citigroup. Ashwin Shirvaikar - Citigroup: Thank you. I guess now that youguys have delivered 2.14 in EPS, I thought it was unnecessary to lower guidancein January this year, or at your stock, near the top of your original range. Somy question is, what level of conservatism do you have in your currentguidance? What are the margin improvements in buyback assumptions you aremaking?

Ashwin, we actually provided aguidance that reflects our best estimates for the year. We feel quitecomfortable with the probability of making this guidance. And as we mentioned,the guidance that we provided is based on specific deals that we arenegotiating right now that will start contributing to the revenue more in thesecond half of the year. And we are encouraged by the fact that we are seeincreasing profitability during the year. So, we gave the guidance with ourbest estimate and that's what we feel comfortable with. Ashwin Shirvaikar - Citigroup: Could you talk about some of themargin improvement?

What we see in our activity is,first of all, that we are able to improve the gross margin and improve actuallythe operating income. Given, first of all, the fact that we are being moreaffective in our delivery. Secondly, we are able to do progress in our managedservices' last deal. And on top, we are making progress integrating theacquired company let's say to some extent we have a drag on the profitabilitylast year and we'll have higher profitability next year.

And once again, I would like toremind everyone to please try and limit yourselves, to one question and onefollow up. We'll go next to Liz Grausam at Goldman Sachs. Liz Grausam - Goldman Sachs: Yeah, great. I'd just like toexpand on the margin discussion, because your guidance thus suggests 8% to 10%top line growth and only 7% to 11% earnings growth for the year, which reallydoesn't point to a large amount of margin expansion that you do have somesignificant maturation process going on with the managed services deals, Ithink we've been banking on getting some margin expansion in this business forsometime. So, if you could discuss the trends that you are currently seeing particularlyin your services gross margin and if you contain a path of profit improvementfor us throughout the year and when we will may see from a timing standpointand then kind of capture that and what margin expansion you would expectyear-over-year for 2008 in basis points for us so we can kind of get a sense ofwhere you had there at? Tamar Rapaport-Dagim: First let me address as thetrends during the year we expect the margin improvements to continue during theyear and as to the reasons why you see an EPS growth that is matching therevenue growth, you need to remember that also the tax interest is coming intoplay, as well as the finance income, from a tax point of view 2007 results havebeen very low tax rate of 12.8%, some of it has to do with resolution of thetax audit in the US, favorably while in 2008, we forecast a range of 13% to 15%inconsistency with [what specifics] within the past. As to finance net income,unfortunately interest rates are going down and that will have some impact on ourfinance income, as well. And so although the operational margin is going toimprove, some of the other items down to our net income level, they have someopposite effects. Liz Grausam - Goldman Sachs: Okay. And then just looking at your top-line outlook, you certainlypainted a picture to the street back at your analyst meeting of the target at10% to 15% long-term revenue growth and projections for 2008 up to 8% to 10%.Dov, you certainly captured or described some conservatism in that, you are notcounting on any retaliation of deal activity and you are offering currentnegotiations. But if you could kind of break that for us the 8% to 10% level,why is it coming in below expectations of your long-term target, particularlyin environment where it seems to have a lot of pent-up demand?

Well, Liz thanks for thequestion. We said before that the long-term growth rate of the company is 10%to 15% which is more than double the rate of the industry growth that we arein. We still believe this is a long-term growth rate of the company. This yearit is from the low end of this range and we do not count on significantM&As or activities of this nature for this growth. And we believe that therate of transformation in the industry will eventually accelerate and thisacceleration will actually get us to the higher end of the range and maybe evenmore than 15%. Now, for this specific fiscalyear '08, since we are currently negotiating several large or very large deals.We are expecting them to get into certain time of the year and with this buildin, we expect accelerated growth in the second half of the year. If you try to calculate thesecond half of the year growth, you will see that we are well into the rangethat we predicted for the long-term of the company growth.

