Amdocs Limited (DOX) Q2 2008 Earnings Call Transcript

Dov Baharav - President and Chief Executive Officer of Amdocs Management Limited Eli Gelman - Executive Vice President and Chief Operating Officer Tamar Rapaport-Dagim - Chief Financial Officer Thomas O’Brien – Vice president of Investor Relations

Ashwin Shirvaikar – Smith Barney Citigroup Liz Grausam - Goldman Sachs Tal Liani - Merrill Lynch Tom Roderick - Thomas Weisel Partners Peter Jacobson - Brean Murray, Carret & Co. Daniel Meron - RBC Capital Markets Sterling Auty - JP Morgan Jason Kupferberg – UBS Shaul Eyal - Oppenheimer and Co. Scott Sutherland - Wedbush Morgan Securities Ted Jackson - Cantor Fitzgerald Tom Ernst - Deutsche Bank Larry Berlin - First Analysis

Good day everyone and welcome to this Amdocs second quarter 2008 earnings release conference call. Today’s call is being recorded and web cast. At this time I would like to turn the call over to Mr. Tom O’Brien. Please go ahead Sir. Thomas O’Brien: Thank you. I’m Tom O’Brien, Vice President of Investor Relations for Amdocs. Before we begin I would like to point out that during this call we will discuss certain financial information that is not prepared in accordance with GAAP. The company’s management uses this financial information in its internal analysis in order to exclude the effect of the 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 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 reconciliation of these measures we refer you to today’s earnings release which will also be furnished to the SEC on form 6K. 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 20F for the fiscal year ended September 30, 2007 as filed on December 3, 2007 and our form 6K furnished on February 11, 2008. 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 in the call today are Dov Baharav, President and Chief Executive Officer of Amdocs Management Limited, Eli Gelman, Executive Vice President and Chief Operating Officer and Tamar Rapaport-Dagim, Chief Financial Officer. Following our prepared comments we will open the call to Q&A. Now let me turn the call over to Dov Baharav.

