annual report
2022
2
ANNUAL REPORT 2022
Fiscal 2022
Record year of accelerated
and profitable growth
Highest-ever annual revenue
of $4.58 billion
10.3% revenue growth on a pro forma1
constant currency2 basis
Industry-leading portfolio of innovative
products and services
Strategic focus on industry megatrends
of digitalization, 5G monetization,
network automation and cloud
Resilient business model driving
continued growth
1 Pro forma growth rate excludes the financial impact of OpenMarket (which was
divested on December 31, 2020) from fiscal year 2021 and comparable fiscal year.
2 Revenue on a constant currency basis assumes exchange rates in the current
period were unchanged from the prior period.
ANNUAL REPORT 2022
3
Letter to
shareholders
Shuky Sheffer
President and
Chief Executive Officer
Robert A. Minicucci
Chairman of the
Board
Dear Fellow Shareholders,
Fiscal 2022 was a record year for Amdocs, based
on our success in addressing our customers’ highly
strategic initiatives around digital modernization,
the deployment and monetization of 5G and fiber
networks, network automation and their transition
to the cloud. Our innovative offerings and the
strategic role we play in operating our customers’
mission-critical systems empower service providers
to deliver amazing experiences, ensuring a seamless
digital world.
At the outset of this letter, we would like to call out
our global and diverse base of incredibly talented
employees and thank them for their devotion. Their
commitment to enabling our customers to unlock
their innovative potential for the benefit of their end
users is fundamental to Amdocs’ success.
4
ANNUAL REPORT 2022
In terms of our business, key
financial highlights for fiscal
2022 include:
• Record revenue of $4.58 billion
• GAAP operating margin of 14.5%
• Adjusted GAAP diluted earnings per
share growth of 13.3%, excluding from
prior year the gain from the sale of
OpenMarket, which was divested on
December 31, 2020
• GAAP diluted EPS was down 16.5%3
as reported
• Non-GAAP4 operating margin of
17.6%, up 10 basis points as compared
to last year while accelerating R&D
investment
• Non-GAAP4 diluted earnings per share
growth of up 12.1% on a pro forma1
basis and 10.2% as reported
• Record 12-month backlog of $3.97
billion, up 7.6% as compared to last
year’s fourth fiscal quarter
Fiscal 2022 also saw year-over-year growth in all
the geographical regions in which we operate.
North America was very strong, both at our top
two customers as well as in the rest of the region.
In Europe, revenue grew on a pro forma1 constant
currency2 basis as new project activities ramped
up throughout the year and we also grew in both
Southeast Asia and Latin America.
Reflecting the demand for our industry-leading
portfolio of technology and services as well as our
global reach, in fiscal 2022 Amdocs’ full-year revenue
and non-GAAP4 diluted earnings per share grew
10.3% on a pro forma1 basis in constant currency2
and 12.1% on a pro forma1 basis respectively. Our
strong execution translated to healthy earnings-to-
cash conversion, which exceeded 100%, and better
than expected normalized free cash flow of $665
million3 for the year. Furthermore, we returned
slightly more than this amount to shareholders
through our quarterly dividend and share repurchase
program. Given our confidence in the company’s
future success, our Board has approved the tenth
consecutive annual increase in our quarterly cash
dividend, subject to shareholder approval.
1 Pro forma growth rate excludes the financial impact of OpenMarket (which was
divested on December 31, 2020) from fiscal year 2021 and comparable fiscal year.
2 Revenue on a constant currency basis assumes exchange rates in the current
period were unchanged from the prior period.
3 Primarily due to a gain from previously announced divesture of OpenMarket in the
prior fiscal year.
4 For further details of reconciliation of selected financial metrics from GAAP to
Non-GAAP, please refer to the tables on pages 11-12.
ANNUAL REPORT 2022
5
Reinventing the customer
experience around the globe
Our industry-leading product and services cloud
portfolio empowers service providers to deliver
amazing customer experiences, while reducing costs
and improving efficiency. Our CES22 suite includes
the latest technologies for service providers to
accelerate new growth opportunities, diversify their
business, monetize innovative and advanced services
for both consumers and enterprise, and introduce
new business models adapted to the partner-
powered economy.
Our accelerated pace of R&D investment5
underscores our commitment to continuously bring
cutting-edge technology and world-class products
and platforms to market for the benefit of our
customers. This is recognized by major customers like
AT&T and T-Mobile US, where we continue to support
core elements of their modernization journeys,
implementing our next-generation products and
cloud services.
These customers, and many others where we are
expanding our footprint such as Vodafone Germany,
are building their next-generation technology stack
on Amdocs software to support their business. New
customers, such as PPF Telecom Group, also selected
Amdocs in fiscal 2022 to provide next-generation
digital experiences for their customers in Bulgaria,
Hungary and Serbia.
Whenever a customer selects Amdocs for a
modernization project, we make them cloud ready.
The cloud offers service providers the flexibility to
scale their ecosystem, innovate via open-source
platforms, and rapidly deploy solutions to market.
Following the successful fiscal 2021 acquisition of
Sourced Group to bolster our cloud transformation
consulting capabilities, in fiscal 2022 we acquired
DevOpsGroup, a boutique UK-based cloud company
specializing in engineering, consultancy and training
services for enterprises implementing cloud
and DevOps.
With these acquisitions complementing our portfolio
of cloud-native products and services, as well as
strategic partnerships with Microsoft Azure, AWS and
Google Cloud Platform, we believe we are well placed
to enable our customers to begin or, in more advanced
cases, continue their cloud migration journeys.
Our cloud-based, software-as-a-service MarketONE
platform meanwhile, is enabling delivery of
personalized flexible and seamless access to a
vast catalog of premium on-demand content for
consumers at service providers across the globe,
including Virgin Media O2 in the United Kingdom,
AT&T Mexico and XL Axiata in Indonesia.
Selected customer digital transformation, cloud and modernization projects
5 In both absolute terms and as a percentage of revenue.
6
ANNUAL REPORT 2022
Unlocking the potential of 5G and
shaping the network of the future
To realize 5G’s competitive advantage and deliver
innovative services to customers and partners,
service providers need flexible engines with agile,
cloud-native capabilities that intelligently manage
and monetize their network.
Our solutions provide an end-to-end, automated
approach to service lifecycle management, data
analytics, network exposure and monetization –
transforming a service provider’s network into an
agile, revenue-generating platform at the heart of
the 5G ecosystem. During fiscal 2022, we completed
an exciting proof of concept with A1 Telekom Austria
Group, where we showcased the ability of 5G
standalone networks to unlock the metaverse and
other next-generation Web 3.0 experiences with on-
demand connectivity for consumers and enterprises.
We also collaborated with Samsung to deliver
end-to-end 4G and 5G private network solutions
to US enterprises to help businesses across
industries leverage next-generation communications
applications and services, and were selected by
Dish and Amazon Web Services (AWS) to support
the rollout of Dish’s 5G, open, virtualized and fully
interoperable mobile and cloud network.
Monetization of new 5G services like ultra-low latency
connectivity, immersive entertainment and connected
industries is key to our customers’ growth strategy
over the coming years. At Mobile World Congress
2022, we unveiled our flexible monetization offering,
designed to match end users’ unique needs in the
5G era. This solution enables service providers to
evolve their billing with a next-generation, flexible,
customizable offering, future-proofed for the endless
possibilities of 5G experiences. Several tier-1 North
American service providers have already integrated
this solution, improving their existing customer
experiences and preparing their business for
the future.
Elsewhere around the world, Vodacom, a new
customer in Africa, chose our 5G charging and policy
solution to enable the quicker launch of new products,
services and tariffs for its operations in Tanzania,
Mozambique and the Democratic Republic of Congo.
America Movil has also selected Amdocs to deliver our
policy and charging products in several countries in
Latin America, while Globe Telecom in the Philippines
is deploying our radio access network optimization
services to accelerate the expansion of its 4G and
5G networks, and we are providing inventory next-
generation OSS capabilities for Vodafone entities in
Albania, Czech Republic, Germany and Romania.
Selected 5G monetization and network automation projects
ANNUAL REPORT 2022
7
Record managed services and
consistent operating execution
Our multi-year managed services engagements
underpin the resilience of our business, with recurring
revenue streams, high renewal rates and expanded
activities with existing customers. For instance, over
the course of fiscal 2022 we extended our managed
services relationship in terms of both scope and
tenure with AT&T Cricket Wireless, BT Group, Bell
Canada and PLDT in the Philippines among others.
In a record year for managed services in terms
of revenue, our managed services agreements
comprised around 61% of our total revenue for the
financial year, which is also a record. Given the long-
term nature of these deals, along with our largest-
ever 12-month backlog, this provides a good leading
indicator of our business.
Alongside the success of our managed services,
consistent operating execution has been a hallmark
of fiscal 2022. We successfully deployed a record
number of project milestones on behalf of our
customers, and our unrivalled reputation for project
delivery is a crucial factor behind our ability to
win new business. At Three UK, for example, we
completed a major digital transformation program
for its enterprise customer segment, where we moved
from scoping, to building the cloud infrastructure, and
go live in just 15 months.
Selected customer managed services engagements and deployments
8
ANNUAL REPORT 2022
Making a difference in our digital society
Driving our increasingly connected digital society
forward comes with deep responsibility. As we
partner with our customers to create a better-
connected world, we also seek to make a difference.
We strive to use our resources to provide sustainable
product offerings, such as our eSIM solution
that helps our customers eliminate the need for
plastic SIM cards, and we focus on enabling digital
inclusion not just across our offerings, but also in the
communities in which we work.
We also commit to enriching the lives of our
employees and seek to provide the best people-
centric work environment. We believe flexibility is
key, providing employees with unlimited vacation
and choice as to how and when they work. In our
commitment to diversity, we aim to increase women’s
representation, particularly for technology and
managerial roles, and we also promote initiatives to
increase the representation of people with disabilities
and from different ethnicities.
We are proud of the success of our environmental,
social and governance (ESG) performance
achievements: for the fourth consecutive year,
Amdocs was included among the leaders in the
prestigious S&P Dow Jones Sustainability Index
(DJSI) North America and we have a gold rating
standard from EcoVadis, a leading provider of
business sustainability ratings.
Following the outbreak of the Russia-Ukraine war, we
took steps to ensure the wellbeing of our employees
and contractors in the region and to support
employees who wanted to leave with their families.
Additionally, we actively provided humanitarian aid in
Ukraine and neighboring countries. Among our many
initiatives, Amdocs joined a donation campaign to
provide essential services via UNICEF to vulnerable
children and affected families, and we offered
financial support to Amdocs employees hosting
refugee families.
Well-positioned for growth
While Amdocs and our customers are not immune
to macroeconomic cycles, we believe that Amdocs
is well-positioned with the right strategy, unique
business model, innovative technology and
highly talented employees to capture the market
opportunity.
As we continue in our mission to empower our
customers to shape the future to make it amazing
for their end users, we want to thank you, our
shareholders, alongside our customers and
employees, for the trust and confidence you have
placed in us.
The combination of different aspects of our business
– unique business model of product and services,
projects around our customers’ mission-critical
systems, the fact that a very high portion of our
revenue is recurring in nature, and more importantly,
customer investments with Amdocs in their strategic
initiatives around 5G, digital, move to the cloud
and network automation – presents a sustainable
investment thesis for our investors.
We expect to grow in all key operating regions, deliver
revenue growth of 6-10% in fiscal 2023, on a constant
currency2 basis, and improved profitability. Moreover,
we expect to deliver a double-digit expected total
shareholder return6 for the third year running in
fiscal 2023.
Shuky Sheffer
President and Chief Executive Officer
Robert A. Minicucci
Chairman of the Board
6 Assuming our non-GAAP diluted earnings per share growth guidance, plus our dividend yield of about 2%.
ANNUAL REPORT 2022
9
Financial highlights
(All data in millions, except per share data) (5)(6)
Total revenue
Non-GAAP operating income (1)
Non-GAAP operating income from total revenue (1)
Non-GAAP net income (1)(2)
Normalized free cash flow (3)
Non-GAAP diluted earnings per share (1) (2)
Cash balances net of short- and long-term debt (4)
2020
$4,169
$715
17.2%
$596
$527
$4.44
$234
2021
$4,289
$751
17.5%
$622
$869
$4.81
$316
2022
$4,577
$805
17.6%
$655
$665
$5.30
$168
Total revenue
($ millions)
Non-GAAP operating
income (1) ($ millions)
Non-GAAP net income
(1) (2) ($ millions)
4,169
4,289
4,577
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
900
800
700
600
500
400
300
200
100
0
17.6%
17.2%
17.5%
715
751
805
22.5%
20.0%
17.5%
15.0%
12.5%
10.0%
7.5%
5.0%
2.5%
0.0%
700
650
600
500
450
400
350
300
250
200
100
50
0
596
622
655
2020
2021
2022
2020
2021
2022
2020
2021
2022
Non-GAAP operating income as a percentage of total revenue
Normalized free
cash flow (3) ($ millions)
Non-GAAP diluted
earnings per share (1) (2) ($)
5.30
4.81
4.44
869
665
527
900
800
700
600
500
400
300
200
100
0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
Cash balances net of
short- and long-term
debt (4) ($ millions)
700
600
500
400
300
200
100
0
316
234
168
2022
2020
2021
2022
2020
2021
2022
2020
2021
10
ANNUAL REPORT 2022
Selected quarterly data (5) (6)
Quarterly revenue ($ millions)
1,042
1,048
1,053
1,026
1,086
1,049
(5)
1,066
(5)
1,105
1,087
(5)
1,145
1,160
1,167
1,200
1,150
1,100
1,050
1,000
950
900
850
800
Q1 / 20
Q2 / 20
Q3 / 20
Q4 / 20
Q1 / 21
Q2 / 21
Q3 / 21
Q4 / 21
Q1 / 22
Q2 / 22
Q3 / 22
Q4 / 22
Reconciliation of selected financial metrics from GAAP to Non-GAAP
(US Dollars)
Fiscal year ended September 30, 2022
Reconciliation items
GAAP
Amortization
of purchased
intangible
assets and
other
Equity-based
compensation
expense
Changes
in certain
acquisitions
related
liabilities
measured at
fair value
Gain from sale
of a business
Other
Tax effect
Non-GAAP
2,928,236
349,075
494,492
-
3,771,803
804,894
(27,996)
-
22,846
121,751
Operating expenses:
Cost of revenue
Research and development
Selling, general and administrative
2,957,547
354,706
528,572
(32,096)
2,785
(5,631)
(34,080)
Amortization of purchased intangible
assets and other
71,075
(71,075)
Total operating expenses
3,911,900
(71,075)
(71,807)
2,785
Operating income
664,797
71,075
71,807
(2,785)
Interest and other (expense), net
Gain from sale of a business
Income taxes
Net income
(26,391)
10,000
98,905
(1,605)
(10,000)
549,501
71,075
71,807
(2,785)
(10,000)
(1,605)
(22,846)
655,147
(1) See reconciliation of selected financial metrics from GAAP to
(4) Includes short-term interest-bearing investments in fiscal year 2020.
Non-GAAP tables.
(2) Includes all related tax effects.
(5) Since January 1, 2021, OpenMarket results are not included in the
Consolidated Statements of Income given its divestiture.
(3) Normalized free cash flow is not defined under United States Generally
(6) Due to rounding, the sum of the quarters may not match the
Accepted Accounting Principles (U.S. GAAP) and is calculated as cash flows
from operations less net capital expenditures and other, and excluding
payments of non-recurring charges, the multi-year development of the
new campus and payments of acquisition-related liabilities.
The Company uses normalized free cash flow to assess its financial
performance.
full-year amount.
ANNUAL REPORT 2022
11
Fiscal year ended September 30, 2021 (5)
Reconciliation items
GAAP
Amortization
of purchased
intangible
assets and
other
Equity-based
compensation
expense
Changes
in certain
acquisitions
related
liabilities
measured at
fair value
Gain from sale
of a business
Other
Tax effect
Non-GAAP
Operating expenses:
Cost of revenue
Research and development
Selling, general and administrative
2,810,967
312,941
487,255
(22,691)
(18,939)
(4,021)
(27,537)
Amortization of purchased intangible
assets and other
78,784
(78,784)
Total operating expenses
3,689,947
(78,784)
(54,249)
(18,939)
Operating income
598,693
78,784
54,249
18,939
Interest and other (expense), net
Gain from sale of a business
Income taxes
Net income
(10,797)
226,410
125,932
(5,046)
(226,410)
2,769,337
308,920
459,718
-
3,537,975
750,665
(15,843)
-
(12,930)
113,002
688,374
78,784
54,249
18,939
(226,410)
(5,046)
12,930
621,820
Fiscal year ended September 30, 2020
Reconciliation items
GAAP
Amortization
of purchased
intangible assets
and other
Equity-based
compensation
expense
Changes
in certain
acquisitions
related
liabilities
measured at
fair value
Other
Tax effect
Non-GAAP
Operating expenses:
Cost of revenue
Research and development
Selling, general and administrative
2,755,563
282,042
458,539
(20,005)
307
(3,058)
(19,371)
Amortization of purchased intangible
assets and other
78,137
(78,137)
Total operating expenses
3,574,281
(78,137)
(42,434)
Operating income
594,758
78,137
42,434
Interest and other (expense), net
Income taxes
Net income
(11,436)
85,482
307
(307)
(600)
2,735,865
278,984
439,168
-
3,454,017
715,022
(12,036)
21,746
107,228
497,840
78,137
42,434
(307)
(600)
(21,746)
595,758
The letter to the shareholder includes information that constitutes forward-looking statements made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995, including statements about Amdocs’ growth and business results in future quarters and years. 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 macro-economic conditions, including as a result of geopolitical
events or other global or regional events such as the COVID-19 pandemic, as well as the current inflationary environment, and the effects of these
conditions on the company’s clients’ businesses and levels of business activity, Amdocs’ ability to grow in the business markets that it serves, Amdocs’
ability to successfully integrate acquired businesses, adverse effects of market competition, rapid technological shifts that may render the Company’s
products and services obsolete, potential loss of a major customer, our ability to develop long-term relationships with our customers, and risks associated
with operating businesses in the international market. Amdocs may elect to update these forward-looking statements at some point in the future;
however, Amdocs specifically disclaims any obligation to do so. These and other risks are discussed at greater length in Amdocs’ filings with the Securities
and Exchange Commission, including in our Annual Report on Form 20-F for the fiscal year ended September 30, 2021 filed on December 9, 2021 and our
Form 6-K furnished for the first quarter of fiscal 2022 on February 14, 2022, the second quarter of fiscal 2022 on May 24, 2022 and for the third quarter of
fiscal 2022 on August 15, 2022.
12
ANNUAL REPORT 2022
Industry Recognition
Gartner,
Market Guide for
CSP
Revenue
Management
and
Monetization
Solutions
Amresh Nandan,
Chris Meering,
Juha Korhonen
9 November 2022
Gartner,
Market Guide for
AI Offerings in
CSP Network
Operations
Pulkit Pandey,
Peter Liu,
Sylvain Fabre,
Kameron Chao,
Jouni Forsman
12 January 2022
Gartner,
Market Guide for
CSP Customer
Management
and Experience
Solutions
Juha Korhonen,
Amresh Nandan,
Chris Meering,
Susan Welsh de
Grimaldo
31 January 2022
Gartner,
Market Guide for
CSP Service
Design and
Orchestration
Solutions
Amresh
Nandan,
Susan Welsh de
Grimaldo
7 February 2022
Gartner,
Market Guide for
Subscription and
Recurring Billing
Management
Solutions
Mark Lewis
13 April 2022
Gartner,
Market Guide for
AI in CSP
Customer
and Business
Operations
Pulkit Pandey,
Amresh Nandan
25 April 2022
Gartner,
Market Guide for
IoT for Mobile
Virtual Network
Enablers
Pablo
Arriandiaga,
Eric Goodness
31 October 2022
• Outstanding Systems Integrator
• A leader in overall quality engineering
• A leader in continuous testing
• A leader in AI & cognitive testing
• A leader in cloud migration testing
• A leader in U/X testing
• #1 Global Monetization Platforms Market Share
• #1 Global Monetization Platforms, Product Market Share
• #1 Global Monetization Platforms, Professional Services
Market Share
• A leader in Revenue Management
• A leader in Digital Transformation Platforms
• A leader for Product Configuration & Capacity in Policy Control
• A leader for Standards & Interface Support in Policy Control
• A leader for Portfolio Scope in Network Service Orchestration
• A leader for Standards & Interface Support in Network Service
• #1 Service Design and Orchestration, Product Market Share
Orchestration
• #1 Telco IT Software & Services Market Share 2021
• #1 BSS Software & Services Market Share 2021
• #1 Telecom IT Applications Services Market Share 2021
• Best DevOps Team Excellence
Award (with Vodafone UK)
• Employer Brand
category
• Best B2B
Rebrand
• Best Telecoms
Marketing Team
of the Year
Gartner does not endorse any vendor, product or service depicted in
its research publications, and does not advise technology users to
select only those vendors with the highest ratings or other designation.
Gartner research publications consist of the opinions of Gartner's
research organization and should not be construed as statements of
fact. Gartner disclaims all warranties, express or implied, with respect
to this research, including any warranties of merchantability or fitness
for a particular purpose.
Gartner® is a registered trademark of Gartner, Inc. and/or its affiliates
in the U.S. and internationally and are used herein with permission. All
rights reserved.
Gartner content described herein, (the "Gartner Content") represent(s)
research opinion or viewpoints published, as part of a syndicated
subscription service, by Gartner, Inc. ("Gartner"), and are not
representations of fact. Gartner Content speaks as of its original
publication date (and not as of the date of this annual report) and the
opinions expressed in the Gartner Content are subject to change
without notice.
ANNUAL REPORT 2022
13
Select customers
Global delivery, development
and support centers
Dozens of customer-facing sites and key
competency centers
UK
Canada
USA Champaign
USA Seattle
USA Dallas
USA Atlanta
Netherlands
Ireland
Singapore
Malaysia
Germany
Indonesia
Australia
Chile
Brazil
Regional hubs
Mexico
Cyprus
Philippines
Global delivery centers
Israel
India
14
ANNUAL REPORT 2022
ANNUAL REPORT 2022
15
Amdocs at a glance
Powering communications service providers to deliver
amazing customer experiences
31,000 employees
globally
approximately
90 countries
approximately
400 communications service
provider customers
100+ partner innovation
ecosystem
Included on Dow Jones Sustainability
Index for North America
16
ANNUAL REPORT 2022
Amdocs helps those who build the future to make it amazing
Product Portfolio
Commerce & Care
Monetization
Service & Network
Automation
Network Deployment
& Optimization
Catalog Management
Subscription & Content
Management
IoT
AI
Services Portfolio
Strategic Cloud Partners
ANNUAL REPORT 2022
17
Corporate information
Annual meeting
The Annual Meeting of Shareholders will be held on
Friday, January 27, 2023 at 11am at the Amdocs office
at 185 Hudson Street, floor no. 27, Suite 2700,
Jersey City, NJ 07311.
Investor information
A copy of the company’s Annual Report on Form 20-F,
filed with the Securities and Exchange Commission, is
available on the Amdocs website: www.amdocs.com
Requests should be made to Matthew Smith at:
Amdocs, Inc.
625 Maryville Centre Drive, Suite 200
Saint Louis, Missouri 63141
tel: +1 314 212 7000
dox_info@amdocs.com
Amdocs website
Corporate, product, financial and shareholder
information, including news releases, financial filings
and stock quotes are available on the Amdocs
website: www.amdocs.com
Outside counsel
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
tel: +1 212 450 4111
fax: +1 212 701 5111
Independent registered public
accounting firm
Ernst & Young LLP
One Manhattan West
New York, NY 10001 -8604
tel: +1 212 773 3000
fax: +1 212 773 6350
Transfer agent and registrar
American Stock Transfer & Trust
Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
tel: +1 877 838 2874 (within the USA)
tel: +1 800 937 5449 (outside the USA)
fax: +1 718 236 2641
www.astfinancial.com
Ordinary shares
The company’s ordinary shares are listed on the
NASDAQ Global Select Market under the
symbol DOX.
18
ANNUAL REPORT 2022
ANNUAL REPORT 2022
19
www.amdocs.com
Copyright © 2022 Amdocs. All rights reserved. Reproduction or distribution other than
for intended purposes is prohibited, without the prior written consent of Amdocs.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐
☒
☐
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number: 1-14840
AMDOCS LIMITED
(Exact name of Registrant as specified in its charter)
Island of Guernsey
(Jurisdiction of incorporation or organization)
Hirzel House, Smith Street,
St. Peter Port, Guernsey, GY1 2NG
Amdocs, Inc.
625 Maryville Centre Drive, Suite 200 Saint Louis, Missouri 63141
(Address of principal executive offices)
Matthew E. Smith
Amdocs, Inc.