Our next question goes to DanielMeron at RBC Capital Markets. Mr. Meron, your line is open, we're not hearingyou. Please check your mute button. Daniel Meron - RBC Capital Markets: Yeah, thank you. Sorry for that.Couple of questions. First of all, as far as the deals that you are seeingright now in the market. What you see more from wireline and wireless, whereyou see that? And also the push-outs that you are seeing. Is there anyparticular reason for that or is it more customer specific or is it just more[within your] industry trend?

In terms of the pipeline and thedeals that we're negotiating in, we see both wireline and wireless and MSOcable and satellite and few others. So, from this respect, we see this type ofspecific deals in our pipeline and the specific deals that we are referring toin the street. I am looking if I go to second half of the question though? Daniel Meron - RBC Capital Markets: Yeah.

Mr. Meron, your line is stillopen, you just broke out… Daniel Meron - RBC Capital Markets: Yeah. If you can give us morespecifics about why the sales cycle has been so long, a lot of these deals havebeen in pipeline for a long time and we are just waiting for, allow you justkind of coming. Why was there -- why are there so many delays in that? And whatwould get those project to kick-in in the second half of '08?

Yeah. Well, what characterizesthe market that we operate in, Daniel, these days is that there isconsolidation. We are dealing with mega-carriers. They need vendors that canhandle this mega project and mega activity, which creates the big opportunitiesfor Amdocs and shows that we will have growth in the future. But today, on thesame talking, dealing with large carriers and discussing the substantial deals,as told. And the story is that it takes time to negotiate it and if the bill isdelayed by one quarter or two quarter, it has as an impact on our growth rates.So, now we are more confident, given the fact that we have a more specifics andwe are negotiating the deal. So, we feel much better about the probability ofhaving them in the second half and we were not able to close them before. Daniel Meron - RBC Capital Markets: Okay. And then just a quickfollow up. Regionally, can you give us more specifics on where do you see theopportunities right now, it's more of a developed market and what do you thinkabout how emerging markets mix into 2008? Thank you.

We feel that we haveopportunities in the developed market and in the emerging markets. In thedeveloped market, we have very small penetration. So, we in the United States,we actually are in a good -- in North America,we are in a good position. And, however, we capture a small portion of the market,as many areas in the developed market for example, Europe and other countriesthat have their own strong economy and which we have a very minimalpenetration. Therefore, for example, Japan, Italy, Germany; countries that we have avery small penetration. And that can serve as a big potential for us. No, onthe same talking, and I am talking about the potential, the million marketrepresents, I would say long term big potential for Amdocs. Now, we have done a lot in thisregard. We have our activity in Chinawith 1,200 people with a very successful implementation with China Mobile, thelargest mobile carrier in the world, in Beijing,ready for the Olympics. We have our activity in India with our DVCI, Development Centersthere, with a 3,000 people. We have activity in many other countries and we canleverage the fixed value asset that now enable us to get to small countries,small carriers that will go and will provide as sources of revenue in thefuture. So, I think that 2008, we'll see growth in the emerging markets for us,but we will feel the full impact of it in 2009.

Our next question goes to TomRoderick at Thomas Weisel Partners. Tom Roderick - Thomas Weisel Partners: Hi. Good afternoon, guys. Thankyou. Dov, in your comments, it seems as though your enthusiasm or maybe thetone around general business, maybe a little higher than it has been in thepast quarters, particularly as it relates to some of these big projects on thehorizon, pace of transformation may be improving. What gives you the confidencewhen you make some comments regarding some of these bigger projects that are inthe pipeline, particularly the managed services deal you are referring? Whatgives you the confidence that they can and will close over the next few quarters,whereas this has been a year of delayed projects stand and slow pace oftransformation? Are you getting signals from specific customers that they areready to go ahead and just need to clear budget? What is the hold on here?