Thank you, Tom. Good afternoon ladies and gentlemen. We are pleased to report our results for the second quarter of fiscal 2008. [Having a goal] to record of $74 million exceeding the guidance, while non-GAAP earnings per share grew to $0.58. We have exceeded our plans for the first half of our fiscal year. 2008 overall is shaping up to be an even better year than we had originally planned. Let me explain why this is so. We have seen little evidence of challenging economic conditions adversely affecting our customers buying decisions. However we recognize there is uncertainty due to challenging economic conditions and we believe we have incorporated this into our guidance for the rest of the year. This was another good sales quarter for Amdocs as we had numerous wins across lines of business and geography. We were very pleased to win a strategic OSS deal with a large North American service provider. We believe this deal could open additional doors for us in the North American OSS market. In [New York] Amdocs signed an important CRM deal with a large wireless carrier to help it improve its customer experience. This was an important win competitively as it strengthened our position with this customer. The company had several wins with other wireless carriers including a consulting engagement to help the service provider introduce new, innovative offers. Our strategic consulting business continues to grow and this has positioned Amdocs as the [solid] leader in the industry. We added several new logos to our customer list by winning deals in emerging markets including some based on Amdocs Compact Convergence Suite. We are also expanding and strengthening our position in the [inaudible] cable and satellite markets with several wins this quarter and a recent acquisition. We won a project with a large broadband cable operator in North America to provide self-service capabilities including eBill presentment and payment solutions. The company also won service projects related to requirement scooping which can be the initial phase of system transformation. Earlier this month we announced the acquisition of Jacobs Rimell. This UK based OSS company adds to our capability and may be a key element in our expansion in the broadband, cable and satellite markets. We are committed to this market and we expect to be the main vendor to the market leaders. One of the most encouraging developments this year is the expansion of our business with AT&T as we support the growing U.S. business, mobility and many other areas leveraging our advanced products. Our success in winning new business is based in part upon our [inaudible] record of delivery. Service providers can trust that Amdocs will successfully deliver on the largest; most complex IT projects in our industry. As an example of our capability we assumed responsibility for the large AT&T maintenance services project that we announced last quarter. [inaudible] we are in advanced stage of converting subscribers over to the unified billing platform. Our [minute] services agreement includes billing operation and additional services around system development. The billing operation activity and related services that we perform is mission critical for our strength. We believe that our assumption for revenue for this customer in the second half for fiscal 2008 are conservative. We have a strong and stable customer base of industry leaders. We believe that they will be the consolidator and they will continue to spend on strategic initiatives. Our business model is designed to provide [inaudible] revenue and stability especially from our ongoing support and managed services activity. This business model provides Amdocs with the kind of hedge or safe harbor in challenging economic environments. The same model can drive revenue growth as we sell additional product and services into our [install base] and win new customers. As the company will continue to expand geographically, this allows us to capture growth opportunities. Not only in North America and Europe but also in emerging markets which may not be facing the same economic pressures. We are expanding functionally in areas such as OSS and will continue in the right circumstances to use strategic M&A to help us achieve our goals. As I mentioned after the quarter closed we acquired Jacobs Rimmell to expand our OSS offering for broadband. We have a wide and deep offering including our recently launched CES 7.5 portfolio which has gained strong traction and acceptance in the market. Our offering combined with our geographic reach has resulted in a large pipeline of potential business which we believe will support our goals in the remainder of fiscal 2008 and beyond. By that, let me now turn the call over to Tamar for the financial review. Tamar Rapaport-Dagim: Thank you, Dov. Our second quarter revenue was $774.3 million, representing growth of 9.6%. Our non-GAAP EPS which excludes acquisition related costs, equity based compensation expense, net of related tax effects increased to $0.58 per diluted share. GAAP EPS was $0.46 per diluted share. I’ll spend a minute now on a few [penial] items. Please note that I am referring to our non-GAAP results which excluded acquisition related items and equity based compensation expense. As we forecasted last quarter, license revenue increased in Q2. We expect an increase in license revenue again next quarter. Operating margins were up slightly compared to Q1 as we saw the benefit of lower operating expenses as a percent of revenue. This means that even though spending and operating expenses increased we saw margin leverage as revenue grew even faster. This leverage more than compensated for the expected decrease in gross margin due mainly to the AT&T managed services deal. Overall we expect operating margins to increase slightly in the second half of fiscal 2008 when compared to Q2. Other income this quarter was about the same as Q1 but we expect it to decrease next quarter due to a lower interest income from our investments. The impact from lower interest rates this quarter was offset to some degree by foreign exchange gains related to our hedging program. As you know, we have a conservative investment policy. For example we do not hold any auction rate securities. Therefore since the sub-prime crisis has begun the impact of write downs on our results have been insignificant. The decline in interest rates this year was more severe than we had forecast when we first gave 2008 guidance. Despite the impact on our investment earnings we have met our earnings guidance for the first two quarters. Looking forward, the decline in interest rates is the reason why we reduced the top end of our [inaudible] EPS guidance from $2.39 to $2.37. The effective tax rate in Q2 was 13.8% in line with our guidance of 13-15%. Free cash during the quarter was $63 million. Included in the calculation of this number was approximately $34 million in net CapEx. Free cash flow was impacted by annual employee bonus payments which are made in January. [DSO] at the end of the quarter was 67 days up slightly from last quarter. [inaudible] accounts receivable decreased to $41 million per quarter while deferred revenue increased to $209 million compared to what we reported last quarter. Historically from deferred revenue and billed receivables [inaudible] within a single customer were shown on a net basis on the balance sheet without regard to their classification of current or long-term. Beginning this quarter we will not show this on a gross basis meaning we will not offset [current and long term] amounts. In order to help you annualize the March 31 current balances in these accounts if we had shown this on a gross basis in Q1 like we do now the apples-to-apples comparison with Q2 is an increase in deferred revenue of approximately $60 million and a decrease in unbilled receivables of approximately $18 million. Our 12-month backlog which includes contracts, committed revenue for managed services contracts, letters of intent, maintenance and estimated ongoing support activities was $2,360,000,000 at the end of the quarter, an increase of $60 million from the first quarter. During the quarter ended March 31 we used $50 million to repurchase approximately 1.7 million shares at an average price of $30.23 per share. Looking forward our guidance for the third quarter of fiscal 2008 is for revenue of approximately $790 million to $805 million and non-GAAP EPS of $0.59 to $0.61 excluding the effect of acquisition related charges and excluding equity based compensation expense of approximately $0.06 to $0.07 per share net of the related tax effects. GAAP EPS is expected to be approximately $0.45 to $0.48 per share without taking into account potential purchase price adjustments relating to the acquisition of Jacobs Rimmel in April 2008. Our EPS guidance in Q3 is based on a fully diluted share count estimate of approximately 220 million shares. For fiscal year 2008 we are updating our guidance. We expect revenue of approximately $3.09 to $3.15 billion and non-GAAP EPS in the range of $2.71 to $2.77 excluding the effect of acquisition related charges and excluding the effect of employee equity based compensation expense of approximately $0.21 to $0.24 per share net of related tax effects. Our guidance is not dependent on winning any one specific new deals in Q3 or Q4. The look at GAAP EPS is expected to be approximately $1.81 to $1.90 per share without taking into account potential purchase price adjustments related to the acquisition of Jacobs Rimmel. 2008 GAAP guidance was impacted by a change in tax rates related to acquisition accounting assumptions and also slightly higher equity based compensation expense. Our fiscal 2008 guidance is based on a fully diluted share count estimate of approximately 221 million shares. I want to emphasize that the forecasted share counts that I just gave do not include the effect of any future share repurchases we may conduct in 2008. Now let me turn the call back to Dov.