625 Maryville Centre Drive, Suite 200 Saint Louis, Missouri 63141
Telephone: 314-212-7000
Email: dox_info@amdocs.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary Shares, par value £0.01
Trading Symbol
DOX
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
[None]
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
[None]
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Title of Class
Ordinary Shares, par value £0.01
Number of Shares Outstanding (1)
120,842,660
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule
12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
☒
Accelerated Filer ☐
Non-accelerated Filer
Emerging growth company
☐
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
by the International Accounting Standards Board
☐
Other ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(1)
Yes ☐ No ☒
Net of 163,557,588 shares held in treasury. Does not include 2,885,444 ordinary shares reserved for issuance upon exercise of stock options and vesting of restricted stock units
granted under our stock option plan or by companies we have acquired.
TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
PART II
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E.
ITEM 16F.
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
ITEM 16I.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTION
PART III
ITEM 17.
ITEM 18.
ITEM 19.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
Page
2
2
2
2
18
30
30
46
55
56
57
57
67
68
69
69
69
69
69
69
70
71
71
71
72
72
72
73
73
73
73
Unless the context otherwise requires, all references in this Annual Report on Form 20-F to “Amdocs,” “we,” “our,” “us” and the “Company”
refer to Amdocs Limited and its consolidated subsidiaries and their respective predecessors, and references to our software products refer to current and
subsequent versions. Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United
States, or U.S. GAAP, and are expressed in U.S. dollars. References to “dollars” or “$” are to U.S. dollars. Our fiscal year ends on September 30 of each
calendar year. References to any specific fiscal year refer to the year ended September 30 of the calendar year specified. For example, we refer to the
fiscal year ending September 30, 2022 as “fiscal 2022” or “fiscal year 2022.”
We own, have rights to or use trademarks or trade names in conjunction with the sale of our products and services, including Amdocs™, CES™
and Make it Amazing™, among others.
Forward-Looking Statements
This Annual Report on Form 20-F contains forward-looking statements (within the meaning of the United States federal securities laws) that
involve substantial risks and uncertainties. You can identify these forward-looking statements by words such as “expect,” “anticipate,” “believe,” “seek,”
“estimate,” “project,” “forecast,” “continue,” “potential,” “should,” “would,” “could,” “intend” and “may,” and other words that convey uncertainty of
future events or outcome. Statements that we make in this Annual Report that are not statements of historical fact also may be forward-looking
statements. Forward-looking statements are not guarantees of future performance, and involve risks, uncertainties and assumptions that may cause our
actual results to differ materially from the expectations that we describe in our forward-looking statements. There may be events in the future that we are
not accurately able to predict, or over which we have no control. You should not place undue reliance on forward-looking statements. Although we may
elect to update forward-looking statements in the future, we disclaim any obligation to do so, even if our assumptions and projections change, except
where applicable law may otherwise require us to do so. Readers should not rely on those forward-looking statements as representing our views as of
any date subsequent to the date of this Annual Report on Form 20-F.
Important factors that may affect these projections or expectations include, but are not limited to: the effects of macro-economic conditions,
prevailing level of macro-economic, business, and operational uncertainty, including as a result of geopolitical events or other global or regional events
such as the COVID-19 pandemic, as well as the current inflationary environment, and the effects of these conditions on the Company’s customers’
businesses and levels of business activity, changes in competition in markets in which we operate; changes in the demand for our products and services;
the loss of a significant customer; consolidation within the industries in which our customers operate; our ability to derive revenues in the future from
our current research and development efforts; changes in the telecommunications regulatory environment; changes in technology that impact both the
markets we serve and the types of products and services we offer; financial difficulties of our customers; losses of key personnel; difficulties in
completing or integrating acquisitions; litigation and regulatory proceedings; and acts of war or terrorism. For a discussion of these and other important
factors, and other risks, please read the information set forth below under the caption “Risk Factors.”
1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
PART I
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION Risk Factors
Risks Related to the COVID-19 Pandemic
The global outbreak of the COVID-19 pandemic may continue to negatively impact the global economy in a significant manner for an extended
period of time, and also could materially adversely affect our business and operating results.
An outbreak of a novel strain of the coronavirus, COVID-19, was recognized as a pandemic by the World Health Organization on March 11, 2020.
This COVID-19 outbreak initially severely restricted the level of economic activity around the world. In response to this outbreak, the governments of
many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and
business operations and advising or requiring individuals to limit or forego their time outside of their homes. In addition, temporary closures of
businesses have been ordered and numerous other businesses have temporarily closed voluntarily.
During the past two years, we have adjusted our work environment and our work model several times in order to comply with the applicable
changing governmental guidelines and to ensure our employees, customers and partners’ health and safety. During the first months of the COVID-19
pandemic, we reduced workforce density at our offices by requiring employees to work from home and also limited business travel. Leveraging our
cloud-based technology, we used remote-connectivity and collaboration tools and technology to continue servicing our customers, allowing operations
to be largely uninterrupted. Towards the end of fiscal year 2020, with the rollout of the COVID-19 vaccines, we began bringing employees back to the
office on a region-by-region basis where appropriate given local conditions. Since then, and as part of the ongoing care to our employees, customers and
partners’ health and safety, we have further adjusted our work environment during temporary resurgence of infection rates and changing governmental
guidelines. We continue to monitor all local governments’ guidelines and may further adjust such working environments or take any other action as
needed, with the health and safety of our employees, customers and partners being our top priority. In addition, requirements related to COVID-19
safety precautions, including vaccine mandates of varying scope and applicability, may apply to our operations in various jurisdictions. Failure to
comply with the applicable requirements may result in governmental penalties and loss of business, which could have an adverse effect on our business
and results of operations.
Given the uncertainty regarding the extent to which the COVID-19 pandemic will continue to affect the global economy, the related financial
impact on our business cannot be accurately predicted at this time, but the pandemic and actions taken in response to the pandemic could materially
adversely impact our business, results of operations and financial results. For example, negative economic conditions may cause customers generally to
reduce their spending, delay or cancel projects, choose to focus on in-house development efforts or seek to lower their costs by renegotiating or
terminating existing agreements.
2
Risks Related to Our Business and Industry
We are exposed to general global economic and market conditions, particularly those impacting the communications industry.
We provide software and services primarily to service providers in the communications industry, and our business is therefore highly dependent
upon conditions in that industry. Developments in the communications industry, such as the impact of global economic conditions, industry
consolidation, emergence of new competitors, commoditization of voice, video and data services and changes in the regulatory environment, at times
have had, and could continue to have, a material adverse effect on our existing or potential customers. These conditions have reduced, and may continue
to reduce, the growth rates that the communications industry had previously experienced and caused the market value, financial results and prospects
and capital spending levels of many communications companies to decline or degrade. Industry consolidation involving our customers, which has been
significant in recent years, may place us at risk of losing business to the incumbent provider to one of the parties to the consolidation or to new
competitors. During previous economic downturns, the communications industry experienced significant financial pressures that caused many in the
industry to cut expenses and limit investment in capital intensive projects and, in some cases, led to restructurings and bankruptcies. Continuing
uncertainty as to the pace of economic recovery following such economic downturns may have adverse consequences for our customers and our
business.
Downturns in the business climate for communications companies have in the past resulted in slower customer buying decisions and price
pressures that adversely affected our ability to generate revenue. Macro-economic conditions, including as a result of geopolitical events or other global
or regional events such as the COVID-19 pandemic, as well as the current inflationary environment, and the effects of these conditions on our
customers’ businesses and levels of business activity, may have a negative impact on our business by decreasing our new customer engagements and the
size of initial spending commitments under those engagements, as well as decreasing the level of demand and expenditures by existing customers. In
addition, a slowdown in buying decisions may extend our sales cycle period and may limit our ability to forecast our flow of new contracts. If such
adverse business conditions arise in the future, our business may be harmed.
If we fail to adapt to changing market conditions and cannot compete successfully with existing or new competitors, our business could be
harmed.
We may be unable to compete successfully with existing or new competitors, particularly as we expand into new market segments. Our failure to
adapt to changing market conditions, new market segments such as 5G and the cloud, and to compete successfully with established or new competitors
could have a material adverse effect on our results of operations and financial condition. We face intense competition for the software products and
services that we sell, including competition for the managed services we provide to customers under long-term service agreements. These managed
services include management of data center operations and IT infrastructure, application management and ongoing support, systems modernization and
consolidation, cloud environment management and management of end-to-end IT processes for the business and operations of our customers.
The market for communications information systems is highly competitive and fragmented, and we expect competition to continue to increase. We
compete with independent software and service providers and with the in-house IT and network departments of communications companies. Our main
competitors include firms that provide IT services (including consulting, systems integration and managed services), software vendors that sell products
for particular aspects of a total information system, software vendors that specialize in systems for particular communications services (such as internet,
wireline and wireless services, cable, satellite and service bureaus) and network equipment providers that offer software systems in combination with the
sale of network equipment. We also compete with companies that provide digital commerce software and solutions. We believe
3
that our ability to compete with other vendors as well as with in-house IT and network departments of communications companies, depends on a number
of factors, including:
•
•
•
•
•
the development by others of software products and services that are competitive with our products and services;
the price at which others offer competitive software and services;
the ability of competitors to deliver projects at a level of quality that rivals our own;
the responsiveness of our competitors to customer needs; and
the ability of our competitors to hire, retain and motivate key personnel.
A number of our competitors have long operating histories, large customer bases, substantial financial, technical, sales, marketing and other
resources, and strong name recognition. Current and potential competitors have established, and may establish in the future, cooperative relationships
among themselves or with third parties to increase their abilities to address the needs of our existing or prospective customers. In addition, our
competitors have acquired, and may continue to acquire in the future, companies that may enhance their market offerings, or may themselves be
acquired by larger companies with more resources and ability to leverage existing business relationships. Accordingly, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. As a result, our competitors may be able to adapt more quickly than us to
new or emerging technologies and changes in customer requirements, and may be able to devote greater resources to the promotion and sale of their
products. Additionally, our competitors are increasingly able to offer services related to their software, platform and other solutions that require
integration with their other existing services. These more integrated services may represent more attractive alternatives to customers than some of our
software products and services. We cannot assure you that we will be able to compete successfully with existing or new competitors. If we fail to adapt
to changing market conditions and to compete successfully with established or new competitors, our results of operations and financial condition may be
adversely affected.
If we do not continually enhance our products and service offerings, introduce new products and features and adopt and monetize new
technologies and methodologies in the marketplace, we may have difficulty retaining existing customers and attracting new customers.
We believe that our future success will depend, to a significant extent, upon our ability to enhance our existing products and services, to introduce
new products, services and features to meet the requirements of our customers, and to adopt and leverage new technologies and methodologies such as
5G, cloud, microservices- based architecture, DevSecOps, automation, and artificial intelligence, in a rapidly developing and evolving market. We
devote significant resources to refining and expanding our base software modules and to developing our products, services and development
methodologies and tools. In some instances, we rely on cooperative relationships with third parties to assist us in delivering certain products and services
to our customers. Our present or future products, services and technology may not satisfy the evolving needs of the communications industry or of other
industries that we serve. If we are unable to anticipate or respond adequately to such needs, due to resource, technological or other constraints, our
business and results of operations could be harmed.
Our future success will depend on our ability to develop and maintain long-term relationships with our customers and to meet their expectations
in providing products and performing services.
We believe that our future success will depend to a significant extent on our ability to develop and maintain long-term relationships with
successful network operators and service providers with the financial and other resources required to invest in significant ongoing development of our
products and services. If we are unable to develop new customer relationships, our business will be harmed. In addition, our business and results of
operations depend in part on our ability to provide high-quality services to customers that have already implemented our products. If we are unable to
meet customers’ expectations in providing products or performing services, our business and results of operations could be harmed.
4
If our security measures for our software, hardware, services or cloud offerings are compromised and as a result, our data, our customers’ data,
our IT systems, or our customers’ IT systems are accessed improperly, made unavailable, or improperly modified, our products and services may
be perceived as vulnerable and it may materially affect our business and result in potential legal liability.
Our products and services, including our cloud offerings, store, retrieve, and manage our customers’ information and data, as well as our own data.
We have a reputation for secure and reliable product offerings and related services and we have invested a great deal of time and resources in protecting
the integrity and security of our products, services and the internal and external data that we manage. Despite our efforts to implement security
measures, we cannot guarantee that our systems are fully protected from vulnerabilities related to IT-related viruses, worms and other malicious
software programs, attacks, break-ins and similar disruptions from unauthorized tampering by computer hackers and others. Cybersecurity threats are
constantly expanding and evolving, thereby increasing the difficulty of detecting and defending against them. For example, we might not discover a
security breach or a loss of information for a significant amount of time after the breach, and might not be able to anticipate attacks or implement
sufficient mitigating measures. Also, due to geopolitical conflicts (such as the current conflict between Russia and Ukraine), we and our third-party
vendors and customers are vulnerable to a heightened risk of cybersecurity attacks, “phishing” attacks, viruses, malware, ransomware, hacking or
similar breaches from nation-state actors. Such cybersecurity incidents could include, but are not limited to, an attempt to gain unauthorized access to
digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. “Phishing” and other
types of attempts to obtain unauthorized information or access are often sophisticated and difficult to detect or defeat. In particular, ransomware attacks
are becoming increasingly prevalent and can lead to significant reputational harm, loss of data, operational disruption, and significant monetary loss.
Organized criminals, nation state threat actors, and motivated hacktivists that target us have the possibility of impacting our systems, networks, data and
business operations. In order to properly recover from a ransomware attack, extortion payments are demanded by threat actors; however, we may be
unwilling or unable to make payments of this nature based on laws and regulations that may apply. In addition, security measures in our products and
services may be penetrated or bypassed by computer hackers and others who may gain unauthorized access to our or our customers’ or partners’
software, hardware, cloud offerings, networks, data or systems. These actors may use a wide variety of methods, which may include developing and
deploying malicious software to attack our products and services and gain access to our networks and datacenters, using social engineering techniques or
acting in a coordinated manner to launch distributed denial of service or other coordinated attacks. This is also true for third party data, products or
services incorporated into our own. Data may also be accessed or modified improperly as a result of customer, partner or employee error or malfeasance
and third parties may attempt to fraudulently induce customers, partners, employees or suppliers into disclosing sensitive information such as user
names, passwords or other information in order to gain access to our data or IT systems or our customers’ or partners’ data or IT systems. Our exposure
to cyber security and data privacy breach incidents may increase due to a large number of employees working remotely. Any of the foregoing
occurrences could create system disruptions and cause shutdowns or denials of service or compromise data, including personal or confidential
information, of ours, our partners or our customers.
If a cyberattack or other security incident (for example phishing, advanced persistent threats, or social engineering) were to result in unauthorized
access to, or deletion of, and/or modification and/or exfiltration of our customers’ data, other external data or our own data or our IT systems or if the
services we provide to our customers were disrupted, customers could lose confidence in the security and reliability of our products and services,
including our cloud offerings, and perceive them not to be secure. This in turn could lead to fewer customers using our products and services and result
in reduced revenue and earnings. The costs we would incur to address and fix these security incidents would increase our expenses. These risks will
increase as we continue to grow our cloud solutions and network offerings and store and process increasingly large amounts of data, including personal
information and our customers’ confidential information and data and other external data, and host or manage parts of our customers’ businesses in
cloud-based IT environments. In addition, we have acquired certain companies, products, services and technologies over the years and have partnered
with other companies
5
for certain of our other offerings. While we make significant efforts to address any IT security issues with respect to our acquired companies and
partners, we may still inherit such risks when we integrate these companies, products, services and technologies or work with our partners.
Any of the events described above could cause our customers to make claims against us for damages allegedly resulting from a security breach or
service disruption, which could adversely affect our business, results of operations and financial condition.
We are subject to laws, directives, and regulations relating to the collection, use, retention, disclosure, security and transfer of personal data. These
laws, directives, and regulations, and their interpretation and enforcement continue to evolve rapidly and may be inconsistent from jurisdiction to
jurisdiction; we will need to expend time and resources to ensure compliance with these evolving regulations, and failure to understand and comply with
these regulations can have an impact on our results of operations and financial condition. For example, the General Data Protection Regulation (GDPR)
went into effect in the European Union (EU) on May 25, 2018. The GDPR regulates the processing of personal data originated in the EU and its transfer
out of the EU and applies globally to all of our activities conducted from an establishment in the EU, to related products and services that we offer to EU
customers and to non-EU customers which offer services in the EU. The GDPR also affects our role as product developers, as we are required to adopt
“privacy by design” principles in order to address our customers’ need to apply privacy adequate solutions when handling their subscribers’ data.
Complying with the GDPR and similar emerging and changing privacy and data protection requirements may cause us to incur substantial costs or
require us to change our business practices. Additionally, new local privacy laws have been enacted recently as part of an overall trend, including in
Brazil. In the United States, there have been proposals for federal privacy legislation and state-level privacy laws have also recently been enacted,
including the California Consumer Privacy Act (and its successor the California Privacy Rights Act that will go into effect on January 1, 2023), the
Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Data Privacy Act, and the Utah Consumer Data Protection Act
(which, respectively, are scheduled to take effect in January, June, July and December 2023). Other states, such as Illinois, Massachusetts, New York and
Nevada, have adopted more narrowly focused privacy or cybersecurity laws but may pass more comprehensive legislation in the future. In addition,
Guernsey has introduced legislation similar in form to the GDPR, the Data Protection (Bailiwick of Guernsey) Law, 2017 (as amended), which applies
globally in a similar fashion as the GDPR to our activities conducted from and within Guernsey. Noncompliance with our legal obligations relating to
privacy and data protection could result in penalties, fines, legal proceedings by governmental entities or others, loss of reputation, legal claims by
individuals and customers and significant legal and financial exposure, and could affect our ability to retain and attract customers.
We rely on third-party vendor relationships to deliver our business, which exposes us to supply disruptions, cost increases, and cyberattacks.
We are reliant on third-party vendors in the provision of our services, including our expanding cloud services. Failure by any of our third-party
vendors could interrupt our operations and the delivery of our solutions, and/or significantly increase costs as we transition to a new vendor. Similarly, if
any of these third- party vendors would decide to significantly increase costs, it could have an adverse financial impact on our business, as it may
require us to shift to a competing solution or redesign our solutions which might take considerable time, effort and money. Further, if a third party were
to experience a material breach of its information technology systems which results in the unauthorized access, theft, use, destruction, or unauthorized
disclosures of customers’ or employees’ data or confidential information of the Company stored in such systems, including through cyberattacks or other
external or internal methods, it could result in a material loss of revenues from the potential adverse impact on our reputation, our ability to retain or
attract new customers, potential disruption or loss of services from the vendor and disruption to our business. Such a breach could also result in
contractual claims, and could lead to our being named as a party in consumer litigation brought by or on behalf of impacted individuals. For more
information on risks related to cybersecurity and data privacy, please see “Risk Factors — If our security measures for our software, hardware, services
or cloud offerings are
6
compromised and as a result, our data, our customers’ data, our IT systems, or our customers’ IT systems are accessed improperly, made unavailable, or
improperly modified, our products and services may be perceived as vulnerable and it may materially affect our business and result in potential legal
liability.”
In addition, IT hardware suppliers face shortages that are otherwise caused or exacerbated by the COVID-19 pandemic and/or global technology
changes. As such, we may need to incur higher expenses when purchasing certain IT hardware and could face shortages of equipment and components
that we and our employees rely upon in the conduct of our business and our operations and sales could be adversely impacted by such supply
interruptions. Although we have not experienced material adverse impacts to date, additional or prolonged supplier shortages that have occurred or were
exacerbated because of COVID-19 and/or global technology changes could adversely impact our operations and the solutions that we offer.
We may not receive significant revenues from our current research and development efforts for several years, if at all.
Developing software and digital products is expensive and the investment in the development of these products often involves a long return on
investment cycle. An important element of our corporate strategy is to continue to make significant investments in research and development and related
products and service opportunities both through internal investments and the acquisition of intellectual property, including from companies that we have
acquired. Accelerated products and service introductions and short software and hardware life cycles require high levels of expenditures for research and
development that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate a
significant amount of resources to our research and development efforts to maintain our competitive position.
However, we cannot guarantee that we will receive significant revenues from these investments for several years, if at all.
Our business is dependent on a limited number of significant customers, and the loss of any one of our significant customers, or a significant
decrease in business from any such customer, could harm our results of operations.
Our business is dependent on a limited number of significant customers, of which AT&T has historically been our largest. AT&T accounted for
27% and 25% of our revenue in fiscal years 2022 and 2021, respectively. In fiscal years 2022 and 2021, our next largest customer, T-Mobile, accounted
for 20% and 19% of our revenue, respectively. For each of AT&T and T-Mobile we provide multiple services, run multiple activities and have a large
portion of the business under our managed services. We cannot assure you that our revenues from AT&T, T-Mobile or any of our significant customers
will remain the same or grow in future years. Aggregate revenue derived from the multiple business arrangements we have with the ten largest of our
significant customers accounted for approximately 70% of our revenue in fiscal year 2022 and 69% in fiscal year 2021. The loss of any significant
customer, including as a result of industry consolidation involving our customers, a significant decrease in business from any such customer or a
reduction in customer revenue due to adverse changes in the terms of our contractual arrangements, market conditions, customer circumstances (such as
financial condition and market position) or other factors could harm our results of operations and financial condition. Revenue from individual
customers may fluctuate from time to time based on the commencement, scope and completion of projects or other engagements, the timing and
magnitude of which may be affected by market or other conditions.
Although we have received a substantial portion of our revenue from recurring business with established customers, many of our major customers
do not have any obligation to purchase additional products or services from us and generally have already acquired fully paid licenses for their installed
systems. Therefore, our customers may not continue to purchase new systems, system enhancements or services in amounts similar to previous years or
may delay implementation or significantly reduce the scope of committed projects, each of which could reduce our revenue and profits.
7
We seek to acquire companies or technologies and enter into new strategic partnerships and alliances, and cannot assure you that these activities
will enhance our products and services or strengthen our competitive position, and they may adversely affect our results of operations.
It is a part of our business strategy to pursue acquisitions and other initiatives, including new strategic partnerships and alliances, in order to offer
new products or services or otherwise enhance our market position or strategic strengths. Consistent with this strategy, in recent years we have
completed numerous acquisitions and partnerships and we are actively evaluating potential new opportunities, some of which could be significant, stand
alone or in the aggregate. In the future, we intend to continue expanding our portfolio of products, services and technologies that we believe will
advance our business strategy through acquisitions and strategic partnerships. However, we may not be able to identify suitable future candidates,
consummate them on favorable terms or complete otherwise favorable acquisitions or partnerships because of antitrust, regulatory or other concerns. For
instance, some countries, including the United States and countries in Europe and the Asia-Pacific region, are considering or have adopted restrictions
on transactions involving foreign investments. Also, the effects of macro-economic conditions, prevailing level of macro-economic, business, and
operational uncertainty may impact our ability to grow acquired entities, which could result in reduction of their valuations. In addition, geopolitical
conflicts and political instability may also result in further scrutiny and more complex approval processes over international transactions in countries
where we operate. We cannot assure you that the acquisitions we have completed, strategic partnerships or alliances that we established, or any future
acquisitions, partnerships or alliances that we may make, will enhance our products and services or strengthen our competitive position. Due to the
multiple risks and difficulties associated with such activities, there can be no assurance that we will be successful in achieving our expected strategic,
operating, and financial goals for any such acquisition, partnership or alliance.
We may not be successful in the integration of our acquisitions.
We cannot assure you that we have identified, or will be able to identify, all material adverse issues related to the integration of our acquisitions,
such as significant defects in the internal control policies of companies that we have acquired. In addition, our acquisitions could lead to difficulties in
integrating acquired personnel and operations and in retaining and motivating key personnel from these businesses. In some instances, we may need to
depend on the seller of an acquired business to provide us with certain transition services in order to meet the needs of our customers. Any failure to
recognize significant defects in the internal control policies of acquired companies or properly integrate and retain personnel, and any interruptions of
transition services, may require a significant amount of time and resources to address. Acquisitions may disrupt our ongoing operations, expose us to
potential identified or unknown security vulnerabilities, divert management from day-to-day responsibilities, increase our expenses and harm our results
of operations or financial condition.
The skilled and highly qualified workforce that we need to develop, implement and modify our solutions may be difficult to hire, train and retain,
and we have and could continue to face increased costs to attract and retain our skilled workforce.
Our business operations depend in large part on our ability to attract, hire, train, motivate and retain highly skilled information technology
professionals, software programmers and communications engineers on a worldwide basis, particularly as we expand into new market segments such as
5G and the cloud. In addition, our competitive success will depend on our ability to attract and retain other outstanding, highly qualified employees,
consultants and other professionals. Because our software products are highly complex and are generally used by our customers to perform critical
business functions, we depend heavily on skilled technology professionals. Skilled technology professionals are often in high demand and short supply.
If we are unable to hire or retain qualified technology professionals to develop, implement and modify our solutions, we may be unable to meet the
needs of our customers. In addition, serving several new customers or implementing several new large-scale projects in a short period of time may
require us to attract and train additional IT professionals at a rapid rate.