Well, Tom, let me try to addressyour good question. I think that in terms of the pace of transformation, wesaid that we see above the same pace and we are not counting on a significantacceleration in '08. But we do see confirmation. Now specifically, the dealsthat we are talking about are not deals that we are negotiating for years.These are deals that we meet the people and we know the progress of thisspecific deal, we know the dynamics of this deal, we know how far we are and weknow that some of them relates to some internal commitments that these carriersare taking, which will materialize or these are materializing. So, again,although, we are not 100% sure and [it's crossing in the back], we feelconfident in terms of our ability to close this deal. Not to mention, that webelieve that we are the only guys around that can actually execute on thisspecific transformation project. Tom Roderick - Thomas Weisel Partners: And Eli, when you look at thesetransformation projects, specifically the big deals you're referencing, you areputting in a lot of work to get these to close. Are these sort of one-off selfsource negotiations or are there multiple other venders at the table and kindof a formal RFP process on these?

I don't think that we can get theirbusiness. I am sorry.

What we feel good about theprobability is that we can close the deal.

We will go next to Shyam Patil atRaymond James. Shyam Patil - Raymond James: Hey, hi. Good afternoon. Couldyou comment on why deferred revenue was down almost 30% sequentially? Whatwould caused that? Tamar Rapaport-Dagim: Sure. As we have noted in thepast, when we had the large advance payments in coming in for example in Q2 of'07, if you'll recall we had an increase of $53 million in deferred back then.Then overtime, we have the little, both that are being executed the contractadvance payments and this is causing reduction in deferred. This kinds ofadvance payments are not within issue, we have not seen anything come in thisquarter and it has do with the specific nature of the deal and we don't foreseeinto the Q1 of '08, any significant fluctuations to continue in that space. Shyam Patil - Raymond James: Okay. And then, in regards tothese large transformations deals that you expected high in the first half of'08. Are they still in the competitive stages or are you in exclusivenegotiations at this point?

Again, we cannot provide a lot ofdetails on that. But usually, we are more confident than when we are at the oneat the table.

It's not done till it's done andtill you have it signed. However, we are in a good stage.

We'll go now to Scott Sutherlandat Wedbush Morgan. Scott Sutherland - Wedbush Morgan: Great. Thank you and good afternoon.

Good afternoon Scott. Scott Sutherland - Wedbush Morgan: And Ron, I guess this is yourlast call, so good luck in your next endeavor.

Thank you. Scott Sutherland - Wedbush Morgan: Couple of questions. First, ayear ago, you provide about this time put some pretty optimistic guidance thatwas at the higher end of consensus expectation. So, which compare your guidancenow that you are may be more at the lower end of consensus expectation, yourguidance is at same type of visibility? Are you being more conservative, givenyou came more at the lower end of last year's guidance? Can you just give us afeel of how you are looking at guidance now, is it the same or different?

Well, when we compare Scott,actually the projections now to last year. We feel that now, probably it's alittle bit more conservative, given the natural tendency of people after maybebeing feelings that they were too optimistic last time, they are more carefulthis time. So, we think that the numbers that we just provided represent theright level of conservatives. Scott Sutherland - Wedbush Morgan: Okay, great. And the secondquestion is, you know, that the cable market, it seems like it has beengenerally a flat market that within your numbers, have you seen revenue growingapart in that market and would you say it's at the same corporate rates, that8% to 10% range or has it been faster or slower?

In terms of the market itself,broadband, MSOs can provide higher growth rate than other telcos. Scott Sutherland - Wedbush Morgan: I guess the question was, whenyou look at Q4, maybe where you were a year ago, are you seeing something inthe high single-digits or double-digits growth in revenue from the broadbandmarket for you guys?

Because that we see growth incable; we would say, with signal to the growth of the company. On thequarter-by-quarter basis, it may fluctuate but overall it is somewhat similar.

However, the question is not whatwas the growth of the cable in Q4? But what is going to be the growth in ourbroadband activity in 2008? And we consider the broadband and satellite as oneof the surface of growth will end up, accelerated growth. So, we expect thegrowth in the cable to be faster than the overall growth of the company. And webelieve that our offering is quite appealing and spending a lot of time talkingto the leaders of this industry in North America.And I would say that, I'm quite encouraged by their reaction and by our prospectin this area.

Our next question goes to ShaulEyal at CIBC World Markets. Shaul Eyal - CIBC World Markets: Thank you. Hi, and good afternoonguys. Couple of quick questions. Couple of quarters ago, you ratchet it downyour revenues, if I call by about $50 million. Any of this revenue, did you seecoming back on the past couple of quarters? Some of it at least?