Thank you Tamar. Now please let me turn the call over to Eli Gelman.

Thank you, Dov. After 21 fascinating years with Amdocs the time has come for me to move on to the next phase of my life and career. Therefore I am leaving my role as the Chief Operating Officer effective immediately but I will leave Amdocs only next January. I truly love this company and I will continue to support Amdocs as a board member hopefully for many years to come. I plan to devote my time and energy to social welfare activity and to some private business ventures. I will miss the friends that I have made the investment community but I take comfort in knowing that Amdocs is in great shape with a strong leadership team. I look forward to seeing you all at our analyst day in two weeks.

Thank you, Eli. On behalf of the company and personally thank you for your years of service. Over the past few years Eli has led the management of our business division, M&A and strategy and it is due to Eli and the teams he has built that we have been able to enjoy the success we have achieved. I will miss working with Eli on a day-to-day basis but look forward to his contribution as a valuable member of our Board of Directors. At this time let me open the call to Q&A.

(Operator Instructions) We’ll take our first question from Ashwin Shirvaikar with Citigroup. Ashwin Shirvaikar – Smith Barney Citigroup: Nice quarter guys and it is good to see the revenue growth rate inflection point is coming true. Eli I’m sorry to see you go but I look forward to seeing you in a couple of weeks. My question is you said in your comments that you are being conservative with the second half [spread] revenues. Does that imply that you are correspondingly conservative with the associated margins, which I think go up disproportionately?

Well when we estimate conservatively on the top line and to some extent on the bottom line so we feel comfortable regarding the margins as far as the top line. Ashwin Shirvaikar – Smith Barney Citigroup: Okay. One quick check. Does the guidance include Jacobs Rimmel for revenues? Tamar Rapaport-Dagim: It does, however this is a very company and the overall numbers are minimal versus overall revenue. So… Ashwin Shirvaikar – Smith Barney Citigroup: Okay. Great. Thank you for your comments. I appreciate it.

Thank you. We’ll take our next question from Liz Grausam with Goldman Sachs. Liz Grausam - Goldman Sachs: Thanks. I would like to ask a few questions on the pipeline particularly as it pertains to three areas, Dov, that we spoke about at our tech conference a few months ago being broadband, managed service as well as emerging markets being three spaces where you are seeing a lot of activity. Can you give us any update on your progress in the broadband market? You said you may have signed a few contracts but also maybe in some consulting engagements. Any sense on timing when we can see more activity pick up in that space for you guys?