8
We may face difficulties identifying and hiring qualified personnel and, in particular, we may face difficulties in our ability to attract and retain
employees with technical and project management skills, including those from developing countries. Although we are heavily investing in training our
new employees, we may not be able to train them rapidly enough to meet the increasing demands on our business, particularly in light of high attrition
rates in some regions where we have operations. Additionally, there is increasing competition for talent in the technology sector that is driven by the
accelerated push toward digital initiatives and such increasing competition is currently expected to grow. Thus, our inability to hire, train and retain the
appropriate personnel could further increase our costs of retaining a skilled workforce and make it difficult for us to manage our operations, meet our
commitments and compete for new customer contracts. In particular, wage costs in lower- cost markets where we have historically added personnel,
such as India, are increasing and we may need to continue increasing the levels of our employee compensation more rapidly than in the past to remain
competitive.
As a result of our entry into new domains, we now compete for high-quality employees in those domains’ limited and competitive talent market.
In addition, cost containment measures effected in recent years, such as the relocation of projects to lower-costs countries, may lead to greater employee
attrition and further increase the cost of retaining our most skilled employees. The transition of projects to new locations may also lead to business
disruptions due to differing levels of employee knowledge and organizational and leadership skills. Although we have never experienced an organized
labor dispute, strike or work stoppage, any such occurrence, including in connection with unionization efforts, could disrupt our business and operations
and harm our financial condition.
In addition, a national union and a group of our employees had attempted in the past to secure the approval of the minimum number of employees
needed for union certification with respect to our employees in Israel. While these efforts have not resulted in either group being recognized as a
representative union, we cannot be certain there will be no such efforts in the future. In the event an organization is recognized as a representative union
for our employees in Israel, we would be required to enter into negotiations to implement a collective bargaining agreement. We are unable to predict
whether, and to what extent, efforts to unionize our employees in Israel or elsewhere would have an adverse effect on our business, operations or
financial condition. Our continued growth and success will also depend upon the continued active participation of a relatively small group of senior
management personnel, and requires us to hire, retain and develop our leadership bench. If we are unable to attract and retain talented, highly qualified
senior management and other key executives, as well as provide for the succession of senior management, our growth and results of operations may be
adversely impacted.
Our quarterly operating results may fluctuate, and a decline in revenue in any quarter could result in lower profitability for that quarter and
fluctuations in the market price of our ordinary shares.
At times, we have experienced fluctuations in our quarterly operating results and anticipate that such movements may continue to occur.
Fluctuations may result from many factors, including:
•
•
•
•
•
•
•
•
the size, timing and pace of progress of significant customer, projects license and service fees, and sales of partners’ software and
hardware;
delays in or cancellations of significant projects and activities by customers;
changes in operating expenses;
increased competition;
changes in our strategy;
personnel changes;
foreign currency exchange rate fluctuations;
penetration of new markets, regions, customers and domains; and
9
•
general economic and political conditions, including the current macroeconomic uncertainty and the continuous effect of the COVID-19
pandemic.
Generally, our revenue relating to software licenses that require significant customization, modification, implementation and integration is
satisfied over time as work progresses. Given our reliance on a limited number of significant customers, our quarterly results may be significantly
affected by the size and timing of customer projects and our progress in completing such projects.
We believe that the placement of customer orders may be concentrated in specific quarterly periods due to the time requirements and budgetary
constraints of our customers. Although we recognize a significant portion of our revenue as projects are performed, progress may vary significantly from
project to project, and we believe that variations in quarterly revenue are sometimes attributable to the timing of initial order placements. Due to the
relatively fixed nature of certain of our costs, a decline of revenue in any quarter could result in lower profitability for that quarter. In addition,
fluctuations in our quarterly operating results could cause significant fluctuations in the market price of our ordinary shares.
Our revenue, earnings and profitability are affected by the length of our sales cycle, and a longer sales cycle could adversely affect our results of
operations and financial condition.
Our business is directly affected by the length of our sales cycle. Information systems for communications companies are relatively complex and
their purchase generally involves a significant commitment of capital, with attendant delays frequently associated with large capital expenditures and
procurement procedures within an organization. The purchase of these types of products and services typically also requires coordination and agreement
across many departments within a potential customer’s organization. Delays associated with such timing factors could have a material adverse effect on
our results of operations and financial condition. In periods of economic slowdown in the communications industry, our typical sales cycle lengthens,
which means that the average time between our initial contact with a prospective customer and the signing of a sales contract increases. The lengthening
of our sales cycle could reduce growth in our revenue. In addition, the lengthening of our sales cycle contributes to increased selling expenses, thereby
reducing our profitability.
We may be required to increase or decrease the scope of our operations in response to changes in the demand for our products and services, and
if we fail to successfully plan and manage changes in the size of our operations, our business will suffer.
In the past, we have both grown and contracted our operations, in some cases rapidly, in order to profitably offer our products and services in a
continuously changing market. If we are unable to manage these changes and plan and manage any future changes in the size and scope of our
operations, our business will suffer.
Restructurings and cost reduction measures that we have implemented, from time to time, have reduced the size of our operations and workforce.
Reductions in personnel can result in significant severance, administrative and legal expenses and may also adversely affect or delay various sales,
marketing and product development programs and activities. These cost reduction measures have included, and may in the future include, employee
separation costs and consolidating and/or relocating certain of our operations to different geographic locations.
Acquisitions, organic growth and absorption of significant numbers of customers’ employees in connection with managed services projects have,
from time to time, increased our headcount. During periods of expansion, we may need to serve several new customers or implement several new large-
scale projects in short periods of time. This may require us to attract and train additional IT professionals at a rapid rate, as well as quickly expand our
facilities, which we may have difficulties doing successfully.
10
Volatility and turmoil in the world’s capital markets may adversely affect our investment portfolio and other financial assets.
Our cash, cash equivalents and short-term interest-bearing investments totaled $ 818 million, as of September 30, 2022. Our short-term
investments consist primarily of bank deposits, money market funds, corporate bonds, U.S. government treasuries and municipal bonds. Although we
believe that we generally adhere to conservative investment guidelines, adverse market conditions have resulted in immaterial impairments of the
carrying value of certain of our investment assets in recent fiscal years, and future adverse market conditions may lead to additional impairments.
Realized or unrealized losses in our investments or in our other financial assets may adversely affect our financial condition, including by reducing the
capital available for our business and requiring us to seek additional capital, which may not be available on favorable terms.
Declines in the financial condition of banks or other global financial institutions may adversely affect our normal financial operations.
We may be exposed to the credit risk of customers that have been adversely affected by adverse business conditions.
We typically sell our software and related services as part of long-term projects and arrangements. During the life of a project or arrangement, a
customer’s budgeting constraints or other financial difficulties can impact the scope of such project or arrangement as well as the customer’s
requirements and ability to make payments or comply with other obligations with respect to such project or arrangement. In addition, adverse general
business conditions, as well as the risk that some of our customers may be highly leveraged and exposed to the recent rising in the costs of funding given
increasing interest rates, may adversely affect our customers or degrade the creditworthiness of our customers over time, and we can be adversely
affected by bankruptcies, incapability by our customers to raise sufficient funding for their operations or other business failures.
Our international presence exposes us to risks associated with varied and changing political, cultural, legal and economic conditions worldwide.
We are affected by risks associated with conducting business internationally. We maintain development facilities in Brazil, Canada, Cyprus, India,
Ireland, Israel, Mexico, the Philippines, the United Kingdom and the United States, and have operations in North America, Europe, Eurasia, Israel, Latin
America, Africa and the Asia-Pacific region. Although a substantial majority of our revenue is derived from customers in North America, we obtain
significant revenue from customers in Europe, the Asia-Pacific region and Latin America. Our strategy is to continue to broaden our North American
and European customer bases and to continue to expand into international markets, including emerging markets, such as those in Latin America, Africa,
Eurasia, India, Southeast Asia and the Middle East. Conducting business internationally exposes us to certain risks inherent in doing business in
numerous markets, including:
•
•
•
•
•
•
•
•
lack of acceptance of non-localized products or services and other related services;
difficulties in complying with varied legal and regulatory requirements across jurisdictions, including those applicable to employees and
the terms of employment;
difficulties in staffing and managing foreign operations;
longer payment cycles;
difficulties in collecting accounts receivable, converting local currencies or withholding taxes;
capital restrictions that limit the repatriation of earnings;
trade barriers;
challenges in complying with complex foreign and U.S. laws and regulations, including communication laws, trade sanctions, export
controls, and privacy regulations;
11
•
•
•
•
•
•
•
•
political instability and threats of terrorism, including the geopolitical conflict between Russia and Ukraine;
currency exchange rate fluctuations;
hyper inflation;
foreign ownership restrictions;
regulations on the transfer of funds to and from foreign countries;
the lack of well-established or reliable legal systems in some countries;
variations in effective income tax rates and tax policies among countries where we conduct business; and
climate change and the related political and economic effects.
One or more of these factors could have a material adverse effect on our operations, which could harm our results of operations and financial
condition.
In addition, the ability of foreign nationals to work in the United States, Europe and other regions in which we have customers depends on their
and our ability to obtain the necessary visas and work permits for our personnel who need to travel internationally. If we are unable to obtain such visas
or work permits, or if their issuance is delayed or if their length is shortened, this may impact our ability to provide services to our customers in a timely
and cost-effective manner. Immigration and work permit laws and regulations in the countries in which we have customers are subject to legislative and
administrative changes as well as changes in the application of standards and enforcement.
In addition, our brand and reputation are also associated with our public commitments to various environmental, social and governance (ESG)
initiatives, including our goals for sustainability and inclusion and diversity. Our disclosures on these matters and any failure to achieve our
commitments, could harm our reputation and adversely affect our customer relationships or our recruitment and retention efforts. In addition, positions
we take or do not take on social issues may be unpopular with some of our employees or with our customers or potential customers, which may in the
future impact our ability to attract or retain employees or customers.
As we continue to develop our business internationally, including in emerging markets, we face increasing challenges that could adversely impact
our results of operations, reputation and business.
As we continue our efforts to expand our business internationally, including in emerging markets such as those in Latin America, Africa, Eurasia,
India ,Southeast Asia and the Middle East, we face a number of challenges. These challenges include those related to more volatile economic conditions,
competition from companies that are already present in the market, the need to identify correctly and leverage appropriate opportunities for sales and
marketing, poor protection of intellectual property, inadequate protection against crime (including counterfeiting, corruption and fraud), lack of due
process, inadvertent breaches of local laws or regulations and difficulties in recruiting sufficient personnel with appropriate skills and experience. In
addition, local business practices in jurisdictions in which we operate, and particularly in emerging markets, may be inconsistent with international
regulatory requirements, such as anti-corruption and anti-bribery laws and regulations (including the U.S. Foreign Corrupt Practices Act and the U.K.
Bribery Act) to which we are subject. It is possible that some of our employees, subcontractors, agents or partners may violate such legal and regulatory
requirements, which may expose us to criminal or civil enforcement actions, including penalties and suspension or disqualification from U.S. federal
procurement contracting. If we fail to comply with such legal and regulatory requirements, our business and reputation may be harmed.
12
Our international operations expose us to risks associated with fluctuations in foreign currency exchange rates that could adversely affect our
business.
Although we have operations throughout the world, approximately 70% to 80% of our revenue and approximately 50% to 60% of our operating
costs are denominated in, or linked to, the U.S. dollar. Accordingly, we consider the U.S. dollar to be our functional currency. As we conduct business
internationally, fluctuations in exchange rates between the U.S. dollar and the currencies not denominated in, or linked to, the U.S. dollar in which
revenues are earned or costs are incurred may have a material adverse effect on our results of operations and financial condition. From time to time, we
may experience increases in the costs of our operations outside the United States, as expressed in dollars, as well as decreases in revenue not
denominated in, or linked to, the U.S. dollar, each of which could have a material adverse effect on our results of operations and financial condition.
As a result of macro-economic conditions, including as a result of geopolitical events or other global or regional events such as the COVID-19
pandemic, as well as the current inflationary environment, foreign exchange rates fluctuation may continue to present challenges in future periods
should significant increases in volatility in foreign exchange markets occur. Due to volatility in foreign exchange rates during the height of the financial
crisis in fiscal 2008, for example, we recognized higher than usual foreign exchange losses under interest and other expense, net, mainly due to the
significant revaluation of assets and liabilities denominated in other currencies attributable to the rapid and significant foreign exchange rate changes
associated with the global economic turbulence. Although we enhanced our hedging strategies since then, we believe that foreign exchange rates may
continue to present challenges in future periods should significant increases in volatility in foreign exchange markets occur.
Our policy is to hedge significant net exposures in the major foreign currencies in which we operate, and we generally hedge our net currency
exposure with respect to expected revenue and operating costs and certain balance sheet items. We do not hedge all of our currency exposure, including
for currencies for which the cost of hedging is prohibitively expensive. We cannot assure you that we will be able to effectively limit all of our exposure
to foreign exchange rate fluctuations.
The imposition of exchange or price controls, devaluation policies, restrictions on withdrawal of foreign exchange, other restrictions on the
conversion of foreign currencies or foreign government initiatives to manage local economic conditions, including changes to or cessation of any such
initiatives, could also have a material adverse effect on our business, results of operations and financial condition.
Political and economic conditions in the Middle East and other countries may adversely affect our business.
Of the development centers we maintain worldwide, two of our largest development centers are located in Israel and India. In Israel, the centers
are located in several different sites and, generally, no more than 20% of our workforce is located in Israel. As a result, we are directly influenced by the
political, economic and military conditions affecting Israel and its neighboring regions. Any major hostilities involving Israel could have a material
adverse effect on our business. We maintain contingency plans to provide ongoing services to our customers in the event that escalated political or
military conditions disrupt our normal operations. These plans include the transfer of some development operations within Israel to several of our other
sites both within and outside of Israel. Implementation of these plans could disrupt our operations and cause us to incur significant additional
expenditures, which could adversely affect our business and results of operations.
Conflicts in North Africa and the Middle East, including in Egypt and Syria, which border Israel, have resulted in continued political uncertainty
and violence in the region. Relations between Israel and Iran continue to be seriously strained, especially with regard to Iran’s nuclear program. In
addition, efforts to improve Israel’s relationship with the Palestinian Authority have failed to result in a permanent solution, and there have been
numerous periods of hostility in recent years. Further deterioration of relations with the Palestinian Authority or other countries in the Middle East might
require increased military reserve service by some of our workforce, which may have a material adverse effect on our business.
13
In recent years, we have expanded our operations internationally, particularly in India, Southeast Asia and Latin America. Conducting business in
these and other regions or countries involves unique challenges, including political instability, threats of terrorism, the transparency, consistency and
effectiveness of business regulation, business corruption, the protection of intellectual property, and the availability of sufficient qualified local
personnel. Any of these or other challenges associated with operating in these countries may adversely affect our business or operations. Terrorist
activity in India and Pakistan has contributed to tensions between those countries and our operations in India may be adversely affected by future
political and other events in the region, including the COVID-19 pandemic and government responses thereto.
If we are unable to protect our proprietary technology from misappropriation or enforce our intellectual property rights, our business may be
harmed.
Any misappropriation of our technology or the development of competitive technology could seriously harm our business. Our software and
software systems are largely comprised of software and systems we have developed or acquired and that we regard as proprietary. We rely upon a
combination of trademarks, patents, contractual rights, trade secret law, copyrights, non-disclosure agreements and other methods to protect our
proprietary rights. We enter into non-disclosure and confidentiality agreements with our customers, workforce and marketing representatives and with
certain contractors with access to sensitive information, and we also limit customer access to the source codes of our software and our software systems.
We have undertaken, and will continue to undertake, appropriate actions to protect our technology. The ability to develop and use our software and
software systems requires knowledge and professional experience that we believe is unique to us and would be very difficult for others to independently
obtain. However, our competitors may independently develop technologies that are substantially equivalent or superior to ours.
Intellectual property laws are complex and subject to change, and existing trade secret, copyright, trademark and patent laws offer only limited
protection. For example, there is uncertainty concerning the scope of patent and other intellectual property protection, including for software and
business methods. Even where we obtain intellectual property protection, the steps we have taken to protect our proprietary rights may be inadequate. If
so, we might not be able to prevent others from using what we regard as our technology to compete with us. In addition, the laws of some foreign
countries do not protect our proprietary technology or allow enforcement of confidentiality covenants to the same extent as the laws of the United States.
If we have to resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome, protracted and
expensive and could involve a high degree of risk, including the risk of counterclaims that allege that we infringe, misappropriate or otherwise violate
the intellectual property of another party, regardless of whether we are successful in such proceedings.
Claims by others that we infringe their proprietary technology and trade secrets could harm our business and subject us to potentially
burdensome litigation.
Our software and software systems are the results of long and complex development processes, and although our technology is not significantly
dependent on patents or licenses from third parties, certain aspects of our products make use of software components that we license from third parties,
including our employees and contractors. As a developer of complex software systems, third parties may claim that portions of our systems violate their
intellectual property rights.
Software developers, including us, have been and are becoming increasingly subject to infringement claims as the number of products and
competitors providing software and services to the communications industry increases and overlaps occur. In addition, patent infringement claims are
increasingly being asserted by patent holding companies, which do not use the technology subject to their patents, and whose sole business is to enforce
patents against companies, such as us, for monetary gain. Any claim of infringement by a third party could cause us to incur substantial costs defending
against the claim and could distract our management from our
14
business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. A judgment
could also include an injunction or other court order that could prevent us from selling our products or offering our services, or prevent a customer from
continuing to use our products. We also support service providers and media companies with respect to digital content services, which could subject us
to claims related to such services. Our digital content services and offerings may also subject us to possible claims of infringement of the ownership
rights to media content, for example, as well as to direct legal claims from retail consumers arising from the delivery of such services.
If anyone asserts a claim against us or one of our indemnitees relating to proprietary technology or information, we might seek to license their
intellectual property. We might not, however, be able to obtain a license on commercially reasonable terms or on any terms. In addition, any efforts to
develop non-infringing technology could be unsuccessful. Our failure to obtain the necessary licenses or other rights or to develop non-infringing
technology could prevent us from selling our products and could therefore seriously harm our business.
Product defects, software errors, or service failures could adversely affect our business.
Design defects or software errors may cause delays in product introductions and project implementations and damage customer satisfaction, and
may have a material adverse effect on our business, results of operations and financial condition. Our software products are highly complex and may,
from time to time, contain design defects or software errors that may be difficult to detect and correct.
Because our products are generally used by our customers to perform critical business functions, design defects, software errors, misuse of our
products, incorrect data from external sources, failures to comply with our service obligations or other potential problems within or outside of our
control may arise during implementation or from the use of our products and services, and may result in financial or other damages to our customers, for
which we may be held responsible. Although we have license and service agreements with our customers that contain provisions designed to limit our
exposure to potential claims and liabilities arising from customer problems, these provisions may not effectively protect us against such claims in all
cases and in all jurisdictions. In addition, as a result of business and other considerations, we may undertake to compensate our customers for damages
caused to them arising from the use of our products and services, even if our liability is limited by a license or other agreement. Claims and liabilities
arising from customer problems could also damage our reputation, adversely affecting our business, results of operations and financial condition and the
ability to obtain “Errors and Omissions” insurance.
Our use of “open source” software could adversely affect our ability to sell our services and subject us to possible litigation.
We use open source software in providing our solutions, and we may use additional open source software in the future. Such open source software
is generally licensed by its authors or other third parties under open source licenses. Under such licenses, if we engage in certain defined manners of use,
we may be subject to certain conditions, including requirements that we offer our solutions that incorporate the open source software for no cost; that we
make available source code for modifications or derivative works we create based upon, incorporating or using the open source software; and/or that we
license such modifications or derivative works under the terms of the particular open source license. In addition, if a third-party software provider has
incorporated open source software into software that we license from such provider in a manner that triggers one or more of the above requirements, we
could be required to disclose any of our source code that incorporates or is a modification of such licensed software. If an author or other third party that
distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required
to incur significant legal expenses defending such allegations and could be subject to significant damages, enjoined from the sale of our solutions that
contained the open source software, and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our
solutions. In addition,
15
generally open source software licenses do not contain any warranties and may not have available support from the authors or third parties from whom
we license it. If such open source software contains prior defects, security vulnerabilities or infringes any third party right or we are unable to obtain or
provide necessary support, we could be exposed to legal claims and significant legal expenses without the ability to seek contribution from the authors
or third parties from whom we license open source software. If open source software that we utilize is no longer maintained, developed or enhanced by
the relevant authors or third parties, our ability to develop new solutions, enhance our existing solutions or otherwise meet customer requirements for
innovation, quality and price may be impaired.
System disruptions and failures may result in customer dissatisfaction, customer loss or both, which could materially and adversely affect our
reputation and business.
Our systems are an integral part of our customers’ business operations. The continued and uninterrupted performance of these systems for our
customers is critical to our success. Customers may become dissatisfied by any system failure that interrupts our ability to provide services to them.
Our ability to serve our customers depends on our ability to protect our systems and infrastructure against damage from fire, power loss, water
damage, telecommunications and technology failure, cyberattacks, earthquake, severe weather conditions, terrorist attacks, vandalism and other similar
unexpected adverse events. We also depend on various cloud providers and co-location data center providers which provide us environments, tools and
applications on which we provide our products. Although we maintain insurance that we believe is appropriate for our business and industry, such
coverage may not be sufficient to compensate for any significant losses that may occur as a result of any of these events. In addition, we have
experienced systems outages and service interruptions in the past, none of which has had a material adverse effect on us. However, a prolonged system-
wide outage or frequent outages for our infrastructure or our cloud providers’ infrastructure could cause harm to our customers and to our reputation and
reduce the attractiveness of our services significantly, which could result in decreased demand for our products and services and could cause our
customers to make claims against us for damages allegedly resulting from an outage or interruption. Any damage or failure that interrupts or delays our
operations could result in material harm to our business and expose us to material liabilities.
Changes in the tax legislation policies and regulations imposed by the jurisdictions in which we operate, the termination or reduction of certain
government programs and tax benefits, or challenges by tax authorities of our tax positions could adversely affect our overall effective tax rate.
There can be no assurance that our effective tax rate of 15.3% for the year ended September 30, 2022 will not change over time as a result of
changes in corporate income tax rates or other changes in the tax laws of Guernsey, the jurisdiction in which our holding company is organized, or of the
various countries in which we operate. Any changes in tax laws could have an adverse impact on our financial results.
For example, there is growing pressure in many jurisdictions and from multinational organizations such as the Organization for Economic
Cooperation and Development (OECD) and the EU to amend existing international taxation rules in order to align the tax regimes with current global
business practices. Specifically, in October 2015, the OECD published its final package of measures for reform of the international tax rules as a product
of its Base Erosion and Profit Shifting (BEPS) initiative, which was endorsed by the G20 finance ministers. Many of the initiatives in the BEPS package
required and resulted in specific amendments to the domestic tax legislation of various jurisdictions and to existing tax treaties. We continuously
monitor these developments. Although many of the BEPS measures have already been implemented or are currently being implemented globally
(including, in certain cases, through adoption of the OECD’s “multilateral convention” to effect changes to tax treaties which entered into force on
July 1, 2018 and through the European Union’s “Anti Tax Avoidance” Directives), it is still difficult in some cases to assess to what extent these changes
would impact our tax liabilities in the jurisdictions in which we conduct our business or to what extent they may impact the way in which we conduct
our business or our effective tax rate due to the unpredictability and interdependency of
16
these potential changes. In January 2019 the OECD announced further work in continuation of the BEPS project, focusing on two “pillars.” On
October 8, 2021, 137 countries approved a statement known as the OECD BEPS Inclusive Framework, which builds upon the OECD’s continuation of
the BEPS project. The first pillar is focused on the allocation of taxing rights between countries for in-scope multinational enterprises that sell goods and
services into countries with little or no local physical presence. The second pillar is focused on developing a global minimum tax rate of at least
15 percent applicable to in-scope multinational enterprises. Guernsey is one of the 137 jurisdictions which has agreed in principle to enforce the global
minimum tax rate. Given these developments, it is generally expected that tax authorities in various jurisdictions in which we operate might increase
their audit activity and might seek to challenge some of the tax positions we have adopted. It is difficult to assess if and to what extent such challenges,
if raised, might impact our effective tax rate. In addition, following the screening by the EU Code of Conduct Group on Business Taxation (“COCG”) of
third-country jurisdictions to assess their compliance for tax purposes, Guernsey was found to be a co-operative jurisdiction. However, the COCG has
requested that Guernsey, along with a number of other jurisdictions, take further steps to ensure that its tax system does not facilitate offshore structures
which attract profits without real economic activity. Legislation introducing economic substance requirements for companies in the Crown
Dependencies was approved by the respective parliaments in December 2018 and amended and updated with effect from June 30, 2021. The legislation
applied initially to all companies resident for tax purposes in the Crown Dependencies and was effective for accounting periods commencing on or after
January 1, 2019. The most recent amendments extended the legislation to include partnerships but did not make material changes to the substance
requirements applicable to Guernsey tax resident companies. The regulations require entities, including companies and partnerships, to demonstrate that
they have sufficient substance in Guernsey via a series of requirements, or tests. Amdocs is monitoring the developments closely to ensure that the
Company is compliant with the various requirements.