I would say, yes. Ourexpectation, for example, let me give you an example that we mentioned in thepast, we had expectation in early 2007 to see the consolidation of AT&T andthe result happening earlier and it took some more time to close it. AndAT&T is one of our most substantial customers, which provides ussubstantial reason for being optimist about our future revenue. So, I would saythat, yes, AT&T activity represents just a delay. On the other hand, we indicatedin the past that the pace of transformation was not as fast as we expected. Andwhat we see now is that, in several periods our moving tool transformation andwe don't believe that there is a substantial transformation in the industryresult seeing and that's involved. So, we would see all this potential as partof our pipeline. Shaul Eyal - CIBC World Markets: Fair enough. What was theheadcount by the end of the quarter?

The headcount therefore at theend of the quarter will be 16,000 plus, so I don't know that we had asubstantial increase this quarter.

Next question goes to Ben Abramovitzat ICAP Securities. Ben Abramovitz - ICAP Securities: Thank you. Two questions: There'sbeen talk recently of service provider spending slowdowns. And I'm trying toget an idea, you're talking about transformation projects, some largetransformation projects. Can you give me some color in terms of the overallenvironment to what the service providers are telling you or what you're seeingin terms of overall spending? Does that play into some of the guidance thatyou're giving for 2008?

So, first of all, we see that in2007, there was growth in the CapEx of many of the carrier. Now, fromtime-to-time, it's quite misleading to look at the overall CapEx, given thefact that most of it is network and equipment. Unfortunately, Amdocs'proportion of the CapEx is too small. So, not necessarily correlates to theoverall investment. However, when you look at Amdocs' revenue, managed servicesfor example, is a good example as that there's nothing to do with the CapEx,the other way around. When carriers are trying to paysome money and being more competitive, they suddenly let us do managed servicesprojects, by that reducing the cost, improving their SLA,being able to do modernization at the same time for their activity. So, we areable to combine for the carriers, reduction in their OpEx, and even dosomething in the CapEx. So, overall, they spend less money and we make moremoney. So, looking at 2008, we see investment in the emerging markets. We seeinvestments towards content, digital services. We see investments intransforming to a new IT network, which will provide us revenue in [dollarsterm], and increase in their managed services. Now, another important area for agrowth area to us is the MSO, where they are moving very fast towards atriple-play with the data, voice and video, moving to IT and we have the bestoffering in this regard. So, we believe that we will be having goals there. Andby the way, another source of revenue for Amdocs is there in the consultingdivision. We have one of the largest consulting division in North America. Now we give it to all over the world and we see thesubstantial increase in the revenue from strategic consulting, PMO, additionalservices like testing and training and that also helps to increase the growthrate of the company. Ben Abramovitz - ICAP Securities: Okay. And then, the broadbandcable deal that you are talking that's in the pipeline that you hope to closeat some point in 2008. I'm trying to understand that this is an expansion of anexisting customer or is this a new customer that would be coming over toAmdocs? So, is it re-upping? Is it basically add-on or a transformation of anexisting platform that's already there? Or is this completely new customer toAmdocs that you are looking at?

Well, I don't think that we canreally provide all of the details that you have asked for. Ben Abramovitz - ICAP Securities: I'm sorry.

But, I would say that it's atransformational project that includes significant components of modernizationof software and conversion and activities of this nature. And I think that'sthe best I can describe it. Ben Abramovitz - ICAP Securities: Okay. Thank you.

Thank you.