Thanks for the question. First of all our pipeline looks good, very good. We transforming projects into real wins. We have in the pipeline the managed services opportunities both in North America and Europe and other places. We have cable and broadband deals. We have consulting deals overseas. [Prepaid and post date] and of course managing markets. In terms of some specifics on specific broadband deals that I know that a lot of people are interested in, first of all I would like to say that our guidance for Q3 and Q4 for the fiscal year is not dependent upon any significant or specific broadband deals. We are working diligently on several opportunities within the broadband space. I’d be more than happy to share with you when we have anything there concrete but I think the most important thing is that we are not dependent on it for the guidance we give for the rest of the year. Liz Grausam - Goldman Sachs: Do you currently have consulting engagements, Eli, within broadband such that you are kind of getting in front of the customers sort of early in their planning cycles?

This is typical to many areas but definitely true for the broadband and cable industry as well and not only in North America but also in some other places.

And I would say that these consulting capabilities..Amdocs unique offering where we can bring today to the broadband operator that need to come up with video, voice and data we can leverage our experience in providing this same service for wire line companies that also offer wireless and [day time] video and actually lever the experience with this type of operator in the consulting in our CES 7.5 the platform that can actually serve all this line of business in a unified way. So we see a lot of excitement around our offering so we feel good about our ability to grow the business and we see the growth now and we expect the growth to accelerate in this area.

Thank you. We’ll go next to Tal Liani with Merrill Lynch. Tal Liani - Merrill Lynch: Hello. I have a few questions. First, I hear Dov your explanations about conservatism but you beat the numbers by a penny this quarter and this is 2Q. You raised the numbers for next quarter by a penny and still you maintain your full year guidance so that means you lowered basically the 4Q numbers by $0.02. That is, I think, what the question is why are you so conservative with the earnings if your numbers are so good? Everything we hear on this call is just great. I’m just wondering what is the reason for this conservatism. The second one is related…maybe not related. You won a number of major deals with players in the U.S…outsourcing deals. The question is in the past…I think I asked the same question last quarter and I just want to better understand the impact on margins. In the past you had some outsourcing deals that resulted in margin pressure and some outsourcing deals that resulted in no margin pressure. Can you classify these specific deals on two levels; first will revenues sort of accelerate throughout the life of the project or is it pretty much set since the beginning? Second, what about margins? Do you have to build the data centers, etc.? So this is my second question about the outsourcing deals. The third and last question is about the yellow page business. Recently I started to get more questions from investors and I think that if we ignore this area for many, many years maybe it is time to just kind of discuss it. There is concern that these guys are going to go out of business in a few years. What is the size in your business? What is the contribution to margins and what do you think will happen over the next few years? Thank you. Tamar Rapaport-Dagim: Tal thank you for the question. Let me address the earnings per share issue. Q2 we actually met the mid point of the guidance we gave of $0.58 and as for the whole year the reason we are keeping the mid point of the $2.34 per share has to do with the fact that we are seeing lower interest rates today versus what we had when we gave the original guidance for the year and we know the Fed funds rates reduced from 5.5% to what today already to 25% and unfortunately there are some expectations for further reduction in the interest rates. Since we are investing conservatively we are impacting the overall final thinking on what we are doing by that. Going back to your second question…the margins and managed services. We are having to categorize roughly two types of deals. One, such as the one in [strength] where we take over responsibility for data center operations as well as investments into the CapEx of the data centers and the other type such as the ones we have with AT&T including the largest deal we signed this year does not include any data center operations. So the margin expansion in this deal is coming mainly from the fact we are taking over the responsibility for the overall scope of the services, committing to the SLA from day one and building the cost efficiencies and improvement of business processes and tweaking of the software over time. So over time we should expect margin expansion in this deal as well as any other managed services deal we are taking upon ourselves.