Risks Related to Our Indebtedness
There are risks associated with our outstanding and future indebtedness.
As of September 30, 2022, we had an aggregate of $650 million of outstanding indebtedness and we may incur additional indebtedness in the
future. Our ability to pay interest and repay the principal for our indebtedness is dependent upon our ability to manage our business operations, generate
sufficient cash flows to service such debt and the other factors discussed in this section. There can be no assurance that we will be able to manage any of
these risks successfully.
We may also need to refinance a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or
that the terms of any refinancing may not be as favorable as the terms of our existing debt. Furthermore, if prevailing interest rates or other factors at the
time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase.
In addition, changes by any rating agency to our outlook or credit rating could negatively affect the value of both our debt and equity securities
and increase the interest amounts we pay on certain outstanding or future debt. These risks could adversely affect our financial condition and results of
operations.
Risks Related to Ownership of Our Ordinary Shares
The market price of our ordinary shares has and may continue to fluctuate widely.
The market price of our ordinary shares has from time to time fluctuated widely and may continue to do so. Many factors could cause the market
price of our ordinary shares to rise and fall, including:
•
market conditions in the industry and the economy as a whole, including the current trends in the global markets and the continuing effect
of the COVID-19 pandemic;
17
•
•
•
•
•
•
•
•
•
•
variations in our quarterly operating results;
changes in our backlog levels;
announcements of technological innovations by us or our competitors;
announcements by any of our key customers;
introductions of new products and services or new pricing policies by us or our competitors;
trends in the communications, media or software industries, including industry consolidation;
acquisitions or strategic alliances by us or others in our industry;
changes in estimates of our performance or recommendations by financial analysts, institutions and other market professionals;
changes in our shareholder base; and
political developments in the Middle East or other areas of the world.
In addition, the stock market frequently experiences significant price and volume fluctuations. In the past, market fluctuations have, from time to
time, particularly affected the market prices of the securities of many high technology companies. These broad market fluctuations could adversely
affect the market price of our ordinary shares.
It may be difficult for our shareholders to enforce any judgment obtained in the United States against us or our affiliates.
We are incorporated under the laws of the Island of Guernsey and a majority of our directors and executive officers are not citizens or residents of
the United States. A significant portion of our assets and the assets of those persons are located outside the United States. As a result, it may not be
possible for investors to effect service of process upon us within the United States or upon such persons outside their jurisdiction of residence. Also, we
have been advised that there is doubt as to the enforceability in Guernsey of judgments of the United States courts of civil liabilities predicated solely
upon the laws of the United States, including the federal securities laws.
ITEM 4. INFORMATION ON THE COMPANY
History, Development and Organizational Structure of Amdocs
Amdocs Limited was organized as a company with limited liability under the laws of the Island of Guernsey in 1988. Since 1995, Amdocs
Limited has been a holding company for the various subsidiaries that conduct our business on a worldwide basis. Our global business is providing
software and services solutions to leading communications and media companies in North America, Europe and the rest of the world. Our registered
office is Hirzel House, Smith Street, St. Peter Port, Guernsey, GY1 2NG, and the telephone number at that location is +44-1481-728444.
The executive offices of our principal subsidiary in the United States are located at 625 Maryville Centre Drive, Suite 200 Saint Louis, Missouri
63141 and the telephone number at that location is +1-314-212-7000.
Our website address is www.amdocs.com. The information contained on, or that can be accessed from, our website does not form part of this
Annual Report. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers,
such as we, that file electronically, with the SEC at www.sec.gov.
Our subsidiaries are organized under and subject to the laws of several countries. Our principal operating subsidiaries are in Canada, Cyprus,
India, Ireland, Israel, Switzerland, the United Kingdom and the United States. Please see Exhibit 8 to this Annual Report on Form 20-F for a listing of
our significant subsidiaries.
18
As part of our strategy, we have pursued and may continue to pursue acquisitions, partnerships and other initiatives in order to offer new products
or services or otherwise enhance our market position or strategic strengths. In recent years, we have completed numerous acquisitions, which, among
other things, have expanded our business into digital commerce solutions and other digital offerings, 5G charging and policy, network and cloud
technologies, software design and development and the media and entertainment domain. In August 2019, we acquired TTS Wireless, a provider of
mobile network engineering services, specializing in network optimization and planning, to further expand our 5G capabilities and help operators
accelerate and simplify deployment of 5G networks with comprehensive network rollout solutions. In August 2020, we acquired Openet, a provider of
5G charging, policy and cloud technologies, to extend our portfolio with open and network-centric technologies to help service providers differentiate in
the 5G era. During fiscal year 2021, we acquired three technology companies. The largest of the three, acquired in March 2021, is Sourced Group, a
leading global technology consultancy specializing in large-scale cloud transformations, to accelerate our strategy of taking the communications and
media industry to the cloud and complement our portfolio of cloud- native products and services and further expand and diversify our customer base.
During fiscal year 2022, we completed the acquisition of two immaterial technology companies (Roam Digital, a digital consultancy agency, and
DevOpsGroup, a company specializing in cloud and DevOps adoption) and, in May 2022, announced our intention to acquire a third technology
company, MYCOM-OSI. Recently, we and MYCOM-OSI mutually and amicably decided not to move forward with the planned acquisition following a
longer than expected regulatory review process in the United Kingdom (that was still not complete). The definitive agreement has been terminated
without any payments by either party to the other. As previously disclosed, this acquisition was not material and the decision not to pursue it is not
expected to have an impact on our guidance. As the result of our organic growth and acquisitions, our workforce has increased over the last three years
from an approximate average workforce of 25,875 in fiscal 2020 to 30,288 in fiscal 2022. In the past, our workforce has fluctuated with changes in
business conditions.
Our principal capital expenditures for fiscal 2022, 2021 and 2020 have been for computer equipment in our operating facilities and development
centers, for which we spent approximately $92 million, $89 million and $126 million, respectively, and for the development of our new campus in
Israel, for which we spent approximately $116 million, $101 million and $63 million, respectively.
Business Overview
Amdocs is a leading provider of software and services for approximately 400 communications, Pay TV, entertainment and media industry and
other service providers in developed countries and emerging markets. Our customers include some of the largest telecommunications companies in the
world (including America Movil, AT&T, Bell Canada, Singtel, Telefonica, Telstra, T-Mobile, Verizon and Vodafone), as well as cable and satellite
providers (including Altice USA, Charter, Comcast, DISH, J:COM, Rogers Communications and Sky), small to midsized communications businesses
and mobile virtual network enablers/mobile virtual network operators and directory publishers and providers of media and other services, such as
financial services. Amdocs also holds relationships with hundreds of content owners and distributors around the globe, including MGM and Warner
Bros. Discovery.
Our software and services, which we develop, implement and manage, are designed to meet the business imperatives of our customers, create
value for society and make our increasingly connected world more empowering by unlocking our customers’ innovative potential and enabling them to
transform their boldest ideas into reality, and make customer experiences which are truly amazing. Our offerings are based on a product and services
mix, using technologies and methodologies such as cloud and cloud native, microservices, DevSecOps, low-code/no-code, edge computing, open
source, bimodal operations, Site Reliability Engineering (SRE) and increasing amounts of automation through standard information technology (IT)
tools, open APIs and machine learning and artificial intelligence (AI). As a result, our offerings enable service providers to efficiently and cost-
effectively engage their customers, introduce new products and services, automate service and network operations, monetize connectivity and content,
support new business models and generally enhance their
19
understanding of their customers. Our technology, design-led thinking approach and expertise help service providers accelerate their journey to the
cloud, enhance their entertainment offerings, deploy and manage existing and next-generation networks, and serve their customers across all channels.
In order to fulfill our responsibilities to our customers, we sometimes engage third-party vendors and system integrators providing complementary
products and services, including hardware and software.
We are able to offer customers superior products and services on a worldwide basis, in large part because of our highly qualified and trained
technical, engineering, sales, marketing, consulting, and management personnel. We combine deep industry knowledge and experience, advanced
methodologies, industry best practices and pre-configured tools to help deliver consistent results and minimize our customers’ risks. We invest
significantly in the ongoing training of our personnel in key areas such as industry knowledge, software technologies and management capabilities.
Based in significant part on the skills and knowledge of our workforce, we believe that we have developed a reputation for reliably delivering quality
solutions.
We believe the demand for our solutions is driven by our customers’ continued migration to the cloud, deployment of 5G networks and
transformation into digital service providers to provide wireless access services, content and applications (apps) on any device through digital and
non-digital channels. It is also driven by the trend towards integrated service offerings which we believe is leading to increased merger and acquisition
activity among our customers who then require systems consolidation, which we provide, to ensure a consistent customer experience at all touchpoints.
Our solutions enable service providers to help their consumer and enterprise (B2B) customers navigate the increasing number of devices, services,
partner services and plans available in today’s digital world and the need of service providers to cope with the rapidly growing demand for content and
data that these devices and services create, as well as to compete with over-the-top (OTT)-focused players. Regardless of whether service providers are
bringing their first offerings to market, scaling for growth, consolidating systems or transforming the way they do business, we believe that they seek to
differentiate themselves by delivering an amazing customer experience that is simple, personal, contextual and valuable at every point of engagement
and across all channels.
We invest time and resources to identify and address cybersecurity risks, including risks that our customers face with regard to our systems,
products or services. We have established policies and procedures, benchmarked against industry best practices, designed to protect the integrity and
security of our products and services. These policies and procedures as well as our cybersecurity strategies, including those related to risk and
materiality assessment, incident response and disaster recovery are periodically evaluated by our management and Board of Directors. To foster a
culture of security awareness and responsibility among our workforce we utilize educational tools, such as cybersecurity awareness training, and
reporting procedures and tools, such as our 24/7 global cybersecurity center. Additionally, in light of the transition across the globe to a remote working
environment, we have enabled secure solutions for collaboration and remote connectivity. We also work with our customers and use overlapping
controls to defend against cybersecurity attacks and threats on customers’ networks, end-user devices, servers, applications, data and our cloud solutions.
As we work with our customers and partners to create a better-connected world, we seek to make a difference and we incorporate this
commitment into our business culture, innovation and operations. We were selected for the 2022 S&P Dow Jones Sustainability Index (DJSI) North
America, with DJSI recognizing Amdocs as a sustainability leader in our industry and have received a gold rating standard from EcoVadis, a leading
provider of business sustainability ratings. We place high value on protecting the environment and minimizing negative environmental impacts that may
be created by our operations, and are seeking to create sustainable products and services. For example, as we take the industry to the cloud, we help
service providers shift away from costly, space and energy-consuming hardware components, by delivering software-driven capabilities. We are
committed to diversity, believing a gender diverse, multi-cultural and multi-generational workforce provides strength and a competitive advantage. We
seek to create a welcoming work environment for all employees, regardless of age, disability, ethnicity, gender, religion or sexual orientation. We run
internal programs to increase representation and empower female employees. We have placed particular effort in
20
recruiting more women for core technology and customer-facing roles, and 50% of our software testing engineers are women. We also promote
initiatives designed to increase the representation of persons with disabilities and from different ethnicities. As we commit to enriching the lives of our
employees, our efforts focus on providing a people-centric work environment, understanding that flexibility is key, from unlimited vacation to flexibility
around how, when, and where a person works. We provide opportunities for growth and professional development, embracing a culture of continuous
learning and upskilling, and have significantly expanded our employee well-being programs and investments.
Our business is conducted on a global basis. We maintain development and support facilities worldwide, including Brazil, Canada, Cyprus, India,
Ireland, Israel, Mexico, the Philippines, the United Kingdom and the United States and have operations in North America, Europe, Eurasia, Israel, Latin
America, Africa and the Asia-Pacific region.
Industry Background
We believe service providers will maintain a strong focus on growing new revenue streams, cost reduction and driving more efficient operations,
and that the trends of ongoing digital transformation with a focus on customer experience, migration to the cloud, next-generation networks, and
consolidation within the industry will continue. Service providers are increasingly focusing on their core capabilities, investing in 5G and fiber rollouts,
to meet the demand for increased bandwidth, faster pace of innovation for new digital services, as well as to improve their business and operational
agility and optimize and monetize their investments in such services. At the same time, many service providers are partnering with leading suppliers to
offer their customers a rich portfolio of offerings including media; entertainment; enterprise enablement; Internet of Things (IoT); and digital lifestyle
services, all of which is driving growth in the demand for multi-modal customer engagement capabilities and data.
OTT-focused players and device manufacturers continue to penetrate the communications market and are also competing for customer attention in
the entertainment market, while traditional content creators are increasingly streaming their content direct-to-consumer (D2C). Additionally, social
networks such as Facebook and Twitter, alongside OTT-focused players such as Snapchat and WhatsApp, have become widely accepted alternatives to
traditional voice communications and also provide video streaming services. To meet the challenges from new competitors, service providers are
developing cooperative partnerships with OTT-focused players to improve the customer experience as well as vertically integrating with content
creators. Pay TV providers are moving toward more OTT and on-demand video services in their need to respond to customers’ on-demand experience
expectations. As the business-to-consumer (B2C) domain is crowded with disruptors and heightened competition from OTT players, service providers
are also looking to strengthen their standing with enterprise customers, explore new opportunities in the wholesale market and provide IoT services to
new vertical market segments, such as the home, health and automotive industries.
To capture new revenue streams, service providers are expanding within existing and non-traditional business models and deploying new network
technologies such as 5G. We believe 5G will enable service providers to grow their enterprise revenues through the introduction of new business models
such as B2B2x, the rollout of private enterprise networks (PEN) and by exposing network-as-a-service (NaaS) functionality. As a result, we expect
service providers will continue to place an emphasis on modernization and transformation projects for their networks and operational and business
systems as they seek to introduce these new offerings, migrate to the cloud and offer innovative new services for both enterprise customers and
individual consumers, and monetize these new capabilities.
We believe these factors create significant opportunities for vendors of information technology software products and providers of managed
services and end-to-end systems integration, such as Amdocs.
21
Business Strategy
Our goal is to provide software and services solutions and support to communications and media companies of all sizes as they strive to deliver
digital engagements, accelerate their migration to the cloud and remain competitive. We seek to accomplish our goal by pursuing the strategies described
below.
•
•
•
•
Focus on the Communications and Media Industry. We focus our resources and efforts primarily on providing customer experience
solutions to service providers in the communications and media industry. We consider our longstanding and continuing focus on this
industry a competitive advantage. This strategy has enabled us to develop the specialized industry know-how and capability necessary to
deliver the technologically advanced, large-scale, specifications-intensive solutions required by the leading wireless, wireline, broadband,
cable and satellite companies as well as provide targeted point solutions for service providers of all sizes. These strengths have enabled us
to diversify our customer base and expand our offering domains and may continue to provide us with opportunities to expand within other
vertical segment markets.
Target Industry Leaders. We intend to continue to direct our marketing efforts primarily toward communications and media industry
leaders and contenders. By targeting such leading service providers, which require the most sophisticated and relevant solutions, we
believe that we are better able to remain at the forefront of developments in the industry. We believe that the development of this customer
base has helped position us as a market leader.
Continued Expansion into New Geographies and Emerging Markets. We seek to grow our customer base by expanding into new markets
inside the regions we currently serve and serving the needs of service providers operating in emerging markets. While we have a strong
presence overall in developed markets such as Europe, there are countries in which we believe we can further expand our presence. In
fiscal 2022, for example, we succeeded in growing our activities in Albania, Bulgaria, Hungary and Serbia and also expanded in Africa. In
emerging markets, prepaid subscriber growth remains high and average revenue per user remains relatively low in comparison to more
developed markets. In order to increase subscriber revenue, service providers are focusing on customer experience and on increasing
capacity, particularly for data and content offerings, as key competitive differentiators. Our existing and prospective customers in these
markets vary dramatically, with some service providers serving subscriber bases already numbering in the hundreds of millions and others
introducing communications services to communities for the first time. We believe this shift in focus to customer experience and on
increasing bandwidth and providing content helps to create the wide spectrum of emerging market service providers that require offerings
ranging from relatively low-cost systems with pre-packaged services that can be implemented rapidly, to more robust services, to complete
customer experience solutions.
Provide Customers with an Open, Dynamic and Cloud-Native Portfolio to Meet Key Industry Trends. With our offerings, we seek to
accelerate our customers’ journey to the cloud and help them differentiate in the 5G era so they can deliver an always-on customer
experience that is intuitive, simple, personal and valuable at every point of service. We provide solutions across digital business systems
and legacy business and operational support systems (BSS/OSS) and network domains and multiple lines of business, including wireline,
wireless, broadband, cable, satellite services, IoT and digital services. The business integration of our systems, supporting commerce,
monetization and network automation, is achieved through a central, cloud-native catalog, built on an open, API-first and microservices-
based approach to enable third-party integration. We believe that our ability to provide a broad, open, dynamic, modular, AI-embedded and
cloud-native portfolio, with certified end-to-end business processes deployed using best practice DevSecOps, helps position us as a
strategic partner for our customers as they seek to migrate to the cloud and continue to transform into digital service providers. This
provides us with multiple avenues for strengthening and expanding our ongoing customer relationships. Our strategic collaborations with
Amazon Web Services, Microsoft Azure and Google Cloud will further enable service providers to offer new and differentiated cloud
services to
22
drive growth, customer loyalty and value-add with fast and agile interactions, and a wide ecosystem of third-party partners.
•
Expand Our Managed Services Capabilities. We seek to assume responsibility for the operation, development and management of our
customers’ Amdocs systems, as well as systems developed by in-house IT departments or by other vendors. Our mandate can extend across
the service provider’s entire IT and network environment and encompass key business process operational needs, organizational readiness
preparation and employee upskilling. Many of these projects involve what we call managed transformations: a multi-year project in which
we modernize legacy systems while operating them, and then continue to provide managed services once the transformation is complete.
Our customers receive predictable service levels based on agreed-upon key performance indicators, access to a global repository of
automation processes, as well as improved efficiencies and long-term savings over the day-to-day costs of operating and maintaining these
systems. Managed transformations also provide an improved end-user experience, so service providers can focus on their own internal
strengths and strategy to grow their business, leaving system concerns to us. We are continuing to expand our cloud operations, covering
the full cloud management lifecycle, including cloud cost optimization (FinOps), multi-cloud management, and cloud security. Managed
services also benefit us, as they can be a source of predictable recurring revenue and long-term relationships.
•
Develop and Maintain Long-Term Customer Relationships. We seek to develop and maintain long-term, mutually beneficial relationships
with our customers, and have organized our internal operations to better anticipate and respond to our customers’ needs. We believe these
relationships can lead to additional product and services sales, including products and services from recent acquisitions which have
expanded our offering, as well as ongoing, long-term support, system enhancement, modernization, maintenance and managed services
agreements. We believe that such relationships are facilitated in many cases by the mission-critical, strategic nature of Amdocs systems and
by the added value we provide through our specialized skills and knowledge. We believe that the longevity of our customer relationships,
and the recurring revenue that such relationships provide, produce a competitive advantage for us.
The Amdocs Offerings
Our understanding of our customers’ business needs and the importance of delivering an amazing experience to their end users provide the
framework for our portfolio of capability-based products and services. Our offerings are designed to meet the challenges facing our customers as they
roll out 5G networks, migrate to the cloud and transform into digital service providers within the framework of a hybrid IT environment, which requires
them to rapidly introduce new cloud-native applications while still operating legacy systems. They enable modular expansion as a service provider
evolves, ensuring lower-cost and reduced-risk implementations, while their microservices-based architecture enables the rapid deployment of complex
applications as suites of independently deployable services that can be frequently upgraded via DevSecOps. With our portfolio’s open and modular
structure, organized by capability such as monetization, commerce and care, consulting, delivery, operations and others, and matched to industry
standards, our customers have the flexibility to choose business offerings that address their specific needs and improve their time to market and value. In
the second quarter of fiscal 2022, we released Amdocs CES22, a 5G and cloud-native, microservices-based version of our market-leading customer
experience suite, which is open and integrated all the way from the network to the end-user experience.
The CES22 suite enables service providers to build, deliver and monetize advanced services, leveraging their investments in technologies such as
5G standalone networks, multi-access edge computing (MEC), programmable networks, artificial intelligence (AI) and machine learning (ML), and the
cloud. The CES22 suite is comprised of our Commerce and Care suite for order capture and handling and customer engagement; the Monetization suite
for charging, billing, policy and revenue management among other functions, and our Intelligent Networking suite with a set of modular, flexible and
open service lifecycle management capabilities
23
designed for network automation journeys such as digital-to-network automation, end-to-end service and network orchestration, 5G slice & edge
automation, and Network-as-a-Service. The CES22 suite also includes a low-code/no-code experience technology platform for our care and commerce
solutions, and aligns with the TM Forum’s open API framework, offering a continuous integration/continuous delivery (CI/CD) environment, built using
Amdocs’ cloud-agnostic Microservices Management Platform to ensure agility and IT velocity. Our data intelligence solutions and applications span
every aspect of the service provider’s business, with detailed use cases embedded within our products and best practices to help service providers
become truly data-driven organizations. We have furthermore launched solutions for the 5G-specific needs of service providers as they begin to
introduce, deliver and monetize new 5G services for consumers and businesses. These solutions encompass charging, policy, network data analytics and
network exposure functions, managed by our centralized catalog. With our 5G solutions, we enable service providers to fully realize 5G and edge cloud
capabilities and introduce new business models (e.g., B2B2C, B2B2B, Network-as-a-Service, private networks) by providing a holistic approach to
flexible monetization for new monetizable network assets (e.g., network slice, quality-of-service) as well as for partner-based services, and by exposing
network capabilities and network data to both customers and partners, enabling service providers to form or participate in a partner ecosystem.
Overall, our technology offerings include individual products for commerce and care, catalog management, monetization, subscription
management, IoT, AI, service and network automation and network development and optimization. We also offer Amdocs MarketONE, a cloud-native,
SaaS, scalable business ecosystem designed to enable a frictionless OTT and digital consumer services experience and monetization, as well as media
offerings for media publishers, TV networks, video streaming providers, and service providers. Our Amdocs Digital Brands Suite, a fully pre-integrated
digital business suite, is designed for digital telecom brands and small-scale service providers covering care, commerce, ordering and monetization
needs. The Amdocs eSIM Cloud enables service providers to offer device “digital SIM” (eSIM) and other services for a variety of IoT consumer and
industrial devices from Apple, Samsung, Microsoft, Google and other device manufacturers, while our advanced cybersecurity service helps protect and
manage enterprises. Our AI-powered, cloud-native, home operating system enables service providers to expand the home broadband experience,
offering end users automated care, smart insights, security and control over the growing number of connected home devices.
Our broad portfolio of services capabilities ranges from consulting to delivery, quality engineering (testing), operations, systems integration,
mobile network services, experience design and content services, and the extent of services provided varies from customer to customer. Our services
engagements can range in size and scope and include advising customers on business and technical strategy, designing and implementing particular
business solutions, managing specific business operations processes, adopting DevSecOps, migrating applications to, and operating them on, the cloud
and orchestrating large-scale transformation projects. We also provide end-to-end application development and maintenance, from ideation to
deployment, managing all steps of the development lifecycle, supporting bi-modal development methodologies, as well as ongoing maintenance.
In addition, we are generally retained by the customer to provide ongoing services, such as maintenance, enhancement design and development
and operational support, or to act as a lead systems integrator for post- production activities that may include interfaces with third-party and legacy
systems. We also provide network development and optimization services, supporting the industry’s move to 5G. For a substantial number of our
customers, the implementation and integration of an initial system has been followed by the sale of additional systems and modules. We aim to establish
long-term maintenance and support contracts with our customers. These contracts generally involve an expansion in the scope of support delivered and
provide us with recurring revenue.
Our managed services, using AI and predictive analytics, as well as robotic process automation and machine learning, are designed to enable
service providers’ IT and network departments to keep pace with the speed of business requirements as they journey towards zero-touch operations,
provide faster time to market for new services as well as the cost-effective management of existing offerings. Our telco, financial and media Amdocs
Cloud Management Platform supports more agile and reliable operations and also includes dedicated tools that
24
automate tasks that would traditionally require various software development skills. It contains a set of advanced tools and integrations to external tools
to support and enable our services across many aspects of the IT lifecycle in service provider environments, including solution development, quality
engineering, cloud migration and operations, FinOps, automation and AI engines, self-service channels, governance and more. Managed services
provide multi-year, flexible and tailored managed services across all verticals, managing IT, business processes and applications services, including
application development and maintenance, operations, IT and infrastructure hosting, cloud operations and in-house developed practices, and legacy
modernization.
Our quality engineering services are designed to help modernize our customers’ approach to testing. They combine upskilling our customers’
organization, employing our AI-driven test automation platform specifically designed for the communications industry, and integrating a DevSecOps
approach to ensure faster time to market combined with higher product quality. We support the complete quality engineering spectrum of services, from
project-based engagements to fully outsourced testing centers of excellence.