And we will go next to Jason Kupferbergat UBS. Jason Kupferberg - UBS: Thanks and good afternoon, guys.My question on free cash flow here, I guess in fiscal '07, free cash flow camein for the year at I guess about 55% of non-GAAP net income and I think roughlyon an annual basis, you tend to look for that metrics, be closer to the 100%range plus or minus a little bit. Now, fiscal '08 I understand CapEx andabsolute dollars is expected to remain at relatively elevated levels. So, howshould we think about the flow of free cash flow number relative to non-GAAPnet income will be higher on a percentage basis than it was in fiscal '07 orany color there would be great. Tamar Rapaport-Dagim: Okay. We believe that free cashwill grow in 2008, after the difference between the non-GAAP net income andfree cash flow, there are a couple of factors to consider. One, we are, as ofaccelerated CapEx investment, as well as other investments that has to do withthe large managed services deals that we have executed and performing thesedays as well as some changes in the pattern, maybe from time-to-time, quarter-over-quarterof invoicing milestone versus the ongoing delivery of the milestones in theproject. Such as the example we had on the positive side in Q2 of '07, when wegot a large advance payments and then later on executing on this milestones andhaving the other way round. So, overall, we don't foresee any reason for amajor change in the trend as we continue to grow and invest in new areas. Andwe do see an overall growth in free cash flow into '08. Jason Kupferberg - UBS: So, if I can just get a clarificationthere. So, when you say free cash flow will grow in '08, will it grow aboutinline with non-GAAP net income, in other words does that ratio between thosetwo stays and lets, call it 55% range and are you expecting an increase in thatratio because of any kind of one-timeish advance in fiscal '07?

It depends on the type of thedeal that will comprise the growth of the company. So, if we win several largemanaged services deals that will require from upfront investment in cash thatmight have may be a negative impact on cash flow of 2008 as this is the firstpart of it because we left doing that. If the deals will be different, may beregular deals, then it might be the other way around. So, I would say, weshould wait and see and if we hope to win managed services deals, and thenwe'll see growth, but not may be fully in line with networks of the company. Jason Kupferberg - UBS: Okay. And M&A pipeline. Anycolor there on what you are seeing kind of little prior to or recently butobviously you guys adjusted a lot in fiscal '07?

Jason, as we've said, it's ourfirst priority for use of our cash. And it's not only that we need to digestall the assets that we acquired in the past year or two. It's also that we arelooking for assets that support our strategy, that are good quality components.We had a good track record; we don't want to ruin it. We keep on looking aroundin all directions, bring additional products, additional penetration in certainareas. We do not exclude there to buy within our space. And so, I would say that wecannot provide more color right now but we are as active and lookingaggressively without compromising the quality of the target that we are lookingfor.

Our next question goes to TalLiani of Merrill Lynch. Tal Liani - Merrill Lynch: Hello. Thank you, guys. Some moreattention for the clarification on the backlog I take the blame for creatingthe confusion on wrong interpretation of the trends and the orders, but I wantto ask you about your overall guidance. Your deferred revenues is back to thelevel of Q1 '03 -- December '03. And your guidance overall is below consensus.There were few questions on the call about it, that the midpoint is only 9%growth for the year. But on the other hand, your comments are the mostaggressive comments I remember hearing from you because you are veryconservative in what you are saying. How do you bridge between the twothings that on one hand you are very positive, you are saying that things willfirm up soon, on the other hand the numbers and the guidance doesn't point thisdirection?

Well, the difference betweenmaybe us and external wall is that we are exposed to all the details. So, Tal,we are fully aware of this discrepancy, but when we reviewed all our plans andlooking at our market position and our relationship with the customer. Reviewingthe pipeline, reviewing the deals that we are negotiating with our customers.And as you know the projections that we provide is based on just accumulatingand gathering all the activity with all the customers. So, when we look at allthat we go for the numbers that we are guiding the market. And we feel thatbased on the visit we are negotiating now. Based on the prospects andactivities that we have with other customer, we feel that the guidance that wehave right now reflects in, I would say, in the right conservatism, expect tothe reality. Now, regarding the deferredrevenue. The deferred revenue is down, that's correct, due to certain large advancepayment from customers. And it might be that we should get used to a little bitlower deferred revenue in Amdocs, due to the growth of the company, and theevolution of our business model. The fact that we are having moreproducts right now, the fact that we are more involved in managed servicesdeals, the fact that we are now signing a large deals which includes managedservices and modernization and we invest to some extent upfront money.Actually, it created some shift with the overall level of the deferred revenueas the percentage of the total revenue of the company, probably in the years tocome would be lower than what it used to be in 2002 or 2001. Tal Liani - Merrill Lynch: And when you, you said that ourfew big contracts that could materialize in '08. You had two kind of periods,one time big contracts led to some margin pressure, other times big contractshad no impact on the margin level. In this case when you look at the contractsand the pipeline, do you think that they could have an impact this way oranother on the margin?