Let me address your yellow pages question. As we released in the past it is about 9% of our revenue and it is a stable business and even though some of the operating publishers are under some pressure maybe there is a question on the share prices there due to the fact that they are highly leveraged. However, it is a quite stable business. We are involved deeply in helping them to move to online advertising which is another source of revenue that balanced to some extent the reduction or decrease in the printing side and to some extent we have a good position in the market. We are winning more customers. We are expanding that [inaudible] with each customer by gaining more services, more managed services deals with the same customer and all this combination of more customers, more services to existing customers, moving to online and even innovative new services all that actually helps us to maintain the revenue and we might increase it. Given our I would say quite unique position in this industry as the leader by far of the industry. Tal Liani - Merrill Lynch: Thank you and congratulations on the great quarter.

Thank you. We’ll go next to Tom Roderick with Thomas Weisel Partners. Tom Roderick - Thomas Weisel Partners: Hi. Thank you. Good afternoon. In the press release you have the line about requirement scoping and doing some additional services work which is typically a precursor to transformation projects. Can you give us historically what requirement scoping has meant in some of your transformation projects? How early do you get engaged in that process relative to the overall process of winning and moving forward on a transformation project and any additional details you can offer around the requirement scoping language would be helpful. Thanks.

Thank you, Tom, for the question. Let’s see how much detail I can give you. Historically usually when we are talking about defining the scope in the transformation process that a carrier needs to go through it usually is translated in many, many cases to larger projects. These projects include usually some conversion activity, new software installation, new modernization, and it is the typical first phase of a larger project. We did not specifically point out any specific project here so I can not relate to it but we have generally as I am talking we have several of those definition projects going on in any given time. We cannot relate right now to the timeline when we believe that potentially can be translated the design phase and scoping phase into transformation but it is usually a bottom line a good sign. Tom Roderick - Thomas Weisel Partners: Okay. Turning to Jacobs Rimmel as an acquisition here it is my understanding that a majority of the work they do is on the multi-play side, triple play side for Comcast and if I look at the type of billing you are engaged in with Comcast now it would seem to not necessarily be on that side. Can you talk about how you currently work with Jacobs Rimmel in the context of Comcast or the customer and how that relationship plays out going forward?

Tom maybe I should first of all say that JR is essential to the provisioning process of the new services in the carriers that are installed. The two major carriers are in North America Comcast and in Europe and across Europe is UPC. Both are large customers and we have several other customers through the acquisition. The fact that I’m saying it is an essential part of the provisioning any time you need to provide and provision a new service such as digital TV, such as VOIP, and other new services the software that JR is providing and now Amdocs is providing is responsible for the flow through provisioning from the ordering all the way to the fact you can actually consume the service. That is to say it is a mission critical component. It means that there are software [incentives or servers] around it and it means that this usually provides some strategic importance to the carrier or the NSO that they are serving. We strongly believe this acquisition is not only a good expansion for our product set it is also potentially a good expansion for our relationship with the customer that I mentioned.

Thank you. We’ll go next to Peter Jacobson with Brean Murray, Carret & Co. Peter Jacobson - Brean Murray, Carret & Co.: Thanks. I was wondering if you could explain the revenue trend lines generally at Sprint associated with the billing conversion project off of the converges system. Is the migration work kind of steady state until that is completed in terms of revenue or is it more of a bell curve where you might have peaked perhaps months ago? Then customization…is there additional incremental customization work that occurs after you actually convert those subscribers over maybe offsetting the decline in the migration work?

Peter let me try to address it and at the same time protect the customer confidentiality. Certainly we said that we have a few pricing with the customers…this is to say the incremental customer is charged with less…lower price [bills up]. So as a result of it we are less sensitive to the incremental or the last customer or for additional customers and as we said we are in the advanced stage in converting the subscriber to the unified billing [console]. Regarding the services that are needed in order to enable all this conversion, we perform some services and probably some of them we will be done with some of the services. On the other hand we might add other services because the customer will have to compete in the market and he has to compete in the market with new ideas and as a result will drive some new services. So overall we take all the amount of the services and the revenue from processing the billing for the subscriber and all the other services that are part of the price [to them] and our guidance includes everything and includes them in conservative ways. Peter Jacobson - Brean Murray, Carret & Co.: Okay. Thank you.