Our professional services are designed to assist customers in the selection, implementation, operation, management, modernization and
maintenance of their IT, network and content systems. As a lead systems integrator, we assume end-to-end responsibility to monitor, manage and deploy
the overall development and integration activities of Amdocs and third-party vendors throughout the transformation lifecycle and business-as-usual
state. We also offer integration design and implementation services to help bridge between modern digital channels and a customer’s existing legacy
back-end and third-party systems. Our unique integration platform as a service solution is built specifically for the challenges of the communications
and media industry, enabling modernization with minimal impact on the systems of record and other legacy systems.
Our business and top-level technology strategy consulting services cover both Amdocs and non-Amdocs systems. Our consultants understand the
service provider’s environment and bring with them the experience we accumulated when modernizing our own Amdocs product lines and re-skilling
our people to master hybrids of the legacy and the new. Using expertise from recent acquisitions, we also provide experts in specific niches, such as user
experience (UX) experts from projekt202, digital software engineering and cloud development experts from Kenzan and cloud platform and cloud
transformation experts from Sourced Group and DevOps Group. Our Cloud at Scale™ methodology, developed by Sourced Group, provides a rapid,
secure path for service providers, including financial services providers, adopting cloud.
Our content services are designed to enable service providers to build rich, premium content offerings for their customers, accessing large libraries
of premium licensed content, securely processed and distributed across any channel, device type or geography. Through content aggregation,
localization and compliance management, metadata creation, encoding, distribution, asset management and delivery, our services help service providers
and premium content owners monetize content through a variety of commercial models.
Technology
Our portfolio architecture enables our applications to work in multiple customer environments ranging from on premise to public cloud.
To help service providers respond more quickly to changes in their markets, we embrace an open and integrated approach to our technology built
on the following key principles:
•
•
Design Led. Adopting design-led principles and methodologies across software applications to ensure improved and optimized customer
experiences.
API-First. Leveraging domain-driven design to expose APIs across key applications and ensure consumption and interaction between
applications is easily enabled. It exposes the Amdocs portfolio application programming interfaces to external systems, allowing our
applications to integrate with each other and with third-party applications.
25
•
•
•
•
•
•
•
•
•
•
•
•
•
Cloud Flexibility. Architected to run in public and on-premise cloud environments, and across a variety of providers based on customer
needs.
Microservices. Developing highly granular, lightweight distributed software architecture, shipped and delivered using containers and
orchestrated using Kubernetes, the industry-leading cluster management for containers.
Scalability. Designed to take full advantage of the capabilities of the underlying platform, allowing progressive system expansion,
proportional with increases in business volumes. Using the same software, our applications can support operations for small and very large
service providers.
Reliability. System and component architecture supports high availability and redundancy to allow connected and uninterrupted operations
at full network utilization and device load.
Modularity. Applications can be installed on an individual standalone basis, interfacing with the customer’s existing systems, or as part of
an integrated Amdocs system environment. We believe this modularity provides our customers with a highly flexible solution that is able to
incrementally expand with the customer’s growing needs and capabilities.
Software-as-a-Service (SaaS). Developing software that is consumed via a subscription model, rather than installed on customer-owned
hardware. Offering SaaS solutions enables our customers to quickly deploy, simply operate and continuously benefit from our investment
in portfolio platforms.
Continuous Updates. Ongoing delivery of software functionality enables customers to adopt the latest features and functions as they are
made available, accelerating time to market and business agility.
Virtualization. Business agility improves with virtualization as it allows introduction of new services rapidly. Moreover, virtualization
reduces cost by improving resource utilization and by automating processes.
Hybrid-Cloud. Supporting application architecture that spans physical, virtual and cloud-based infrastructures. The deployment, security
and operation of these diverse permutations must be orchestrated in order to deliver seamless experiences.
Open-Source Software. Enabling rapid time to market and lower-cost functionality introduction, our software leverages open-source
components to encourage standardization and improved quality where possible. We are a founding partner of the 5G Open Innovation Lab,
a global ecosystem for developers, enterprises, wireless carriers and technology leaders to fuel the development and monetization of new
5G-powered technology use cases and markets. We are also a contributor to the O-RAN Alliance — whose mission is to reshape the RAN
industry towards more intelligent, open, virtualized and fully interoperable mobile networks — and to the development of The Linux
Foundation’s ONAP, an advanced open source solution for the telecommunications industry. Furthermore, Amdocs plays an integral part in
Telecom Infra Project (TIP) initiatives, focused on bringing viable open, standards-based market solutions to service providers for a variety
of environments, from urban to rural, and creating a better-connected society.
Service-Oriented Architecture. SOA enables improved flow of information, rapid function development, easier scaling and simplified
introduction of new services.
Embedded Automation. End-to-end automation capabilities spanning multiple domains and extending across users, business and operating
systems and networks, to optimize the efficient utilization of resources while enabling adaptive, real-time responsiveness to specific
business and customer requirements in a timely and cost-efficient manner.
Low-code/No code. A visual software development approach that requires little to no coding skill on the part of the user, allowing the rapid
development of applications with minimal dependency on IT and code developers.
26
•
Artificial Intelligence/Machine Learning. Delivering automation and providing service providers with more intelligence about their
customers and the performance of their infrastructures, optimizing the customer experience and enabling zero-touch operations.
Sales and Marketing
Our sales and marketing activities are primarily directed at major communications and media companies.
As a result of the strategic importance of our solutions to the operations of service providers, a number of constituencies within a customer’s
organization are typically involved in purchasing decisions, including senior management, information systems personnel and user groups, such as the
finance, customer service and marketing departments.
Our sales activities are supported by marketing efforts and increasing cooperation with strategic partners. We interact with other third parties in
our sales activities, including independent sales agents, information systems consultants engaged by customers and system integrators that provide
complementary products and services. We also have value-added reseller agreements with leading hardware and software vendors. Our sales and
marketing activities also support projects with our partner ecosystem of over 100 partner companies in domains such as digital and consumer
experience, media and entertainment, IoT, data intelligence, security and privacy, cloud and open source. Partner companies include Amazon Web
Services, Microsoft, Intel, Google, Redhat, Dell EMC and VMware, Hewlett Packard Enterprise and IBM, as well as start-up companies.
Customers
Our target market is comprised of service providers in the communications and media industry that require customer experience solutions with
advanced functionality and technology. The companies in our target segment are typically market leaders. By working with such companies, we help
ensure that we remain at the forefront of developments in the industry and that our product offerings continue to address the market’s most sophisticated
needs. Additionally, with projekt202 and Sourced Group, we deliver experience-driven and cloud transformations for customers in other industry
verticals, such as financial services. We have a global orientation and customers in approximately 90 countries.
Our customers include service providers, such as:
A1 Bulgaria
A1 Telekom Austria Group
Airtel
Altice France
Altice USA
América Móvil
Astro
AT&T
AT&T Mexico
Azercell
Bell Canada
Bharat Sanchar Nigam Limited (BSNL)
Botswana Telecommunications Corporation
BT
Cable & Wireless
Capita
Cellcom
Charter Communications
Claro Brasil
Claro Chile
Claro Dominican Republic
Claro Puerto Rico
Comcast
Deutsche Telekom
Dish
EE
Elisa
EPIX
Eros Now
Far EasTone
Fastweb
Flow
Foxtel
Globe Telecom
27
J:COM
KT
Kyivstar
LG Uplus
Liberty Global
Lumen
M1
Magyar Telekom
Maxis
MGM
MTS
Oi
Optus
Orange Belgium
Orange Liberia
Orange Spain
Paramount
Partner
PLDT
PPF Telecom Group
Proximus
Rogers
Safaricom
SES
Singtel
Sky Italia
Sky UK
StarHub
Sunrise
Telefónica Argentina (Movistar)
Telefónica Brasil (Vivo)
Telefónica Chile (Movistar)
Telefónica Peru (Movistar)
Telenet
Telia Norway
Telia Sweden
Telkom SA
Telkomsel
Telstra
TELUS
Three Ireland
Three UK
Thryv
TIM
TIM Brasil
True
Turner
T-Mobile
UPC Broadband
US Cellular
VEON
Verizon
Vimeo
Virgin Media
Vodacom
Vodafone Albania
Vodafone Czech Republic
Vodafone Germany
Vodafone Hungary
Vodafone Idea
Vodafone Ireland
Vodafone Italy
Vodafone Qatar
Vodafone Romania
Vodafone Spain
Vodafone Turkey
Vodafone UK
VodafoneZiggo
Warner Bros
Wind Tre
Winity Telecom
XL Axiata
The following is a summary of revenue by geographic area. Revenue is attributed to geographic region based on the location of the customer:
North America
Europe
Rest of the World
Competition
2022
67.8%
12.7%
19.5%
2021
65.1%
14.5%
20.4%
2020
65.3%
14.7%
20.0%
The market for customer experience solutions in the communications and media industry continues to become more competitive. Amdocs’
competitive landscape is comprised of internal IT departments of our customers, as well as independent competitors or new entrants that may compete
broadly with us or in limited segments of our market, and can be generally categorized as follows:
•
providers of BSS/OSS and customer relationship management (CRM)/digital systems, including CSG International, Netcracker (a NEC
subsidiary), Optiva, Oracle, Pegasystems, Salesforce, SAP and ServiceNow;
28
•
•
•
system integrators and providers of IT services, such as Accenture, Cognizant, DXC Technology, Infosys, Kyndryl, Tata Consultancy
Services, Tech Mahindra and Wipro (some of whom we also cooperate with in certain opportunities and projects);
network equipment providers such as Ciena, Ericsson, Huawei, Nokia, and NEC and its subsidiary, Netcracker (some of whom we also
cooperate with in certain opportunities and projects and some of whom also have BSS/OSS offerings); and
niche domain players, often start-up companies, which compete against particular parts of our portfolio, such as Matrixx in charging;
Hansen in catalog; Aria Systems, Stripe, Zuora in subscription billing; Forgerock and Okta in identity management; Deluxe Media and
iNDEMAND in Media; Slalom and Servian in cloud consulting; Material+ and Work & Co in experience design.
We expect the competition in our industry to increase from many of such companies.
We believe that we are able to differentiate ourselves from these competitors by, among other things:
•
•
•
•
•
•
applying our 40-year heritage to the development and delivery of products and professional services that enable our customers to overcome
their challenges and achieve service differentiation by migrating to the cloud, providing a personalized and intelligent customer
experience, shaping the quality of network experience and simplifying the complexity of the operating environment;
continuing to design and develop solutions targeted specifically to the communications and media industry;
innovating and enabling our customers to adopt new business models that will improve their ability to drive new revenues, and compete
and win in a changing market;
providing high-availability, high-quality, reliable, scalable, integrated and modular applications, leveraging cloud technology, artificial
intelligence and new software development and deployment options;
providing flexible and tailored IT business process outsourcing solutions and delivery models; and
offering customers end-to-end accountability from a single vendor.
Employees
We invest significant resources in the training, retention and motivation of high-quality personnel. Training programs cover areas such as
technology, applications, development methodology, project methodology, programming standards, industry background, business, management
development and leadership. Our management development efforts are reinforced by an organizational structure that provides opportunities for talented
managers to gain experience in general management roles. We also invest considerable resources in personnel motivation, including providing various
incentive plans for sales staff and high-quality employees. Our future success depends in large part upon our continuing ability to attract and retain
highly qualified managerial, technical, sales and marketing personnel and outstanding leaders. Moreover, we are committed to diversity and inclusion,
believing a gender-diverse, multi-cultural workforce spread across the globe provides strength and a competitive business advantage.
See “Directors, Senior Management and Employees — Workforce Personnel” for further details regarding our employees and our relationships
with them.
Property, Plants and Equipment
Facilities
We lease land and buildings for our executive offices, sales, marketing, administrative, development and support centers. We lease an aggregate of
approximately 3.2 million square feet worldwide, including significant
29
leases in the United States, Israel, Canada, Cyprus, India, the Philippines, the United Kingdom and Mexico. The following table summarizes
information with respect to the principal facilities leased by us and our subsidiaries as of September 30, 2022:
Location
Americas
EMEA
APAC
Total
Area (Sq. Feet)
691,625
1,241,803
1,244,616
3,178,044
Our leases expire on various dates through 2035. The Company started recently to use its new campus in Ra’anana, Israel on land acquired by a
legal entity owned equally by the Company and Union Investments and Development Limited (“Union”) pursuant to agreements entered into by the
Company and Union in December 2017. We believe that the new campus will provide an advanced, optimal working environment that can meet the
needs of Amdocs Israel and its employees, and support the Company’s future growth. The design for the new campus is in accordance with LEED
standards and includes advanced energy and water saving systems. Our new campus in Israel is now substantially complete and our employees in Israel
started the process of moving into the new premises during the first quarter of fiscal year 2023.
Equipment
We develop our solutions over a system of Linux and Windows servers owned or leased by us, as well as over cloud providers. We use a variety of
software products in our development centers, including products by Microsoft, CouchBase, Syncsort, Red Hat, CA, IBM, Hewlett-Packard or others.
Our data storage is based mainly on equipment from EMC, InfiniDat, IBM and Hewlett-Packard.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview of Business and Trend Information
Amdocs is a leading provider of software and services for communications and media industry service providers in both developed countries and
emerging markets. We believe the demand for our solutions is driven by our customers’ continued migration to the cloud, deployment of 5G networks
and transformation into digital service providers to provide wireless access services, content and applications (apps) on any device through digital and
non-digital channels. Regardless of whether service providers are bringing their first offerings to market, scaling for growth, consolidating systems or
transforming the way they do business, we believe that they seek to differentiate their offerings by delivering a customer experience that is simple,
personal, contextual and valuable at every point of engagement and across all channels.
We believe service providers will maintain a strong focus on growing new revenue streams, cost reduction and driving more efficient operations,
and that the trends of ongoing digital transformation with a focus on customer experience, migration to the cloud, next-generation networks, and
consolidation within the industry will continue. Service providers are increasingly focusing on their core capabilities and investing in 5G and fiber
rollouts to meet the demand for increased bandwidth, faster pace of innovation for new digital services, as well as to improve their business and
operational agility and optimize and monetize their investments in such services. At the same time, many service providers are partnering with leading
suppliers to offer their customers a rich portfolio of offerings including media; entertainment; enterprise enablement; Internet of Things (IoT); and
digital lifestyle services, all of which is driving growth in the demand for multi-modal customer engagement capabilities and data.
30
We develop, implement and manage software and services designed to meet our customers’ business needs and empower them to transform their
boldest ideas into reality. Our technology, design-led thinking approach and expertise help service providers to migrate to the cloud, manage and
monetize their next-generation networks, further transform into digital service providers, enhance their entertainment offerings, and serve their
customers across all channels. With our portfolio’s open and modular structure, organized by capability and matched to industry standards, our
customers have the flexibility to choose business offerings that address their specific needs and improve their time to market and value.
In part, we have sought, through acquisitions, to expand our service offerings and customer base and to enhance our ability to provide managed
services to our customers. In recent years, we have completed numerous acquisitions (including our fiscal 2019 acquisition of TTS Wireless, our fiscal
2020 acquisition of Openet, our fiscal 2021 acquisition of Sourced Group, and our fiscal 2022 acquisitions of Roam Digital and DevOpsGroup), which,
among other things, we believe will enable us to expand our 5G digital and cloud-native capabilities and technological expertise. As part of our strategy,
we may continue to pursue acquisitions and other initiatives in order to offer new products or services, enter into new vertical markets or otherwise
enhance our market position or strategic strengths.
The Amdocs Offerings
Our portfolio consists of software and services that address service providers’ business and operational needs. Our offerings, grouped by
technology capabilities such as commerce and care, catalog management, monetization, subscription management, IoT, AI, service and network
automation and network deployment and optimization, are designed to meet the challenges facing our customers as they roll out 5G networks, migrate to
the cloud and transform into digital service providers within the framework of a hybrid IT environment, which requires them to rapidly introduce new
cloud-native applications while still operating legacy systems. Our software is designed to enable modular expansion as a service provider evolves, and
its microservices-based architecture enables the rapid deployment of complex applications as suites of independently deployable services that can be
frequently upgraded via DevSecOps.
Our comprehensive line of services is designed to address every stage of a service provider’s lifecycle. They include consulting, delivery, quality
engineering (testing), systems integration, IT operations, mobile network services, experience design and content services. Our managed services
provide multi-year, flexible and tailored IT business processes outsourcing and applications management services, including application development,
modernization and maintenance, IT and infrastructure services, testing and professional services that are designed to assist customers in the selection,
implementation, operation, management and maintenance of their IT systems.
We believe that our business model of developing mission-critical software, deploying it at our customers and then operating it and supporting it
on an ongoing basis, provides Amdocs with a high level of recurring revenue. This, together with our scalable global resource allocation model and our
continuous operational excellence and efficiency improvements, enables us to deliver consistent operating margin performance over time.
We conduct our business globally, and as a result we are subject to the effects of global economic conditions and, in particular, market conditions
in the communications and media industry. In fiscal year 2022, customers in North America accounted for 67.8% of our revenue, while customers in
Europe and the rest of the world accounted for 12.7% and 19.5%, respectively. We maintain development facilities in Brazil, Canada, Cyprus, India,
Ireland, Israel, Mexico, the Philippines, the United Kingdom and the United States. Historically, AT&T has been our largest customer, accounting for
27% and 25% of our revenue in fiscal years 2022 and 2021, respectively. In fiscal years 2022 and 2021, our next largest customer, T-Mobile, accounted
for 20% and 19% of our revenue, respectively. Aggregate revenue derived from the multiple business arrangements we have with our ten largest
customers accounted for approximately 70% and 69% of our revenue in fiscal 2022 and fiscal 2021. We believe that demand for our solutions is
primarily driven by the following key factors:
•
Transformation within the communications and media industry, including:
•
continued transformation of service providers to digital service providers;
31
•
•
•
•
•
•
•
•
•
service provider migration to the cloud;
increasing use of communications and content services;
widespread access to content, information and applications;
continued growth in Latin America and Southeast Asia;
expansion into new lines of business;
consolidation among service providers in established markets, often including companies with multinational operations;
increased competition, including from non-traditional players;
continued bundling and blending of communications and entertainment; and
continued commoditization and pricing pressure.
•
Technology advances, such as:
•
•
•
•
•
wide-scale foundational technology changes, including the leveraging of open-source, cloud- enabled and cloud-native operating
infrastructure, microservices-based architecture, API-based ecosystems, and aggressive digital modernization transformations;
evolving service provider business models and opportunities like OTT partnerships, content development and offerings, enterprise
and small or medium-sized business modernization, and innovative consumer bundling solutions;
network evolution in order to support growing technology needs associated with Internet of Things (IoT), autonomous vehicles and
augmented and virtual reality;
new communications technologies such as 5G wireless technology, eSIM, Wi-Fi 6, and Narrowband IoT (NB-IOT), and;
artificial intelligence, including machine learning (ML) and natural language processing (NLP) edge computing, network and service
automation, and blockchain.
•
Customer focus, such as:
•
•
•
•
the need for service providers to personalize the customer’s experience and provide contextual and personalized engagements at all
points in their omni-channel customer journey;
increasing customer expectations for new, innovative services and applications that are personally relevant and that can be accessed
anytime, anywhere and from any device;
the ever-increasing expectations for service and support, including omni-monetization and proactive multi-modal customer care and
commerce; and
continuous proliferation of on-demand experiences, including low-latency, high quality of service connectivity and seamless digital
interactions.
•
The need for operational efficiency, including:
•
•
•
•
the shift from in-house management to vendor solutions;
business needs of service providers to reduce costs and lower total cost of ownership of software systems while retaining high-value
customers in a highly competitive environment;
automating, introducing artificial intelligence, and integrating business processes that span service providers’ business systems and
network solutions;
implementing and integrating new next-generation networks (and retiring legacy networks) to deploy new technologies; and
32
•
transforming fragmented legacy OSS to introduce new, orchestrated and automated services in a timely and cost-effective manner.
Revenue from managed services arrangements is a significant part of our business, generating substantial, long-term recurring revenue streams
and cash flow. Revenue from managed services arrangements accounted for approximately $2.76 billion and $2.55 billion of revenue in fiscal 2022 and
2021, respectively. In managed services contracts, revenue from the operation of a customer’s system is recognized as services are performed based on
time elapsed, output produced or volume of data processed. In the initial period of our managed services projects, we often invest in modernization and
consolidation of the customer’s systems. Managed services engagements can be less profitable in their early stages; however, margins tend to improve
over time, and this improvement is seen more rapidly in the initial period of an engagement, as we derive benefit from the operational efficiencies and
from changes in the geographical mix of our resources.
Research and Development, Patents and Licenses
Our research and development activities involve the development of new software architecture, modules and product offerings in response to an
identified market demand. We also expend additional amounts on applied research and software development activities to keep abreast of new
technologies in the communications and media industry and to provide new and enhanced functionality to our existing product offerings. We leverage
leading-edge development technologies and associated technologies, for example, DevSecOps, CI/CD and Agile, to ensure we are able to develop and
deliver our solutions efficiently and cost-effectively.
Substantially all of our research and development expenditures are directed at our solutions. In recent years, we have also invested our research
and development efforts in network control, optimization and orchestration and network functions virtualization technologies; applications to enable
service providers to deploy and monetize technologies such as fiber, LTE, 5G, small cells and Wi-Fi; big data analytics and intelligence capabilities
leveraging natural language processing and artificial intelligence toward consumer and business satisfaction, marketing effectiveness and network
operations and experience; increased focus for the business segment, digital, commerce and entertainment domains; platforms for processing,
distributing and monetizing content globally and on foundational technologies including microservices and cloud infrastructure readiness. We believe
that our research and development efforts are a key element of our strategy and are essential to our success. However, an increase or a decrease in our
total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could
affect our operating margin.
Our products are largely comprised of software and systems that we have developed or acquired and that we regard as proprietary. In recent years,
we have invested in adopting open source components in an effort to reduce total cost of ownership for our customers, but our software and software
systems remain the results of long, robust and intensive development processes. Although our technology is not significantly dependent on patents or
licenses from third parties, certain aspects of our products continue to make use of software components licensed from third parties. As a developer of
complex software systems, third parties may claim that portions of our systems infringe their intellectual property rights. The ability to develop and use
our software and software systems requires knowledge and professional experience that we believe would be very difficult for others to independently
obtain. However, our competitors may independently develop technologies that are substantially equivalent or superior to ours. We have taken, and
intend to continue to take, several measures to establish and protect our proprietary rights in our products and technologies from third-party
infringement. We rely upon a combination of trademarks, patents, contractual rights, trade secret law, copyrights and non-disclosure agreements. We
enter into non-disclosure and confidentiality agreements with our customers, employees and marketing representatives and with certain contractors with
access to sensitive information; and we also limit customer access to the source code of our software and software systems.
33
Operating Results
The following table sets forth for the fiscal years ended September 30, 2022, 2021 and 2020, certain items in our consolidated statements of
income reflected as a percentage of revenue (figures may not sum because of rounding):
Revenue
Operating expenses:
Cost of revenue
Research and development
Selling, general and administrative
Amortization of purchased intangible assets and other
Operating income
Interest and other expense, net
Gain from sale of a business
Income before income taxes
Income taxes
Net income
Year Ended September 30,
2021
100%
2022
100%
2020
100%
64.6
7.8
11.5
1.6
85.5
14.5
(0.6)
0.2
14.2
2.2
12.0%
65.5
7.3
11.4
1.8
86.0
14.0
(0.3)
5.3
19.0
2.9
16.1%
66.1
6.8
11.0
1.9
85.7
14.3
(0.3)
—
14.0
2.1
11.9%
Fiscal Years Ended September 30, 2022 and 2021
The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2022, compared to the fiscal year ended
September 30, 2021. Following the table is a discussion and analysis of our business and results of operations for these fiscal years.
Revenue(1)
Operating expenses:
Cost of revenue
Research and development
Selling, general and administrative
Amortization of purchased intangible assets and other
Operating income
Interest and other expense, net
Gain from sale of a business
Income before income taxes
Income taxes
Net income
(1) Geographic Information:
North America (mainly United States)
Europe
Rest of the world
Revenue
Year Ended September 30,
2021
2022
Increase (Decrease)
Amount
%
(In thousands)
$4,576,697
$4,288,640
$ 288,057
6.7%
2,957,547
354,706
528,572
71,075
3,911,900
664,797
(26,391)
10,000
648,406
98,905
$ 549,501
2,810,967
312,941
487,255
78,784
3,689,947
598,693
(10,797)
226,410
814,306
125,932
$ 688,374
146,580
41,765
41,317
(7,709)
221,953
66,104
(15,594)
(216,410)
(165,900)
(27,027)
$(138,873)
5.2
13.3
8.5
(9.8)
6.0
11.0
144.4
(95.6)
(20.4)
(21.5)
(20.2)%
Year Ended September 30,
2021
2022
(In thousands)
Increase (Decrease)
Amount
%
$3,100,038
582,192
894,467
$4,576,697
$2,791,472
622,780
874,388
$4,288,640
$308,566
(40,588)
20,079
$288,057
11.1%
(6.5)
2.3
6.7%
34
Revenue. Revenue increased by $288.1 million, or 6.7%, to $4,576.7 million in fiscal year 2022, from $4,288.6 million in fiscal year 2021. The
increase in revenue was attributable primarily to an increase in managed services arrangements and transformation activities in North America reflecting
strong business activity building next-generation platforms for our customers and was partially offset by a decrease in revenue as a result of the
divestiture of OpenMarket completed on December 31, 2020, and negative impact from foreign exchange fluctuations. Revenue for fiscal year 2022,
excluding approximately 1.4%(1) negative foreign exchange fluctuations impact, primarily in Europe, increased by 8.1% compared to fiscal year 2021.