Well, the contract that we talkedabout. With the impact on the profitability, are in the number, in theguidance, that is to say, yes, usually when we sign a new contract, at thebeginning, the possibility is not as high and we took that into considerationin our guidance. And we believe that after taking into consideration, thislarge deals, still the possibility is going up. So overall, we are doing betterin the regular business. We are improving the profitability with all theactivities that we acquired with Cramer, Qpass and others, and we are doingbetter on managed services.

And we'll go next to Thomas Ernstof DeutscheBank. Sir, your line is open. We are not hearing you. Sir, are you there?We're not hearing you. Please check your mute button, looks like you muted.Sir?

Oh yeah.

Okay, now you're on. Go ahead.

Sorry. This is actually(inaudible) on behalf of Tom Ernst. Couple of questions. One is, can you talk alittle bit about the organic revenue growth in your core business with Amdocs 7versus the contribution from Qpass and Cramer, I should say?

Well, actually I don't have nowthe clear breakdown of the revenue from Cramer, Qpass, the delay for thebusiness. And let me tell you why. It's combined. For example, when we workedfor Telsa, when we worked for British Telecom, we have a full suite of [voices]that part of it includes the Cramer activity, part of it include the accessthat were brought by Amdocs. Now they are combined and we provide to all thesesuite services. That's one large project. So, to some extent, it's impossibleto differentiate between the two activities. And looking forward, we see that'sjust a part of the growth of the company in 2008.

Okay. And then related question.How much of the license revenue growth was with existing customers versus newfootprint. I saw the announcement yesterday on T-Mobile International. Have youhad other significant new wins that contributed to it?

The growth in licenses isattributed to new logos that we want. As you know, we have substantial activitywith Cramer and the rest of Amdocs. And some of it was with existing customers.To them, on one hand, expand our activity, on the other hand getting somesubsequent license fees and others. And on the other hand, we set the newfunctionality and a new licenses. So, I would say it's a combination.

And we'll go now to Ted Jacksonat Cantor Fitzgerald. Ted Jackson - Cantor Fitzgerald: Thank you. I just had a threepoint questions that help me draw my model. Number one is, could you tell mewhat operating cash flow was for the quarter? Number two is, could you tell meeither at revenue level or at a percentage of revenue level, what directlypublished in each sales? Tamar Rapaport-Dagim: Operating cash flow for thequarter was $107 million. If you want to deduct transacted CapEx amount, thatwas additional $40 million spend on CapEx net. Ted Jackson - Cantor Fitzgerald: Okay. Thanks. And then, what wasthe percentage of revenue or the revenue amount in the quarter that came outdirect republishing? Tamar Rapaport-Dagim: About 10%. Ted Jackson - Cantor Fitzgerald: And then, just since I am onthis. Could you give us an update relative to Sprint, it was mostly a big partat the back half of the year. It's nothing that is a problem from your deliveryperspective, but nonetheless they have pulled back in some of the implementation.Could you give us an update on what's going with Sprint and your feel for wherethat account can be in 2008? And then I am done. Thanks.

Well, in terms of Sprint, I wouldsay that the project is going well, actually very well. We are meeting therequirements, meeting the milestones. We progressed with the conversion plan.We believe that the completion of the conversion project is critical for theplans of Sprint and I think that they share the same view. And all-in-all, weare meeting our milestones and we are growing the business at Sprint into newareas as well.

And that does conclude ourquestion-and-answer session for today. At this time, I would like to turn thecall back to the speakers for any closing comments. Thomas O'Brien: All right, thank you and to allthose in the call, thank you very much for attending the conference, goodnight.

Thank you. That does conclude thecall. We do appreciate your participation, at this time you may disconnect.Thank you.