Thank you. We’ll take our next question from Daniel Meron with RBC Capital Markets. Daniel Meron - RBC Capital Markets: Thank you Dov. First of all I just want to wish you, Eli, good luck going forward. Then just a couple of questions. First of all my checks indicate that there is somewhat of a pick up at least in an interest level of customers in March…is this something that you are actually seeing right now? If so where is the strength coming from and can we assume there is a high level of conservatism within your numbers right now?

We have seen just by customers picking up and you ask it is in emerging markets I would say we see substantial pick up. Managed services is an area that we expect growth and also in leveraging other growth engines like OSS and broadband that we expect. Of course all that is propelled by the consulting services. We have now about 1,600 people in our consulting division which help us to get very early in the process to engage with the customer and have an impact helping him to think and to decide what he wants to do and later on enable us to provide a quality solution. So, our numbers for the year usually as you know based on most likely scenario and we applied the right level of optimism and conservatism. Daniel Meron - RBC Capital Markets: Okay thanks Dov. Just a quick follow-up. Tamar can you give us a sense of the impact of the foreign exchange fluctuation on your guidance here? The shekel [strength] by about 9% I think year to date. You do have some material operations there as well as around the world. Can you just give us some color on what impact on this quarter’s performance and out to 2008 and how do you think of this going forward? How much of your revenue right now is coming from dollars versus expenses in dollars? Thanks. Tamar Rapaport-Dagim: Sure Daniel. As you know the concept of acting globally is not new to Amdocs and we have always been exposed to foreign currencies other than the U.S. dollar and try to mitigate that through an extensive hedging program. Historically we have been able to manage our currency exposure so that impact of these fluctuations or on income quarterly has been minimal. We will continue to monitor that on an ongoing basis and if in the future we see this is impacting the overall costs of doing business in certain areas we will adjust accordingly. In terms of where we do business around 70% of our business is done in North America and driven in terms of the revenue by the U.S. dollar. So on the top line side we are exposed to other currencies other than the U.S. dollar but the U.S. dollar is the main one. On the cost side as we are sourcing work from global places around the world such as India, China, Israel, Cyprus and I can go on…this is obviously impacting the overall cost structure as well as the cost of labor and many other factors that we take into consideration. Daniel Meron - RBC Capital Markets: Thank you.

We’ll go next to Sterling Auty with JP Morgan. Sterling Auty - JP Morgan: Thanks. I have two questions. The first one is back to the Sprint side Dov. Is there a way of just splitting out how much of the revenue coming from Sprint is that subscribed billed processing portion and how much is the other services that you mentioned?

Well thank you for the question. As we mentioned before we serve Sprint in their mission critical areas generating the revenue, enabling their billing customer care. The majority of our revenue from Sprint is related to this activity and we believe that we will enable them to do this important activity in the future and we have I would say quite confidence in our ability to generate revenue in the future according to the importance of our activities there. We looked very carefully at our numbers and we believe that our guidance reflects our future revenue with Sprint. Sterling Auty - JP Morgan: Okay. Then you touched upon it a bit but I wanted to hear maybe a little bit more color on Europe. We have seen the pick up in some of the larger transformational deals here in North America. Can you give us an update in terms of what you are seeing with tier 1 carriers and service providers in Europe and do you think we’ll start to see a step up both from an OSS as well as a BSS and related areas?

In terms of Europe I would say that Europe is lagging behind the U.S. One of the main reasons for that is the T1’s do not have the same level of competition from the broadband and cable companies. In the U .S. they have strong cable companies going after the [cheaper and…price]. In Europe it is not so evident. On the other hand, we make steady progress with some of the tier 1 carriers in Europe on top of it so we see progress but it is relatively slow progress and again all of this are reflected in the best way we can with the best estimate in our numbers. The other component we see today more in Europe that we did not see several quarters ago are more openness to managed services and projects of this kind where Amdocs can actually gain some business there as well.