In fiscal year 2022, revenue from customers in North America, Europe and the rest of the world accounted for 67.8%, 12.7% and 19.5%,
respectively, of total revenue, compared to 65.1%, 14.5% and 20.4%, respectively, in fiscal year 2021.
In fiscal year 2022, revenue from customers in North America, Europe and the rest of the world increased (decreased) by 11.1%, (6.5%) and 2.3%
respectively, compared to fiscal year 2021. Excluding the negative impact of foreign exchange fluctuations as well as the divestiture of OpenMarket
completed on December 31, 2020, revenue from customers in all these regions increased in fiscal year 2022 compared to fiscal year 2021.
The increase in revenue from customers in North America was primarily attributable to higher revenue from managed services arrangements and
transformation activities from customers in North America, which was partially offset by the divestiture of OpenMarket completed on December 31,
2020.
Revenue from customers in Europe decreased in fiscal year 2022, primarily as a result of the negative impact of foreign exchange fluctuations as
well as the divestiture of OpenMarket completed on December 31, 2020. This decrease was partially offset by an increase in development and
modernization activities, as we expand our presence in this region.
Revenue from customers in the rest of the world in absolute amount increased while the percentage of total revenue increased at a higher rate,
which resulted in a decrease of revenue from customers in rest of the world as a percentage of total revenue. This increase was partially offset by the
negative impact of foreign exchange fluctuations.
Revenue from our two largest customers increased by 13.6% in fiscal year 2022 compared to fiscal year 2021. Revenue from all other customers,
excluding the two largest customers, increased by 1.3% in fiscal year 2022, however, excluding the impact of negative foreign exchange fluctuations of
2.5%(1) and the impact of the divestiture of OpenMarket of 3.8%, revenue from all other customers, excluding the two largest customers, increased by
7.6% in fiscal year 2022 compared to fiscal year 2021.
Cost of Revenue. Cost of revenue consists primarily of costs associated with providing services to customers, including compensation expense
and costs of third-party products, as well as fee and royalty payments to software suppliers. Cost of revenue increased by $146.6 million, or 5.2%, to
$2,957.5 million in fiscal year 2022, from $2,811.0 million in fiscal year 2021. The cost of revenue as a percentage of revenue decreased to 64.6% in
fiscal year 2022 from 65.5% in fiscal year 2021. This decrease in cost of revenue as a percentage of revenue was attributable to operational excellence
and efficiency initiatives through the ongoing implementation of automation and other sophisticated tools, the divestiture of OpenMarket completed on
December 31, 2020 (as OpenMarket’s cost of revenue as a percentage of revenue was higher than the Company average), and the impact of changes of
certain acquisition-related liabilities measured at fair value recognized in fiscal years 2022 and 2021. This decrease was partially offset by the increase
of cost due to the impact of foreign exchange fluctuations.
(1)
The total negative foreign exchange impact of our total revenue was 1.4% in fiscal year 2022, while the same foreign exchange impact calculated
against revenue from all other customers, excluding the two largest customers, was 2.5% in fiscal year 2022
35
Research and Development. Research and development expense is primarily comprised of compensation expense. Research and development
expense increased by $41.8 million, or 13.3%, to $354.7 million in fiscal year 2022, from $312.9 million in fiscal year 2021. Research and development
expense increased as a percentage of revenue from 7.3% in fiscal year 2021, to 7.8% in fiscal year 2022, as we have been accelerating our investment in
our cloud offerings, 5G and network related innovation and further developing our digital offerings. Our research and development efforts are a key
element of our strategy and are essential to our success, and we intend to maintain our commitment to research and development. However, an increase
or decrease in our revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development
expenditures, which could affect our operating margin. Please see “Research and Development, Patents and Licenses.”
Selling, General and Administrative. Selling, general and administrative expense, which is primarily comprised of compensation expense,
increased by $41.3 million, or 8.5%, to $528.6 million in fiscal year 2022, from $487.3 million in fiscal year 2021. Selling, general and administrative
expense slightly increased as a percentage of revenue from 11.4% in fiscal year 2021, to 11.5% in fiscal year 2022, the increase in selling expense was
commensurate with the revenue growth. Selling, general and administrative expense may fluctuate from time to time, depending upon such factors as
changes in our workforce and sales efforts and the results of any operational efficiency programs that we may undertake.
Amortization of Purchased Intangible Assets and Other. Amortization of purchased intangible assets and other decreased by $7.7 million, or
9.8%, to $71.1 million in fiscal year 2022, from $78.8 million in fiscal year 2021. The decrease in amortization of purchased intangible assets and other
was primarily attributable to a completion of amortization of previously purchased intangible assets, partially offset by an increase in amortization of
intangible assets due to recently completed acquisitions.
Operating Income. Operating income increased by $66.1 million, or 11.0%, to $664.8 million in fiscal year 2022, from $598.7 million in fiscal
year 2021. Operating income increased as a percentage of revenue, from 14.0% in fiscal year 2021 to 14.5% in fiscal year 2022. In fiscal year 2022 our
revenue increased at a higher rate than the increase in cost of revenue, which resulted in an increase in our operating income. The increase in operating
income was partially offset by an increase in research and development expense and selling, general and administrative expense. Our operating income
was negatively affected by foreign exchange fluctuations impacts.
Interest and Other Expense, Net. Interest and other expense, net, increased from a net expense of $10.8 million in fiscal year 2021 to a net
expense of $26.4 million in fiscal year 2022. The increase in interest and other expense, net, was primarily attributable to an increase in foreign
exchange fluctuation impacts and changes of minority equity investments measured at fair value, partially offset by decrease in interest expenses related
to borrowing.
Gain from Sale of a Business. Gain from sale of a business, for fiscal year 2022 decreased by $216.4 million, or 95.6% to $10.0 million from
$226.4 million for fiscal year 2021. Please see Note 3 to our consolidated financial statements.
Income Taxes. Income taxes for fiscal year 2022 were $98.9 million on pre-tax income of $648.4 million, resulting in an effective tax rate of
15.3% in fiscal year 2022, compared to 15.5% in fiscal year 2021. The slight decrease in the effective tax rate is primarily attributable to a tax benefit
recorded in fiscal year 2022, please see Note 10 to our consolidated financial statements. Our effective tax rate may fluctuate between periods as a result
of discrete items that may affect a particular period.
Net Income. Net income decreased by $138.9 million, or 20.2%, to $549.5 million in fiscal year 2022, from $688.4 million in fiscal year 2021.
The decrease in net income was primarily attributable to the gain from sale of a business, net of tax, which was recorded in fiscal year 2021, partially
offset by an increase in operating income and a decrease in income taxes in fiscal year 2022.
36
Diluted Earnings Per Share. Diluted earnings per share decreased by $0.88, or 16.5%, to $4.44 in fiscal year 2022, from $5.32 in fiscal year
2021. The decrease in diluted earnings per share was primarily attributable to the gain from sale of a business, net of tax, which increased the diluted
earnings per share for fiscal years 2022 and 2021, by $0.05 and $1.44, respectively. The decrease was attributable to a decrease in net income, partially
offset by the decrease in the diluted weighted average number of shares outstanding, which resulted from share repurchases. Please see also Note 20 to
our consolidated financial statements.
Fiscal Years Ended September 30, 2021 and 2020
The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2021, compared to the fiscal year ended
September 30, 2020. Following the table is a discussion and analysis of our business and results of operations for these fiscal years.
Revenue
Operating expenses:
Cost of revenue
Research and development
Selling, general and administrative
Amortization of purchased intangible assets and other
Operating income
Interest and other expense, net
Gain from sale of a business
Income before income taxes
Income taxes
Net income
Year Ended September 30,
2020
2021
(In thousands)
Increase (Decrease)
Amount
%
$4,288,640
$4,169,039
$ 119,601
2.9%
2,810,967
312,941
487,255
78,784
3,689,947
598,693
(10,797)
226,410
814,306
125,932
$ 688,374
2,755,563
282,042
458,539
78,137
3,574,281
594,758
(11,436)
—
583,322
85,482
$ 497,840
55,404
30,899
28,716
647
115,666
3,935
639
226,410
230,984
40,450
$190,534
2.0
11.0
6.3
0.8
3.2
0.7
(5.6)
100.0
39.6
47.3
38.3%
Revenue. Revenue increased by $119.6 million, or 2.9%, to $4,288.6 million in fiscal year 2021, from $4,169.0 million in fiscal year 2020. The
increase in revenue was attributable mainly to managed services arrangements, including managed transformation activities. Revenue for fiscal year
2021 increased by 2.9% compared to fiscal year ended September 30, 2020, including approximately 1.1% positive foreign exchange fluctuations
impact and was positively affected by activities related to recently completed acquisitions and negatively affected by a decrease in revenue as a result of
the divestiture of OpenMarket completed on December 31, 2020.
In fiscal year 2021, revenue from customers in North America, Europe and the rest of the world accounted for 65.1%, 14.5% and 20.4%,
respectively, of total revenue, compared to 65.3%, 14.7% and 20.0%, respectively, in fiscal year 2020. Revenue from customers in North America
increased in fiscal year 2021, while total revenue increased at a slightly higher rate, which resulted in a decrease in revenue from customers in North
America as a percentage of total revenue. The increase in revenue from customers in North America in absolute amount was primarily attributable to
higher revenue from managed services arrangements from key customers in North America and to a lesser extent to activities related to recently
completed acquisitions, which was partially offset by the divestiture of OpenMarket completed on December 31, 2020.
Revenue from customers in Europe increased in fiscal year 2021 while total revenue increased at a slightly higher rate, which resulted in a
decrease in revenue from customers in Europe as a percentage of total revenue and was positively affected by foreign exchange fluctuations impact. The
increase in revenue from customers in Europe was primarily attributable to higher revenue from development and modernization activities while we
expand our presence in this region, and partially offset by the divestiture of OpenMarket completed on December 31, 2020.
37
Revenue from customers in the rest of the world in Asia-Pacific increased in fiscal year 2021. The increase was attributable to wide number of
customers and activities within this region and was partially offset by the activities in other regions within the rest of the world.
Cost of Revenue. Cost of revenue consists primarily of costs associated with providing services to customers, including compensation expense
and costs of third-party products, as well as fee and royalty payments to software suppliers. Cost of revenue increased by $55.4 million, or 2.0%, to
$2,811.0 million in fiscal year 2021, from $2,755.6 million in fiscal year 2020. The cost of revenue as a percentage of revenue decreased to 65.5% in
fiscal year 2021 from 66.1% in fiscal year 2020. This decrease in cost of revenue as a percentage of revenue was attributable to operational excellence
initiatives through automation and new methodologies, as well as the divestiture of OpenMarket completed on December 31, 2020, as OpenMarket’s
cost of revenue as a percentage of revenue was higher than the Company average. This decrease was partially offset by the impact of changes of certain
acquisition-related liabilities measured at fair value recognized in fiscal year 2021.
Research and Development. Research and development expense is primarily comprised of compensation expense. Research and development
expense increased by $30.9 million, or 11.0%, to $312.9 million in fiscal year 2021, from $282.0 million in fiscal year 2020. Research and development
expense increased as a percentage of revenue from 6.8% in fiscal year 2020, to 7.3% in fiscal year 2021, as we accelerated our investment in our cloud
offerings, 5G and network related innovation and further developing our digital offerings. Our research and development efforts are a key element of our
strategy and are essential to our success, and we intend to maintain our commitment to research and development. However, increase or a decrease in
our revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could
affect our operating margin. Please see “Research and Development, Patents and Licenses.”
Selling, General and Administrative. Selling, general and administrative expense, which is primarily comprised of compensation expense,
increased by $28.7 million, or 6.3%, to $487.3 million in fiscal year 2021, from $458.5 million in fiscal year 2020. The increase was primarily
attributable to recent completed acquisitions and was also attributable to sales and marketing efforts, which were partially offset by lower travel costs as
a result of the COVID-19 restrictions. Selling, general and administrative expense may fluctuate from time to time, depending upon such factors as
changes in our workforce and sales efforts and the results of any operational efficiency programs that we may undertake.
Amortization of Purchased Intangible Assets and Other. Amortization of purchased intangible assets and other slightly increased by $0.6 million,
or 0.8%, to $78.8 million in fiscal year 2021, from $78.1 million in fiscal year 2020. The slight increase in amortization of purchased intangible assets
and other was primarily attributable to an increase in amortization of intangible assets due to recently completed acquisitions, and partially offset by the
completion of amortization of previously purchased intangible assets.
Operating Income. Operating income increased by $3.9 million, or 0.7%, to $598.7 million in fiscal year 2021, from $594.8 million in fiscal year
2020. Operating income decreased as a percentage of revenue, from 14.3% in fiscal year 2020 to 14.0% in fiscal year 2021. The decrease in operating
income as a percentage of revenue was attributable primarily to the increase in research and development expense, increase in selling, general and
administrative expense and changes in certain acquisition-related liabilities measured at fair value, partially offset by operational excellence initiatives
and by the divestiture of OpenMarket completed on December 31, 2020, in fiscal year 2021. The impact of foreign exchange fluctuations on our
operating income in fiscal year 2021 relative to fiscal year 2020, was immaterial.
Interest and Other Expense, Net. Interest and other expense, net, decreased from a net expense of $11.4 million in fiscal year 2020 to a net
expense of $10.8 million in fiscal year 2021. The decrease in interest and other expense, net, was primarily attributable to changes of minority equity
investments measured at fair value in fiscal 2021 compared to fiscal year 2020 and foreign exchange impacts, and partially offset by expenses related to
financing activities.
38
Gain from Sale of Business. Gain from sale of a business, for fiscal year 2021, was $226.4 million, while there was no such gain in fiscal year
2020. Please see Note 3 to our consolidated financial statements.
Income Taxes. Income taxes for fiscal year 2021 were $125.9 million on pre-tax income of $814.3 million, resulting in an effective tax rate of
15.5%, compared to 14.7% in fiscal year 2020. Absent the gain from sale of a business, the effective tax rate for fiscal year 2021, would have been
14.7%. Our effective tax rate may fluctuate between periods as a result of discrete items that may affect a particular period. Please see Note 10 to our
consolidated financial statements.
Net Income. Net income increased by $190.5 million, or 38.3%, to $688.4 million in fiscal year 2021, from $497.8 million in fiscal year 2020.
The increase in net income was primarily attributable to the gain from sale of a business, net of tax.
Diluted Earnings Per Share. Diluted earnings per share increased by $1.61, or 43.4%, to $5.32 in fiscal year 2021, from $3.71 in fiscal year
2020. The increase in diluted earnings per share was primarily attributable to the gain from sale of a business, net of tax, which increased the diluted
earnings per share for fiscal year 2021 by $1.44, and, to a lesser extent to the decrease in the diluted weighted average number of shares outstanding
which resulted from share repurchases. Please see also Note 20 to our consolidated financial statements.
Liquidity and Capital Resources
Cash, Cash Equivalents and Short-Term Interest-Bearing Investments. Cash, cash equivalents and short-term interest-bearing investments, totaled
$818.0 million as of September 30, 2022, compared to $965.6 million as of September 30, 2021. The decrease was mainly attributable to $508.5 million
used to repurchase our ordinary shares, $227.2 million for capital expenditures, net, $186.1 million of cash dividend payments, $24.4 million of
payments for business acquisitions and $18.3 million payments of contingent considerations, partially offset by $756.7 million in positive cash flow
from operations, reflecting healthy cash collections, $82.9 million of proceeds from stock option exercises and an additional $10.0 million cash received
from sale of a business. Net cash provided by operating activities amounted to $756.7 million and $925.8 million in fiscal years 2022 and 2021,
respectively. The net cash provided in fiscal year 2021 included the cash benefit of a multi-year strategic partnership agreement with T-Mobile.
Our free cash flow for fiscal year 2022, was $529.5 million, and is calculated as net cash provided by operating activities of $756.7 million for the
period less $227.2 million for capital expenditures, net (which included capital expenditures of $116.4 million as part of our investment in our new
campus in Israel).
Free cash flow is a non-GAAP financial measure and is not prepared in accordance with, and is not an alternative for, generally accepted
accounting principles and may be different from non-GAAP financial measures with similar names used by other companies. Non-GAAP measures such
as free cash flow should only be reviewed in conjunction with the corresponding GAAP measures. We believe that free cash flow, when used in
conjunction with the corresponding GAAP measure, provides useful information to investors and management relating to the amount of cash generated
by the Company’s business operations.
We believe that our current cash balances, cash generated from operations, our current lines of credit, loans, Senior Notes and our ability to access
capital markets will provide sufficient resources to meet our operational needs, loan and debt repayment needs, fund share repurchases and the payment
of cash dividends for at least the next fiscal year.
We have short-term interest-bearing investments comprised of marketable securities and bank deposits. We classify all of our marketable
securities as available-for-sale securities. Such marketable securities consist primarily of money market funds, corporate bonds, U.S. government
treasuries and municipal bonds, which are stated at market value. We believe we have conservative investment policy guidelines. Our interest-bearing
investments are stated at fair value with the unrealized gains or losses reported as a separate component of accumulated other comprehensive (loss)
income, net of tax, unless a security is impaired due to a credit loss, in
39
which case the loss is recorded in the consolidated statements of income. Our interest-bearing investments are priced by pricing vendors and are
classified as Level 1 or Level 2 investments, since these vendors either provide a quoted market price in an active market or use other observable inputs
to price these securities. During fiscal years 2022 and 2021 we did not recognize credit losses. Please see Notes 5 and 6 to our consolidated financial
statements.
Revolving Credit Facility, Loans, Senior Notes, Letters of Credit, Guarantees and Contractual Obligations. In December 2011, we entered into the
unsecured $500.0 million Revolving Credit Facility. In December 2014, December 2017 and March 2021, the Revolving Credit Facility was amended
and restated to, among other things, extend the maturity date of the facility to December 2019, December 2022 and March 2026, respectively. As of
September 30, 2022, we were in compliance with the financial covenants and had no outstanding borrowings under the Revolving Credit Facility.
In June 2020, we issued an aggregate principal amount of $650.0 million in Senior Notes that will mature in June 2030 and bear interest at a fixed
rate of 2.538 percent per annum (the “Senior Notes”). The interest is payable semi-annually in June and December of each year, commencing in
December 2020. We incurred issuance costs of $6.1 million in relation to the Senior Notes, which are being amortized to interest expenses over the term
of the Senior Notes using the effective interest rate. The Senior Notes are our senior unsecured obligations and rank equally in right of payment with all
of our existing and future senior indebtedness, including any indebtedness we may incur from time to time under the Revolving Credit Facility. As of
September 30, 2022, the noncurrent outstanding principal portion was $650.0 million. Please see Note 12 to our consolidated financial statements.
As of September 30, 2022, we had additional uncommitted lines of credit available for general corporate and other specific purposes and had
outstanding letters of credit and bank guarantees from various banks totaling $77.9 million. These were supported by a combination of the uncommitted
lines of credit that we maintain with various banks.
Acquisitions and Divestiture of Subsidiaries. During fiscal year 2022, we completed two immaterial acquisitions of technology companies,
DevOps and Roam, for an aggregate net consideration of $54.1 million in cash, and additional contingent consideration subject to the achievement of
certain performance metrics. In May 2022, the Company entered into a definitive agreement to acquire MYCOM-OSI, for approximately $188.0 million
in cash. Recently, we and MYCOM-OSI mutually and amicably decided not to move forward with the planned acquisition following a longer than
expected regulatory review process in the United Kingdom (that was still not complete). The definitive agreement has been terminated without any
payments by either party to the other. As previously disclosed, this acquisition was not material and the decision not to pursue it is not expected to have
an impact on our guidance. During fiscal year 2021, we acquired three immaterial technology companies, for an aggregate net consideration of
$101.9 million in cash, and additional contingent consideration subject to the achievement of certain performance metrics. Among them, the largest of
the three is Sourced Group, a leading global technology consultancy specializing in large-scale cloud transformations for sophisticated, high-end
enterprise customers in different industries such as communications, financial services and others. During fiscal year 2021, on December 31, 2020, we
completed the divestiture of OpenMarket for approximately $300.0 million in cash. Please see Note 3 to our consolidated financial statements.
During fiscal year 2020, we acquired three companies and other intangible assets for an aggregate net consideration of approximately
$280.8 million, among them, the largest of the three is Openet, which offers cloud-native capabilities, network pedigree, and deep 5G charging, policy
and data management expertise and whose solutions complement the Amdocs portfolio.
Capital Expenditures. Generally, the majority of our capital expenditures (excluding the investment in our new campus in Israel) consist of
purchases of computer equipment, and the remainder is attributable mainly to leasehold improvements. Our capital expenditures were approximately
$227.2 million in fiscal year 2022, net (which included capital expenditures of $116.4 million as part of our investment in our new campus in Israel).
Our fiscal year 2022 capital expenditures were mainly attributable to investments in our operating facilities and our development centers around the
world. The vast majority of the investment in our new campus has been incurred as of September 30, 2022, for more details, see the “Contractual
Obligations” item.
40
Share Repurchases. From time to time, our Board of Directors can adopt share repurchase plans authorizing the repurchase of our outstanding
ordinary shares. On May 12, 2021, our Board of Directors adopted a share repurchase plan authorizing the repurchase of up to $1.0 billion of our
outstanding ordinary shares with no expiration date. The May 2021 plan has no expiration date and permits us to purchase our ordinary shares in the
open market or through privately negotiated transactions at times and prices that we consider appropriate. In fiscal year 2022, we repurchased
approximately 6.5 million ordinary shares at an average price of $78.47 per share (excluding broker and transaction fees). As of September 30, 2022, we
had remaining authority to repurchase up to $490.1 million of our outstanding ordinary shares under the May 2021 plan.
Cash Dividends. Our Board of Directors declared the following dividends during fiscal years 2022, 2021 and 2020:
Declaration Date
August 3, 2022
May 11, 2022
February 1, 2022
November 2, 2021
August 4, 2021
May 12, 2021
February 2, 2021
November 10, 2020
August 5, 2020
May 7, 2020
February 4, 2020
November 12, 2019
Record Date
September 30, 2022
June 30, 2022
Dividends Per
Ordinary Share
0.395
$
0.395
$
$
0.395 March 31, 2022
$
$
$
$
$
$
$
$
$
0.3275
0.3275
0.3275
0.3275 March 31, 2020
0.36
0.36
0.36
0.36 March 31, 2021
0.285
December 31, 2020
September 30, 2020
June 30, 2020
December 31, 2021
September 30, 2021
June 30, 2021
December 31, 2019
Total Amount
(In millions)
47.7
$
48.2
$
48.5
$
44.4
$
45.0
$
45.6
$
46.0
$
42.9
$
43.1
$
43.6
$
43.7
$
38.4
$
Payment Date
October 28, 2022
July 29, 2022
April 29, 2022
January 28, 2022
October 29, 2021
July 23, 2021
April 23, 2021
January 22, 2021
October 23, 2020
July 24, 2020
April 24, 2020
January 24, 2020
On November 8, 2022, our Board of Directors approved a quarterly dividend payment of $0.395 per share and set December 30, 2022 as the
record date for determining the shareholders entitled to receive the dividend, which is payable on January 27, 2023. On November 8, 2022 our Board of
Directors also approved, subject to shareholder approval at the January 2023 annual general meeting of shareholders, an increase in the quarterly cash
dividend to $0.435 per share, anticipated to be paid in April 2023.
Our Board of Directors considers on a quarterly basis whether to declare and pay, if any, a dividend in accordance with the terms of the dividend
program, subject to applicable Guernsey law and based on several factors including our financial performance, outlook and liquidity. Guernsey law
requires that our Board of Directors consider a dividend’s effects on our solvency before it may be declared or paid. While the Board of Directors will
have the authority to reduce the quarterly dividend or discontinue the dividend program should it determine that doing so is in the best interests of our
shareholders or is necessary pursuant to Guernsey law, any increase to the per share amount or frequency of the dividend would require shareholder
approval.
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2022, and the effect such obligations are expected to have on our
liquidity and cash flows in future periods (in millions):
Contractual Obligations
Long-term debt and accrued interests
Pension funding
Purchase obligations
Non-cancelable operating leases
Total
Payments Due by Period
1-3
Less Than
4-5
Total
$ 654.8
8.2
141.5
207.5
$1,012.0
$
1 Year
4.8
0.8
90.8
49.4
$ 145.8
Years
—
2.6
50.7
67.9
$121.2
Years
—
1.7
—
42.8
$44.5
More Than
5 Years
$
$
650.0
3.1
—
47.4
700.5
41
As discussed in Note 2 to our consolidated financial statements, in fiscal year 2018 we purchased specific land to use as the future site of the new
campus in Ra’anana, Israel. The total net investment in connection with the construction of the new campus is estimated to be approximately
$350 million over a period of approximately five years, starting with fiscal year 2018, the vast majority of which has been incurred as of September 30,
2022, and the remaining expected net investment in our campus is included under the “Purchase Obligations.” Our new campus in Israel is now
substantially complete and our employees in Israel have already started the process of moving into the new premises during the first quarter of fiscal
year 2023.
The total amount of unrecognized tax benefits for uncertain tax positions was $213.0 million as of September 30, 2022. Payment of these
obligations would result from settlements with taxing authorities. Due to the difficulty in determining the timing of resolution of audits, these
obligations are not included in the above table.
Deferred Tax Asset Valuation Allowance
As of September 30, 2022, we had deferred tax assets of $56.9 million, which were offset by valuation allowances due to the uncertainty of
realizing any tax benefit for such credits and losses. These deferred tax assets derived primarily from tax credits, net capital and operating loss
carryforwards related to some of our subsidiaries, please see Note 10 to our consolidated financial statements.
Critical Accounting Policies
Our discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements
requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related
disclosure of contingent liabilities. On a regular basis, we evaluate and may revise our estimates. We base our estimates on historical experience and
various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent. Actual results could differ materially from the estimates under different assumptions
or conditions.
We believe that the estimates, assumptions and judgments involved in the accounting policies described in Note 2 “Summary of Significant
Accounting Policies” and below, have the greatest potential impact on our financial statements, so we consider these to be our critical accounting
policies. These policies require that we make estimates in the preparation of our financial statements as of a given date. Our critical accounting policies
are as follows:
•
•
•
•
•
•
Revenue recognition and contract accounting
Tax accounting
Business combinations
Goodwill, intangible assets and long-lived assets-impairment assessment
Derivative and hedge accounting
Accounts receivable reserves
We discuss these policies further below, as well as the estimates and judgments involved. We also have other key accounting policies. We believe
that, compared to the critical accounting policies listed above, the other policies either do not generally require us to make estimates and judgments that
are as difficult or as subjective, or it is less likely that they would have a material impact on our reported consolidated results of operations for a given
period.
42
Revenue Recognition and Contract Accounting
We follow very specific and detailed guidelines, which are discussed in Note 2 to our consolidated financial statements, in measuring revenue;
however, certain judgments affect the application of our revenue recognition policy:
•
•
•
•
We evaluate contracts entered into at or near the same time with the same customer (or related parties of the customer) and determine if the
contracts should be combined in accordance with the guidance for revenue recognition.
A significant portion of our revenue is recognized over the course of implementation and integration projects, usually based on a
percentage that incurred labor effort to date bears to total projected labor effort. The recognition of revenue over time requires the exercise
of judgment on a quarterly basis, such as with respect to estimates of progress-to-completion, contract revenue, loss contracts and contract
costs. Progress in completing such projects may significantly affect our annual and quarterly operating results.
Our revenue recognition policy takes into consideration the creditworthiness and past transaction history of each customer in determining
the probability of collection. This determination requires the exercise of judgment, which affects our revenue recognition. If we determine
that a fee is not collectible, we exclude the relevant fee from transaction price.
Many of our agreements include multiple performance obligations. We allocate the transaction price for each contract to each performance
obligation identified in the contract based on the relative standalone selling price (SSP). We determine SSP for the purposes of allocating
the transaction price to each performance obligation by considering several external and internal factors including, but not limited to,
transactions where the specific performance obligation is sold separately, historical actual pricing practices and geographies in which we
offer our services in accordance with ASC 606. The determination of SSP requires the exercise of judgement.
•
For transactions which involve third-party hardware, software and services, the determination of revenue recognition based on the gross
amount or on a net basis requires the exercise of judgment in considering whether we control the third-party hardware, software or services
prior to fulfilling the performance obligation.
Tax Accounting
As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax expense in each of the
jurisdictions in which we operate. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax
outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and reimbursement arrangements among related entities, the
process of identifying items of revenue and expenses that qualify for preferential tax treatment and segregation of foreign and domestic income and
expense to avoid double taxation. We also assess temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and
accounting differences. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets.
We apply an estimated annual effective tax rate to our quarterly operating results to determine the interim provision for income tax expense. A
change in judgment that impacts the measurement of a tax position taken in a prior year is recognized as a discrete item in the interim period in which
the change occurs. In the event there is a significant unusual or infrequent item recognized in our quarterly operating results, the tax attributable to that
item is recorded in the interim period in which it occurs
A valuation allowance is provided for the respective part of the deferred tax assets for which it is more likely than not that we will not be able to
realize its benefit. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the
deferred tax assets will not be
43
realized and adjust the valuation allowances accordingly. Factors considered in making this determination include the period of expiration of the tax
asset, planned use of the tax asset, tax planning strategies and historical and projected taxable income as well as tax liabilities for the tax jurisdiction in
which the tax asset is located. Valuation allowances will be subject to change in each future reporting period as a result of changes in one or more of
these factors.
Although we believe that our estimates are reasonable in estimating our tax outcome and in assessing the need for the valuation allowance, there is
no assurance that the final tax outcome and the valuation allowance will not be different than those that are reflected in our historical income tax
provisions and accruals. Such differences could have a material effect on our income tax provision, net income and cash balances in the period in which
such determination is made.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe
our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our
historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, or
changes in tax law. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the
provision for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions
and changes to reserves that are considered appropriate.
We have filed or are in the process of filing tax returns that are subject to audit by the respective tax authorities. Although the ultimate outcome is
unknown, we believe that any adjustments that may result from tax return audits are not likely to have a material adverse effect on our consolidated
results of operations, financial condition or cash flows.
Business Combinations
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to
tangible and intangible assets acquired and liabilities. In accordance with business combinations accounting, assets acquired and liabilities assumed, as
well as any contingent consideration that may be part of the acquisition agreement, are recorded at their respective fair values at the date of acquisition.
Such fair value valuations require management to make significant estimates and assumptions, especially with respect to intangible assets, as a result,
we obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the
purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
For acquisitions that include contingent consideration, the fair value is estimated on the acquisition date as the present value of the expected
contingent payments, determined using weighted probabilities of possible payments. We remeasure the fair value of the contingent consideration at each
reporting period until the contingency is resolved. Except for measurement period adjustments, the changes in fair value are recognized in the
consolidated statements of income. We consider several factors when determining that contingent consideration liabilities are part of the purchase price,
such as the following: the valuation of the acquisitions is not supported solely by the initial consideration paid, and the contingent
consideration payments are not affected by employment termination.
Although we believe the assumptions and estimates of fair value we have made in the past have been reasonable and appropriate, they are based in
part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and subject to
refinement. Critical estimates in valuing certain assets acquired and liabilities assumed include but are not limited to: future expected cash flows from
license and service sales, maintenance, customer contracts and acquired developed technologies, expected costs to develop the in-process research and
development into commercially viable products and estimated cash flows from the projects when completed and the acquired company’s brand
awareness and
44
discount rate. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual
results. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired
and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon
the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any
subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our consolidated statements of income.
We estimate the fair values of our services, hardware, software license and maintenance obligations assumed. The estimated fair values of these
performance obligations are determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs
related to fulfilling the obligations plus a normal profit margin.
As discussed above under “Tax Accounting,” we may establish a valuation allowance for certain deferred tax assets and estimate the value of
uncertain tax positions of a newly acquired entity. This process requires significant judgment and analysis.
Goodwill, Intangible Assets and Long-Lived Assets — Impairment Assessment
Our annual evaluation of impairment consists of either using a qualitative approach to determine whether it is more likely than not that the fair
value of the assets is less than their respective carrying values or a quantitative impairment test, if necessary. Quantitative impairment tests are
performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by
which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated
to that reporting unit. The process of evaluating the potential impairment of goodwill requires judgment during the analysis. In performing a qualitative
evaluation, we consider many factors in evaluating whether the carrying value of goodwill may not be recoverable, including changes in our stock price
and market capitalization in relation to our book value and macroeconomic conditions affecting our business. Please see Note 2 to our consolidated
financial statements. We perform an annual goodwill impairment test during the fourth quarter of each fiscal year, or more frequently if impairment
indicators are present. We operate in one operating segment, and this segment comprises our only reporting unit. Where a quantitative impairment test is
necessary, in calculating the fair value of the reporting unit, we used our market capitalization and a discounted cash flow methodology. There was no
impairment of goodwill in fiscal years 2022, 2021 or 2020.
We test long-lived assets, including definite life intangible assets, for impairment in the event an indication of impairment exists. Impairment
indicators include any significant changes in the manner of our use of the assets or the strategy of our overall business, significant negative industry or
economic trends and significant decline in our share price for a sustained period. If the sum of undiscounted future cash flows resulting from the use of
the cash generating unit and its eventual disposition is less than the carrying amount of such assets, an impairment would be recognized, and the assets
would be written down to their estimated fair values, based on expected future discounted cash flows. There was an immaterial impairment of long-lived
assets in fiscal year 2022, and no impairment for fiscal years 2021 or 2020.
Derivative and Hedge Accounting
During fiscal years 2022, 2021 and 2020, approximately 70% to 80% of our revenue and 50% to 60% of our operating expenses were
denominated in U.S. dollars or linked to the U.S. dollar. We enter into foreign exchange forward contracts and options to hedge a significant portion of
our foreign currency net exposure resulting from revenue and expense in major foreign currencies in which we operate, in order to reduce the impact of
foreign currency on our results. We also enter into foreign exchange forward contracts and options to reduce the impact of foreign currency on the
consolidated balance sheets items. We estimate the fair value of such derivative contracts by reference to forward and spot rates quoted in active
markets.
45
Establishing and accounting for foreign exchange contracts involve judgments, such as determining the fair value of the contracts, determining the
nature of the exposure, assessing its amount and timing, and evaluating the effectiveness of the hedging arrangement.
Although we believe that our estimates are accurate and meet the requirement of hedge accounting, if actual results differ from these estimates,
such difference could cause fluctuation of our recorded revenue and expenses.
Accounts Receivable Reserves
The allowance for doubtful accounts is for estimated losses resulting from accounts receivable and unbilled receivables for which their collection
is not reasonably assured. We evaluate accounts receivable to determine if they ultimately will be collected. Significant judgments and estimates are
involved in performing this evaluation, which we base on factors that may affect a customer’s ability to pay, such as past experience, credit quality of the
customer, age of the receivable balance and current economic conditions, reasonable and supportable forecasts of future economic conditions, and other
factors that may affect its ability to collect from customers. If the fee is not collectible at the time the transaction is consummated, we exclude the
relevant fee from the transaction price. The allowance for doubtful accounts, net of credit losses is for expected credit losses resulting from accounts
receivable and unbilled receivables for which their collection is not reasonably probable. If we estimate that our customers’ ability and intent to make
payments have been impaired, additional allowances may be required.
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would
result in materially different amounts being reported.
Recent Accounting Standards
Please see Note 2 to our consolidated financial statements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
We rely on the executive officers of our principal operating subsidiaries to manage our business. In addition, Amdocs Management Limited, our
management subsidiary, performs certain executive coordination functions for all of our operating subsidiaries. As of November 30, 2022, our directors
and officers were as follows:
Name
Age
Position
Robert A. Minicucci(1)(2)(3)
Adrian Gardner(1)
James S. Kahan(3)
Richard T.C. LeFave(1)(2)(3)
Giora Yaron(4)
Rafael de la Vega(2)
Eli Gelman(4)
John A. MacDonald(2)(4)
Yvette Kanouff(4)
Sarah Ruth Davis(1)
Shuky Sheffer
Tamar Rapaport-Dagim
Rajat Raheja
Matthew Smith
70
60
75
70
74
71
64
69
57
55
62
51
52
50
Chairman of the Board
Director and Chairman of the Audit Committee
Director
Director and Chairman of the Nominating and Corporate Governance Committee
Director and Chairman of the Technology and Innovation Committee
Director and Chairman of the Management Resources and Compensation Committee
Director
Director
Director
Director
Director, President and Chief Executive Officer
Chief Financial Officer and Chief Operating Officer
Division President, Amdocs Development Centre India LLP
Secretary; Head of Investor Relations
(1) Member of the Audit Committee
46
(2) Member of the Management Resources and Compensation Committee
(3) Member of the Nominating and Corporate Governance Committee
(4) Member of the Technology and Innovation Committee
Robert A. Minicucci has been Chairman of the Board of Directors of Amdocs since 2011 and a director since 1997. Mr. Minicucci joined Welsh,
Carson, Anderson & Stowe, or WCAS, in 1993. Mr. Minicucci has served as a managing member of the general partners of certain funds affiliated with
WCAS and has focused on the information and business services industry. Until 2003, investment partnerships affiliated with WCAS had been among
our largest shareholders. From 1992 to 1993, Mr. Minicucci served as Senior Vice President and Chief Financial Officer of First Data Corporation, a
provider of information processing and related services for credit card and other payment transactions. From 1991 to 1992, he served as Senior Vice
President and Treasurer of the American Express Company. He served for 12 years with Lehman Brothers (and its predecessors) until his resignation as
a Managing Director in 1991. Mr. Minicucci was a director of one other publicly-held company, Alliance Data Systems, Inc. until June 2020. He is also
a director of several private companies. Mr. Minicucci’s career in information technology investing, including as a director of more than 20 different
public and private companies, and his experience as chief financial officer to a public company and treasurer of another public company, has provided
him with strong business acumen and strategic and financial expertise.
Adrian Gardner has been a director of Amdocs since 1998 and is Chairman of the Audit Committee. Mr. Gardner serves as Chief Operating
Officer of Stonehage Fleming Family & Partners Limited, an international Multi-Family Office business, since October 2019. Mr. Gardner has served as
a member of the Audit & Risk Committee of Worcester College, Oxford University since May 2017 and as its chair since June 2022. From 2016 to
2019, Mr. Gardner served as Chief Financial Officer of Ipes Holdings Limited, a provider of outsourced services to private equity firms. From 2014 to
September 2016, Mr. Gardner served as Chief Financial Officer of International Personal Finance plc, an international home credit business.
Mr. Gardner was Chief Financial Officer and a director of RSM Tenon Group PLC, a London-based accounting and advisory firm from 2011 until the
acquisition in 2013 of its operating subsidiaries by Baker Tilly UK Holdings Limited, since renamed RSM UK Limited. Mr. Gardner was Chief
Financial Officer of PA Consulting Group, a London-based business consulting firm from 2007 to 2011. Mr. Gardner was Chief Financial Officer and a
director of ProStrakan Group plc, a pharmaceuticals company based in the United Kingdom and listed on the London Stock Exchange, from 2002 until
2007. Prior to joining ProStrakan, he was a Managing Director of Lazard LLC, based in London, where he worked with technology and
telecommunications-related companies. Prior to joining Lazard in 1989, Mr. Gardner qualified as a chartered accountant with Price Waterhouse (now
PricewaterhouseCoopers). Mr. Gardner’s extensive experience as an accountant, technology investment banker and chief financial officer enables him to
make valuable contributions to our strategic and financial affairs.
James S. Kahan has been a director of Amdocs since 1998 and previously served as Chairman of the Nominating and Corporate Governance
Committee from January 2018 and until November 2021. From 1983 until his retirement in 2007, he worked at SBC Communications Inc., which is
now AT&T, and served as a Senior Executive Vice President from 1992 until 2007. AT&T is our most significant customer. Prior to joining AT&T,
Mr. Kahan held various positions at several telecommunications companies, including Western Electric, Bell Laboratories, South Central Bell and AT&T
Corp. Mr. Kahan also serves on the Board of Directors of Live Nation Entertainment, Inc., a publicly-traded live music and ticketing entity, as well as
one private company.
Mr. Kahan’s long service at SBC Communications Inc. and AT&T, as well as his management and financial experience at several public and private
companies, have provided him with extensive knowledge of the telecommunications industry, particularly with respect to corporate development,
mergers and acquisitions and business integration.
Richard T.C. LeFave has been a director of Amdocs since 2011 and is the Chairman of the Nominating and Corporate Governance Committee.
Since 2008, Mr. LeFave has been a Principal at D&L Partners, LLC, an information technology consulting firm. Mr. LeFave served as Chief
Information Officer for Nextel Communications, a telecommunications company, from 1999 until its merger with Sprint Corporation in 2005,
47
after which he served as Chief Information Officer for Sprint Nextel Corporation until 2008. From 1995 to 1999, Mr. LeFave served as Chief
Information Officer for Southern New England Telephone Company, a provider of communications products and services. Mr. LeFave has held the
Chief Information Officer position including CISO duties for a U.S.-based manufacturing firm and attended Harvard Business School (“HBS”) courses
in Board Compensation and Audit Committee strategies and completed his HBS Corporate Director Certificate. We believe Mr. LeFave’s qualifications
to sit on our board include his extensive experience and leadership in the information technology and telecommunications industry.
Giora Yaron has been a director of Amdocs since 2009 and is Chairman of the Technology and Innovation Committee.
Dr. Yaron co-founded Itamar Medical Ltd., a publicly-traded medical technology company acquired by Zoll Medical in September 2021.
He co-founded P-cube, Pentacom, Qumranet, Exanet and Comsys, privately-held companies sold to multinational corporations. In 2009, Dr. Yaron
also co-founded Qwilt, Inc., a privately-held edge computing technology company and serves as one of its directors. Dr. Yaron served as a director of
Hyperwise Security, a company focused on providing a comprehensive APT protection, which was sold to Checkpoint in early 2015, served as
Chairman of the Board at Excelero (ExpressIO) until 2019, a company focused on providing ultra-fast block storage solution and Equalum focused on
streaming in real-time changes from a variety of data bases to a unified platform for real-time Big Data Analytics, which was sold to Nvidia in early
2022. Dr. Yaron is an active investor in various companies including Salto, Afforata, Vulcan Security, Aqua Security, CyberPion, Kubia.AI, Privya.AI
and Illumex. Dr. Yaron has served as the chairman of The Executive Council of Tel Aviv University, an institution of higher education, between 2010-
2019 and a director of Ramot, which is the Tel Aviv University’s technology transfer company until 2015. Dr. Yaron has served on the advisory board of
Rafael Advanced Defense Systems, Ltd., a developer of high-tech defense systems, since 2008, and on the advisory board of the Israeli Ministry of
Defense since 2011. Dr. Yaron served from 1996 to 2006 as a member of the Board of Directors of Mercury Interactive, a publicly-traded IT
optimization software company acquired by Hewlett-Packard, including as chairman from 2004 to 2006. We believe that Dr. Yaron’s qualifications to sit
on our Board of Directors include his experience as an entrepreneur and the various leadership positions he has held on the boards of directors of
software and technology companies.
Rafael de la Vega has been a director of Amdocs since January 2018 and is Chairman of the Management Resources and Compensation
Committee. Since 2017, he has served as the Chairman and Founder of the De La Vega Group, a consultancy and advisory services firm. From February
2016 to December 2016, Mr. de la Vega served as the Vice Chairman of AT&T Inc. and CEO of Business Solutions & International. From 2014 to 2016,
Mr. de la Vega served as President and CEO of AT&T Mobile and Business Solutions and from 2007 to 2014 he served as the President and CEO of
AT&T Mobility. Mr. de la Vega also held various positions at several telecommunications companies, including Cingular Wireless and Bell South Latin
America. During his time at Cingular Wireless, he was responsible for the integration of AT&T Wireless and Cingular Wireless. He also serves on the
boards of American Express Company and New York Life Insurance Company. He served on the Executive Committee of the Boy Scouts of America
until May 2018 and served as Chairman of the 2017 Boy Scouts Jamboree. He is the former Chairman of Junior Achievement Worldwide and continues
to serve on its board of directors. In June 2018, Mr. de la Vega joined as the Vice Chairman of the Board of Directors of Ubicquia LLC. In September
2018 he joined the Board of Advisors of RapidSOS. Mr. de la Vega also recently joined Forté Ventures as a Limited Partner. We believe Mr. de la Vega’s
qualifications to sit on our Board of Directors include his extensive experience and leadership in the telecommunications industry.
Eli Gelman has been a director of Amdocs since 2002. Since January 2019, Mr. Gelman serves as the chairman of the Executive Council of Tel
Aviv University. Mr. Gelman served as our President and Chief Executive Officer from 2010 to September 30, 2018. From 2010 until 2013, Mr. Gelman
served as a director of Retalix, a global software company, and during 2010, he also served as its Chairman. From 2008 to 2010, Mr. Gelman devoted
his time to charitable matters focused on youth education. He served as Executive Vice President of Amdocs Management Limited from 2002 until 2008
and as our Chief Operating Officer from 2006 until 2008. Prior to 2002, he was a Senior Vice President, where he headed our U.S. sales and marketing
operations and helped spearhead our entry into the customer care and billing systems market. Before that,
48
Mr. Gelman was an account manager for our major European and North American installations, and has led several major software development
projects. Before joining Amdocs, Mr. Gelman was involved in the development of real-time software systems for communications networks and
software projects for NASA. Mr. Gelman’s qualifications to serve on our Board of Directors include his more than two decades of service to Amdocs
and its customers, including as our Chief Operating Officer and President and Chief Executive Officer. With more than 30 years of experience in the
software industry, he possesses a vast institutional knowledge and strategic understanding of our organization and industry.
John A. MacDonald has been a director of Amdocs since 2019. Mr. MacDonald is an experienced senior executive who has worked at some of
Canada’s largest technology organizations and serves as a board member of BookJane Inc. From 2012 to 2021, Mr. MacDonald served as a board
member of Rogers Communications Inc. From 2003 to 2008, Mr. MacDonald served as the President, Enterprise Division of MTS Allstream. Before
that, between 2002 to 2003, Mr. MacDonald was a President and Chief Operating Officer AT&T Canada. AT&T Canada was re-branded Allstream in
2003 and was subsequently acquired by MTS the following year. In 1994 Mr. MacDonald joined Bell Canada as its Chief Technology Officer and
retired from Bell Canada in 1999 as its President and Chief Operating Officer. From 1977 to 1994 Mr. MacDonald worked at NBTel, where he became
Chief Executive Officer in 1994. We believe Mr. MacDonald’s qualifications to sit on our Board of Directors include his extensive experience and
leadership in the telecommunications industry.
Yvette Kanouff has been a director of Amdocs since 2020. Since August 2018, Ms. Kanouff has served as a director of Sprinklr CXM, which
became a public company in June 2021. Since August 2019, Ms. Kanouff has served as a director of Science Applications International Corporation
(SAIC). Since February 2021, Ms. Kanouff has served as a director of Entegris ENTG. Ms. Kanouff is currently a partner and chief technology officer at
Silicon Valley-based venture capital and private equity firm JC2 Ventures where Ms. Kanouff is responsible for technology strategy and engineering
relationships within JC2 Ventures investment companies, partners, and customers. Prior to that, Ms. Kanouff served as a senior vice president and
general manager for Cisco’s Service Provider Business where she was responsible for more than $7 billion in direct revenue and more than 6,000
employees globally. Previously, Ms. Kanouff held leadership positions for numerous companies, including Cablevision, SeaChange International, and
Time Warner. Ms. Kanouff holds a bachelor’s degree, a master’s degree in mathematics from the University of Central Florida and completed her HBS
Corporate Director Certificate. Ms. Kanouff is also a director and executive advisor of several private technology companies.
Sarah Ruth Davis has been a director of Amdocs since 2021. From 2007 to May 2021, Ms. Davis served in various executive roles at Loblaw
Companies Limited, Canada’s largest retailer and the nation’s food and pharmacy leader. From 2017 until May 2021, Ms. Davis served as the president
of Loblaw Companies Limited. From 2014 until 2017, Ms. Davis served as the chief administrative officer of Loblaw. Before being appointed as the
chief administrative officer, Ms. Davis served as Loblaw’s chief financial officer from 2010 until 2014. Prior to her appointment as chief financial
officer, Ms. Davis served as the financial controller between 2007 to 2010. From 2005 until 2007, she was the controller and vice president of finance of
Rogers Communications, Inc. Between 1996 to 2005, Ms. Davis served in various finance and accounting roles with Bell Canada, including chief
financial officer of Bell Nexxia and the vice president of complex bids at BCE Emergis Inc., a Bell spin-off that owned an array of media and
e-commerce companies. Since 2014 Ms. Davis also serves on the board of directors of AGF Management Limited, an investment manager traded on the
Toronto Stock Exchange. Between 2010 and 2021 Ms. Davis served on the board of directors of President’s Choice Bank. From 2017 until 2021,
Ms. Davis served as the chairman of T&T Supermarket Inc. In August 2021, Ms. Davis joined the boards of directors of Victoria’s Secret & Co., a
company traded on the New York Stock Exchange, and Pet Valu Holdings Ltd., a pet supply company traded on the Toronto Stock Exchange. Ms. Davis
was named one of Canada’s Most Powerful Women: Top 100 in 2011 by the Women’s Executive Network and was the executive sponsor of the
Women@Loblaw network. Ms. Davis holds a Bachelor of Commerce, honors degree from Queen’s University and is a chartered accountant and Fellow
of the CPA.