Thank you. We’ll go next to Jason Kupferberg with UBS. Jason Kupferberg - UBS: Thanks. Good afternoon guys and congratulations on the top line upside. I think that was clearly unexpected so nice job there. Maybe that begs a question here. If you guys could give us some updated thinking in terms of generally why this current economic downturn might be a bit different than the last one in terms of the impact not only on Amdocs but also on your customers as well? Clearly from a revenue perspective performance is ahead of expectations this time around.

Probably you compare this downturn to 2002. We think there are very few similarities but it is a completely different crisis. In 2002 it was driven by over capacity which was the Internet bubble on one end and telecommunication bubble where we saw the [felix] and all the over capacity cables that were out all over the globe. So in 2002 actually the CapEx in North America has been reduced by 50% due to the collapse of the [felix], due to the collapse of many Internet activity, it is not the case now. There is a shortage of capacity and many companies are holding now cable over the oceans. We just heard the results of Google today where they improved revenue by 31% year-over-year. We heard about IBM improving. So there is no over capacity in telecommunications and there is no Internet bubble. So yes there is a macro economy crisis. It is driven from the real estate and the financial services area and there is a question whether it will spill over to the telecommunications. I would say that we took into consideration there will be some impact there and it is in our guidance. When we monitor the activity of our customers we do not see any obvious impact on their activity. Not one customer actually has reported or shared with us that they are affected and as a result change the way that they operate. So as I said looking forward there are some uncertainties. We are taking the potential impact into consideration.

Just to add to Dov’s point about the market. Amdocs itself from its offering and abilities is very different as well. We did not have consulting in 2002. We did not have content. Managed services was at a completely different level which is usually a great buffer. Geography span on emerging markets and China and other places. So Amdocs is a very different company to face in the unlikely event that CapEx would start dropping or something like this we still have much better buffers today than we did before. Jason Kupferberg - UBS: Thanks for that color. It is very helpful. Just to switch gears for a second. Tamar if you could touch on free cash flow and DSO briefly. Any updated expectations for full year fiscal 2008 free cash flow? You are up about 14% I think year-to-date now. Is that kind of a similar year-over-year increase we should expect for the full year? I think as you mentioned DSO has picked up a little bit this quarter probably contrary to your expectations. What should we look for in the second half there? Thanks. Tamar Rapaport-Dagim: In terms of the free cash flow we guided at the beginning of the year and still have the same view that free cash flow in 2008 will improve versus 2007. As to DSO we did see some impact this quarter from the new managed services deal with AT&T. While we don’t have a full quarter of revenue in Q2 we do have most of what we expect to be an average receivable in the balance of the outlook for the quarter and that has mechanically caused some DSO increase. Going forward in the DSO we will see some fluctuations but I’m not expecting any significant changes going into Q3 on that one.

Thank you. We’ll go next to Shaul Eyal with Oppenheimer and Co. Shaul Eyal - Oppenheimer and Co.: Thank you. Hi. Good afternoon. Congratulations on a good quarter. A couple of quick questions. With respect to the Jacobs Rimmel acquisition, were you guys pushed to pursue the acquisition or did you pull for it or all of the above?

Shaul thanks for the question. We basically were in the market to look for a component that would be able to accelerate our OSS in general and our broadband presence specifically. We looked at several alternatives and we felt that the combination of the product and the customer base here would give us the best impact and that is how we got to execute the deal. Shaul Eyal - Oppenheimer and Co.: Fair enough. Tamar…what do we expect with the cash balance? Obviously you are hedged for how many quarters? Is it 2-3 quarters down the road? Tamar Rapaport-Dagim: Our hedging program is depending by currency and visibility we have in the currency to determine the duration we are hedging on. Overall the farther you go the lower visibility we have and therefore we use less derivatives to hedge longer term. We are also using extensively natural hedge mechanisms to obviously address that concern. For example if I am using Canada while we maybe have customer base in Canada and also some expense we will try to create some natural hedges in areas like that.

Thank you. We’ll go next to Scott Sutherland with Wedbush Morgan Securities. Scott Sutherland - Wedbush Morgan Securities: Hi this is Kerry for Scott. Most of my questions have been asked but Amdocs has benefited a great deal from the convergence and consolidation in the telecommunications market. Do you see that consolidation is going to slow down now that most of the big guys have acquired some of these smaller and need to digest them? If so, where do you think the next wave of consolidation will come from? Is it the broadband market?

Kerry thank you for the question. We are not basing all our business on the consolidations. That is to say consolidation is maybe one element. As we said looking forward we believe the growth will come from broadband and there we don’t need consolidation we need transformation. Given the challenges of the cable and satellite operators to provide video, data, voice, they need to transform their systems. They need to transform their infrastructure. Their business forces it. That will provide one growth engine for the company. Emerging markets is another growth engine for the company. Consolidation, yes it is and was one of the growth areas. It might continue to this extent or another but we think we have a quite good [out scenario] for growth engines that can support our growth and we feel quite comfortable with our guidance for 2008.

Maybe just one last comment about it…usually when we penetrate a company that has been consolidating another company it is not a one-time project. Usually these projects lead to other projects within the same carrier. Scott Sutherland - Wedbush Morgan Securities: Okay. Thank you very much.

Thank you. We’ll take our next question from Ted Jackson with Cantor Fitzgerald. Ted Jackson - Cantor Fitzgerald: Thank you. All of my questions have really been answered but a couple of quick ones for my model. Did you say that CapEx for the quarter was $34 million? Tamar Rapaport-Dagim: Yes we did. It is $34 million. Ted Jackson - Cantor Fitzgerald: Okay. Could you tell me what depreciation was for the quarter and then just going in to your comments on interest rate going forward what kind of rates of return are you expecting in terms of your interest rates for your cash for 2008? Thanks. Tamar Rapaport-Dagim: In terms of depreciation it is $20 million plus overall. It has not changed significantly versus the previous quarter. In terms of the yield specifically we are seeing decline and overall we should expect similar returns to what you would see in the other conservatively invested portfolios. We are not guiding as to specific yields on that.

Thank you. We’ll go next to Tom Ernst with Deutsche Bank. Tom Ernst - Deutsche Bank: Hi this is [inaudible] on behalf of Tom. Just one question on the new customer activity you are seeing. Can you provide some details on where the activity is regionally as well as sort of what type…cable or broadband?

As a matter of fact we see activity truly all around the globe. We have activity in the emerging markets and we have activity in Europe and North America and Latin America. Truly all around the globe…in China. In terms of type of publications or type of carriers I could not single out any one of them. All of the above that you mentioned. The broadband, wireless, convergence, prepaid activity, truly all around. I think that is part of the strength of Amdocs. Within telecom we are well diversified and we can enjoy both diversification of geographies, end applications, any type of carrier, and any type of services. That is part of the strength that we have. Tom Ernst - Deutsche Bank: And you do have enough customer activity to keep around 1,500 consultants busy? Do you need to add to them?

Yes and we are actually recruiting. So if you know a good consultant we would like to get their names.

Thank you. We have time for one final question. We’ll go next to Larry Berlin with First Analysis. Larry Berlin - First Analysis: Good evening guys. How are you today? Good. Hey first a couple of wrap up questions. What was the geographic break down for revenue for the quarter? Tamar Rapaport-Dagim: Roughly speaking 2/3 is in North America and around 18% in Europe. The rest of the world is the balance of that. Larry Berlin - First Analysis: 67 and 18…from 100. So we got that. Also what was your employee count at the end of the quarter? The total number of employees? Tamar Rapaport-Dagim: It is over 17,000. Larry Berlin - First Analysis: Okay. Then lastly on the cable broadband side of the business has there been any interest on the license in source model from the cable providers or are they primarily interested in the outsourced managed side of it?

We see both. We see some of the operators looking for license and services deal and some of them managed services. In some cases it is a combination.

Thanks. That does conclude today’s question-and-answer session. I’d like to turn the call back over to Amdocs for any additional or closing comments.