49
Shuky Sheffer is a director and has been our President and Chief Executive Officer since October 1, 2018. Mr. Sheffer previously served as Senior
Vice President and President of the Global Business Group from October 2013 to September 30, 2018. Mr. Sheffer served as Chief Executive Officer of
Retalix Ltd., a global software company, from 2009 until its acquisition by NCR Corporation in 2013. Following the acquisition, he served as a General
Manager of Retalix through September 2013. From 1986 to 2009, Mr. Sheffer served at various managerial positions at Amdocs, most recently as
President of the Emerging Markets Divisions.
Tamar Rapaport-Dagim has been our Chief Financial Officer since 2007, and our Chief Operating Officer since October 1, 2018. Ms. Rapaport-
Dagim is also the chair of several executive committees of Amdocs and a member of all of them. Ms. Rapaport-Dagim served as our Vice President of
Finance from 2004 until 2007. Prior to joining Amdocs, from 2000 to 2004, Ms. Rapaport-Dagim was the Chief Financial Officer of Emblaze, a
provider of multimedia solutions over wireless and IP networks. She has also served as controller of Teledata Networks (formerly a subsidiary of ADC
Telecommunications) and has held various finance management positions in public accounting.
Rajat Raheja has been our Division President for India operations since February 2016. Mr. Raheja has close to 23 years of experience and most
recently served as Director, Global Services at Deloitte Consulting. Prior to joining Amdocs, Mr. Raheja held leadership positions in Deloitte
Consulting, Arthur Andersen, PricewaterhouseCoopers and Tata Telecom.
Matthew Smith has been Secretary of Amdocs Limited since January 2015. Mr. Smith joined Amdocs in October 2012 as Director of Investor
Relations and has been Head of Investor Relations since January 2014. Prior to joining Amdocs, from April 2006 to August 2012, Mr. Smith was a
research director at A.I. Capital Management, a hedge fund, where he covered many sectors, including the technology sub-sectors of IT hardware,
semiconductors, software and IT services. From April 2001 to April 2006, Mr. Smith was an equity analyst at CIBC World Markets (now Oppenheimer
Co.).
Compensation
During fiscal 2022, each of our directors who was not our employee, or Non-Employee Directors, received compensation for their services as
directors in the form of cash and restricted shares. Each Non-Employee Director received an annual cash payment of $80,000. Each member of our
Audit Committee who is a Non-Employee Director and who is not the chairman of such committee received an annual cash payment of $30,000. Each
member of our Management Resources and Compensation Committee who is a Non-Employee Director and who is not a committee chairman received
an annual cash payment of $20,000. Each member of our Nominating and Corporate Governance and Technology and Innovation Committees who is a
Non-Employee Director and who is not a committee chairman received an annual cash payment of $15,000. The Chairman of our Audit Committee
received an annual cash payment of $42,500 and the Chairman of our Management Resources and Compensation Committee received an annual cash
payment of $32,500. The Chairmen of our Nominating and Corporate Governance and Technology and Innovation Committees each received an annual
cash payment of $27,500. Each Non-Employee Director received an annual grant of restricted shares at a total value of $255,000. The Chairman of the
Board of Directors received an additional annual amount equal to $200,000 awarded in the form of restricted shares. The restricted share awards to our
Non-Employee Directors vest quarterly. The price per share for the purpose of determining the value of the grants to our Non-Employee Directors was
the Nasdaq closing price of our shares on the last trading day preceding the grant date.
We enforce stock ownership guidelines that capture the Board of Directors and executive management population, requiring each to comply with
benchmark equity holdings at all times (to be achieved over 5 years). The policy includes the following holding guidelines:
•
•
•
Board of Directors – 6X over annual cash retainer
CEO – 6X over annual base salary
CFO / COO and top executives – 2X-4X over annual base salary
50
We also reimburse all of our Non-Employee Directors for their reasonable travel expenses incurred in connection with attending Board or
committee meetings and for other reasonable expenses incurred while executing their responsibilities as directors. Cash and equity compensation paid to
our Non-Employee Directors may be prorated for partial-year service.
A total of 14 persons who served either as directors or officers of Amdocs during all or part of fiscal 2022 received remuneration from Amdocs.
The aggregate remuneration paid or accrued by us to such persons in fiscal 2022 was approximately $6.0 million, compared to $5.3 million and
$5.3 million in fiscal 2021 and fiscal 2020, respectively, which includes amounts set aside or accrued to provide cash bonuses, pension, retirement or
similar benefits, but does not include amounts expended by us for automobiles made available to such persons, expenses (including business travel,
professional and business association dues) or other fringe benefits. During fiscal 2022, we granted to such persons an aggregate of 216,122 restricted
shares typically subject to three- to four-year vesting and, often times, achievement of certain performance thresholds, and in the case of our directors,
subject to quarterly vesting. All restricted share awards were granted pursuant to our 1998 Stock Option and Incentive Plan, as amended. See discussion
below — “Share Ownership — Employee Stock Option and Incentive Plan.”
The following table summarizes our compensation philosophy for our directors and executive management — “What we do?” and “What we
don’t do?”:
What we do?
✓ We seek to provide an appropriate mix of short and long-term incentives
✓ No minimum guaranteed vesting for performance-based equity
What we don’t do?
awards
✓ We target at least 50-70% of executive management compensation to be
✓ No guaranteed performance bonuses
performance-contingent
✓ We strive to align executive management compensation with
shareholders return through equity incentive awards
✓ No executive contracts with multi-year guaranteed salary
increases or nonperformance bonus arrangements
✓ We set performance objectives, which we believe will drive shareholder
✓ No loans to executives or directors
returns
✓ We use a combination of performance metrics, such as total shareholder
return (TSR), earnings per share (EPS) and revenue growth, to ensure
that no single measure affects compensation disproportionately
✓ We generally subject equity grants to vesting periods of three to four
years to motivate long-term performance, align the interests of executive
management and shareholders and provide an incentive for retention
✓ We established stock ownership requirements for executive management
and non-employee directors
✓ We include a clawback policy for cash and equity incentive awards
Board Practices
Eleven directors currently serve on our Board of Directors, all of whom were elected at our annual meeting of shareholders on January 28, 2022.
All directors hold office until the next annual meeting of our shareholders, which generally is in January or February of each calendar year, or until their
respective successors are duly elected and qualified or their positions are earlier vacated by resignation or otherwise. In August 2017, the Board
51
of Directors established a mandatory retirement age of 73 for directors. No person of or over the age of 73 years shall be nominated or elected to start a
new term as director, unless the Chairman of the Board of Directors recommends to the Board of Directors, and the Board of Directors determines, to
waive the retirement age for a specific director in exceptional circumstances. Once the waiver is granted, it must be renewed annually for it to stay in
effect. In August 2021, Mr. James Kahan and Mr. Giora Yaron were each granted a one-year waiver to continue as director past the age of 73 years until
the annual general meeting in 2023 in light of the circumstances presented to the Board of Directors, including their exceptional industry experience and
value to the Board, as well as the then-current global business and market environment. Other than the employment agreement between us and our
President and Chief Executive Officer, which provides for immediate cash severance upon termination of employment, there are currently no service
contracts in effect between us and any of our directors providing for immediate cash severance upon termination of their employment.
Board Committees
Our Board of Directors maintains four committees as set forth below. Members of each committee are appointed by the Board of Directors.
The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the
selection of our independent registered public accounting firm, the scope of the annual audits, fees to be paid to, and the performance of, such public
accounting firm, and assists with the Board of Directors’ oversight of our accounting practices, financial statement integrity and compliance with legal
and regulatory requirements, including establishing and maintaining adequate internal control over financial reporting, risk assessment and risk
management. The current members of our Audit Committee are Mr. Gardner (Chair), Mr. LeFave, Mr. Minicucci and Ms. Davis, all of whom are
independent directors, as defined by the rules of Nasdaq, and pursuant to the categorical director independence standards adopted by our Board of
Directors. The Board of Directors has determined that each of Mr. Gardner and Ms. Davis is an “audit committee financial expert” as defined by rules
promulgated by the SEC, and that each member of the Audit Committee is financially literate as required by the rules of Nasdaq. In particular, we
believe that the professional experiences of Mr. Gardner, Mr. LeFave, Mr. Minicucci and Ms. Davis provide important insights into their work on the
Audit Committee. For example, we believe Mr. Gardner’s extensive experience as an accountant, technology investment banker and chief financial
officer enables him to make valuable contributions to the Committee. In addition, we believe that Mr. LeFave’s experience as a seasoned Fortune 500
CIO with CISO responsibilities for over five years provides a foundation of cyber awareness to the Audit Committee and also believe that Mr. LeFave’s
post-graduate training at HBS in Audit Committee best practices as part of his HBS Corporate Director Certificate provides valuable contributions to the
Committee. Similarly, we believe that Mr. Minicucci’s experience as chief financial officer to a public company and treasurer of another public company
have provided him with strong business acumen and strategic and financial expertise that benefits the Committee. We also believe Ms. Davis’s extensive
executive experience with Loblaw and her myriad roles in finance and accounting, along with her experience as a director of other public companies,
position her to make valuable contributions to the Committee. The Audit Committee written charter is available on our website at www.amdocs.com.
The Nominating and Corporate Governance Committee identifies individuals qualified to become members of our Board of Directors,
recommends to the Board of Directors the persons to be nominated for election as directors at the annual general meeting of shareholders, develops and
makes recommendations to the Board of Directors regarding our corporate governance principles, oversees the evaluations of our Board of Directors
and reviews and recommends compensation (including equity-based compensation) for our directors. The current members of the Nominating and
Corporate Governance Committee are Messrs. LeFave (Chair), Kahan and Minicucci, all of whom are independent directors, as required by the Nasdaq
listing standards, and pursuant to the categorical director independence standards adopted by our Board of Directors. The Nominating and Corporate
Governance Committee written charter is available on our website at www.amdocs.com. The Nominating and Corporate Governance Committee has
approved corporate governance guidelines that are also available on our website at www.amdocs.com.
52
The Management Resources and Compensation Committee discharges the responsibilities of our Board of Directors relating to the compensation
of the Chief Executive Officer of Amdocs Management Limited, makes recommendations to our Board of Directors with respect to the compensation of
our other executive officers and oversees management succession planning for the executive officers of the Company. The current members of our
Management Resources and Compensation Committee are Messrs. de la Vega (Chair), LeFave, Minicucci and MacDonald, all of whom are independent
directors, as defined by the rules of Nasdaq, and pursuant to the categorical director independence standards adopted by our Board of Directors.
Amongst its responsibilities, the Management Resources and Compensation Committee:
•
•
•
•
•
retains, on an annual basis, an independent compensation consultant to assist in its evaluation of executive compensation according to
industry benchmarks and best practice;
periodically reviews the relevant peer groups used for compensation benchmarks;
periodically reviews the implementation of our compensation philosophy and programs;
administers our 1998 Stock Option and Incentive Plan, as amended, and any other stock option or equity incentive plans in accordance
with their terms; and
reviews executive compensation in consideration of clawback provisions, in line with its charter.
The Management Resources and Compensation Committee written charter is available on our website at www.amdocs.com.
The Technology and Innovation Committee was established to assist the Board of Directors in reviewing our technological development,
opportunities and innovation, in connection with the current and future business and markets. The current members of our Technology and Innovation
Committee are Dr. Yaron (Chair) and Mr. Gelman, Ms. Kanouff and Mr. MacDonald.
Our non-employee directors receive no compensation from us, except in connection with their membership on the Board of Directors and its
committees as described above regarding Non-Employee Directors under “— Compensation.”
Workforce Personnel
The following table presents the approximate average number of our workforce for each of the fiscal years indicated, by function and by
geographical location (in each of which we operate at multiple sites):
Software and Information Technology, Sales and Marketing
Americas
EMEA
APAC
Management and Administration
Total Workforce
2022
Fiscal Year,
2021
2020
6,043
6,276
16,299
28,618
1,670
30,288
5,465
6,087
14,083
25,635
1,541
27,176
5,522
5,957
12,815
24,294
1,581
25,875
As a company with global operations, we are required to comply with various labor and immigration laws throughout the world. Our employees in
certain countries of Europe, and to a limited extent in Canada and Brazil, are protected by mandatory collective bargaining agreements. To date,
compliance with such laws has not been a material burden for us. As the number of our employees increases over time in specific countries, our
compliance with such regulations could become more burdensome.
53
Our principal operating subsidiaries are not party to any collective bargaining agreements. However, our Israeli subsidiaries are subject to certain
provisions of general extension orders issued by the Israeli Ministry of Labor and Welfare which derive from various labor related statutes. The most
significant of these provisions provide for mandatory pension benefits and wage adjustments in relation to increases in the consumer price index, or CPI.
The amount and frequency of these adjustments are modified from time to time.
A small number of our employees in Canada, our employees in Brazil and our employees in Chile have union representation. We also have an
affiliation with a non-active union in Mexico. We have a works council body in the Netherlands and Germany which represents the employees and with
which we work closely to ensure compliance with the applicable local law. We also have an employee representative body in France and Finland.
In recent years, Israeli labor unions have increased their efforts to organize workers at companies with significant operations in Israel, including
several companies in the technology sector. In addition, a national union and a group of our employees had attempted to secure the approval of the
minimum number of employees needed for union certification with respect to our employees in Israel. While these efforts have not resulted in either
group being recognized as a representative union, we cannot be certain there will be no such efforts in the future. In the event an organization is
recognized as a representative union for our employees in Israel, we would be required to enter into negotiations to implement a collective bargaining
agreement. See “Risk Factors — The skilled and highly qualified workforce that we need to develop, implement and modify our solutions may be
difficult to hire, train and retain, and we could face increased costs to attract and retain our skilled workforce.”
We consider our relationship with our employees to be good and have never experienced an organized labor dispute, strike or work stoppage.
Share Ownership
Security Ownership of Directors and Senior Management and Certain Key Employees
As of November 30, 2022, the aggregate number of our ordinary shares beneficially owned by our directors and executive officers was 2,145,405
shares. As of November 30, 2022, none of our directors or members of senior management beneficially owned 1% or more of our outstanding ordinary
shares.
Beneficial ownership by a person, as of a particular date, assumes the exercise of all options and warrants held by such person that are currently
exercisable or are exercisable within 60 days of such date.
Stock Option and Incentive Plan
Our Board of Directors adopted, and our shareholders approved, our 1998 Stock Option and Incentive Plan, as amended, which we refer to as the
Equity Incentive Plan, pursuant to which up to 70,550,000 of our ordinary shares may be issued.
The Equity Incentive Plan provides for the grant of restricted shares, stock options and other stock-based awards to our directors, officers,
employees and consultants. The purpose of the Equity Incentive Plan is to enable us to attract and retain qualified personnel and to motivate such
persons by providing them with an equity participation in Amdocs. As of September 30, 2022, of the 70,550,000 ordinary shares available for issuance
under the Equity Incentive Plan, 62,807,409 ordinary shares had been issued as a result of option exercises and restricted share issuances. As of
September 30, 2022, 4,857,147 ordinary shares remained available for future grants, subject to a sublimit applicable to the award of restricted shares or
awards denominated in stock units. As of November 30, 2022, there were outstanding options to purchase an aggregate of 2,310,540 ordinary shares at
exercise prices ranging from $35.69 to $72.19 per share and 433,502 shares are subject to outstanding restricted stock units.
54
The Equity Incentive Plan is administered by a committee of our Board of Directors, which determines the terms of awards for directors,
employees and consultants as well as the manner in which awards may be made subject to the terms of the Equity Incentive Plan. The Board of
Directors may amend or terminate the Equity Incentive Plan, provided that shareholder approval is required to increase the number of ordinary shares
available under the Equity Incentive Plan, to materially increase the benefits accruing to participants, to change the class of employees eligible for
participation, to decrease the basis upon which the minimum exercise price of options is determined or to extend the period in which awards may be
granted or to grant an option that is exercisable for more than ten years. Ordinary shares subject to restricted stock awards are subject to certain
restrictions on sale, transfer or hypothecation. Under its terms, no awards may be granted pursuant to the Equity Incentive Plan after January 28, 2025.
2023 Employee Share Purchase Plan
On November 8, 2022, our Board of Directors adopted, subject to approval by our shareholders, the Amdocs Limited 2023 Employee Share
Purchase Plan, or the ESPP. The ESPP will be presented to our shareholders for approval at the annual general meeting of shareholders to be held in
2023, and, if approved, will become effective upon the filing of a Form S-8 Registration Statement with the U.S. Securities and Exchange Commission.
As approved by our Board of Directors, the maximum number of our ordinary shares that may be issued under the ESPP will not exceed in the aggregate
2,400,000 ordinary shares.
If approved by our shareholders, the ESPP will be administered by the Management Resources and Compensation Committee of our Board of
Directors and will provide eligible employees of Amdocs and its participating subsidiaries with an opportunity to acquire a proprietary interest in our
Company through the purchase of ordinary shares. The ESPP will include both a “423 Component,” which is intended to qualify as an “employee stock
purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended, or the Code, and a “Non-423 Component,” which is not intended
to qualify as such. Under the ESPP, participants will have the right to purchase ordinary shares at the end of each purchase period under the ESPP based
on their accumulated payroll deductions during the purchase period of a specified percentage of eligible compensation (up to 10%). Unless determined
otherwise, each purchase period under the ESPP will be six months in duration, and the purchase price per ordinary share will equal the lesser of 85% of
the fair market value of our ordinary shares at either the beginning of the purchase period or the end of the purchase period.
The Management Resources and Compensation Committee may amend the ESPP at any time in its discretion, except that shareholder approval
will be required for any amendment to increase the number of ordinary shares available under the ESPP or to make any other change that would require
shareholder approval in order for the ESPP to qualify as an “employee stock purchase plan” under Section 423 of the Code. The ESPP may be
terminated at any time by our Board of Directors.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
The following table sets forth specified information with respect to the beneficial ownership of the ordinary shares as of November 30, 2022 of
(i) any person known by us to be the beneficial owner of more than 5% of our ordinary shares, and (ii) all of our directors and executive officers as a
group. Beneficial ownership is determined in accordance with the rules of the SEC and, unless otherwise indicated, includes voting and investment
power with respect to all ordinary shares, subject to community property laws, where applicable. The number of ordinary shares used in calculating the
percentage beneficial ownership included in the table below is based on 120,816,602 ordinary shares outstanding as of November 30, 2022, net of shares
held in treasury. Information concerning shareholders other than our directors and officers is based on periodic public filings made by such
55
shareholders and may not necessarily be accurate as of November 30, 2022. None of our major shareholders have voting rights that are different from
those of any other shareholder.
Name
FMR LLC(1)
Janus Henderson Group plc(2)
Massachusetts Financial Services Company(3)
All directors and officers as a group (14 persons)(4)
Shares Beneficially
Owned
16,303,174
7,185,211
6,303,951
2,145,405
Percentage
Ownership
13.5%
5.9%
5.2%
1.8%
(1) Based on a Schedule 13G/A filed by FMR LLC, or FMR, with the SEC on February 9, 2022, as of December 31, 2021, FMR had sole power to
vote or direct the vote over 1,743,053 shares and sole power to dispose or direct the disposition of 16,303,174 shares. Abigail P. Johnson is a
Director, the Chairman of FMR and the Chief Executive Officer of FMR. Members of the Johnson family, including Abigail P. Johnson, directly
or through trusts, own approximately 49% of the voting power of FMR. The address of FMR is 245 Summer Street, Boston, Massachusetts 02210.
(2) Based on a Schedule 13G/A filed by Janus Henderson Group plc, or Janus Henderson, with the SEC on February 10, 2022, as of December 31,
2021, Janus Henderson has an indirect 97% ownership stake in Intech Investment Management LLC (“Intech”) and a 100% ownership stake in
Janus Henderson Investors U.S. LLC (“JHIUS”), Henderson Global Investors Limited (“HGIL”) and Janus Henderson Investors Australia
Institutional Funds Management Limited (“JHIAIFML”), (each an “Asset Manager” and collectively as the “Asset Managers”). Due to the above
ownership structure, holdings for the Asset Managers are aggregated for purposes of this filing. Each Asset Manager is an investment adviser
registered or authorized in its relevant jurisdiction and each furnishing investment advice to various fund, individual and/or institutional clients
(collectively referred to herein as “Managed Portfolios”). As a result of its role as investment adviser or sub-adviser to the Managed Portfolios,
JHIUS may be deemed to be the beneficial owner of 6,965,869 shares or 5.6% of the shares outstanding of Amdocs Common Stock held by such
Managed Portfolios. However, JHIUS does not have the right to receive any dividends from, or the proceeds from the sale of, the securities held in
the Managed Portfolios and disclaims any ownership associated with such rights. The address of Janus Henderson is 201 Bishopsgate EC2M 3AE,
United Kingdom.
(3) Based on a Schedule 13G filed by Massachusetts Financial Services Company, or MFS, with the SEC on February 2, 2022, as of December 31,
(4)
2021, MFS had sole power to vote or direct the vote over 5,622,052 shares and sole power to dispose or direct the disposition of 6,303,951 shares.
Includes options held by such directors and executive officers that are exercisable within 60 days after November 30, 2022. As of such date, none
of our directors or executive officers beneficially owned 1% or more of our outstanding ordinary shares.
As of September 30, 2022, our ordinary shares were held by 2,220 record holders. Based on a review of the information provided to us by our
transfer agent, 980 record holders, including Cede & Co., the nominee of The Depository Trust Company, holding approximately 99% of our
outstanding ordinary shares held of record, were residents of the United States.
Related Party Transactions
None.
ITEM 8. FINANCIAL INFORMATION
Financial Statements
Please see “Financial Statements” for our audited Consolidated Financial Statements and Financial Statement Schedule filed as part of this Annual
Report.
56
Legal Proceedings
We are involved in various legal claims and proceedings arising in the normal course of our business. We accrue for a loss contingency when we
determine that it is probable, after consultation with counsel, that a liability has been incurred and the amount of such loss can be reasonably estimated.
At this time, we believe that the results of any such contingencies, either individually or in the aggregate, will not have a material adverse effect on our
financial position, results of operations or cash flows.
Certain of our subsidiaries are currently in a dispute with a state-owned telecom enterprise in Ecuador, which appears to have political
aspects. Our counterparty has claimed monetary damages. The dispute is over contracts, under which we were providing certain services, which have
been terminated by the counterparty in connection with such dispute and which are under scrutiny by certain local governmental authorities. We believe
we have solid arguments and are vigorously defending our rights. While we have achieved positive results in many of the procedures, a number of the
procedures are still ongoing. We are unable to reasonably estimate the ultimate outcome of the above dispute.
Dividend Policy
Please refer to “Liquidity and Capital Resources — Cash Dividends” for a discussion of our dividend policy.
ITEM 9. THE OFFER AND LISTING
On December 19, 2013, we voluntarily withdrew our ordinary shares from the New York Stock Exchange and transferred our listing to the Nasdaq
Global Select Market (“Nasdaq”) and commenced trading on Nasdaq on December 20, 2013. Our ordinary shares were quoted on the New York Stock
Exchange (“NYSE”) from 1998 to 2013 under the symbol “DOX” and are now quoted on Nasdaq under the same symbol.
ITEM 10. ADDITIONAL INFORMATION
Memorandum and Articles of Incorporation
Amdocs Limited is registered as a company with limited liability pursuant to the laws of the Island of Guernsey with company number 19528 and
whose registered office situated at Hirzel House, Smith Street, St Peter Port, Guernsey, GY1 2NG. The telephone number at that location is
+44-1481-728444.
Our Memorandum of Incorporation, or the Memorandum, provides that the objects and powers of Amdocs Limited are not restricted and our
Articles of Incorporation, or the Articles, provide that our business is to engage in any lawful act or activity for which companies may be organized
under the Companies (Guernsey) Law, 2008, as amended, or the Companies Law.
The Articles grant the Board of Directors all the powers necessary for managing, directing and supervising the management of the business and
affairs of Amdocs Limited.
Article 70(1) of the Articles provides that a director may vote in respect of any contract or arrangement in which such director has an interest
notwithstanding such director’s interest and an interested director will not be liable to us for any profit realized through any such contract or
arrangement by reason of such director holding the office of director. Article 71(1) of the Articles provides that the directors shall be paid out of the
funds of Amdocs Limited by way of fees such sums as the Board shall reasonably determine. Article 73 of the Articles provides that directors may
exercise all the powers of Amdocs Limited to borrow money, and to mortgage or charge its undertaking, property and uncalled capital or any part
thereof, and to issue securities whether outright or as security for any debt, liability or obligation of Amdocs Limited for any third party. Such borrowing
powers can only be altered through an amendment to the Articles by special resolution. Our Memorandum and Articles do not impose a requirement on
the directors to own shares of Amdocs Limited in order to serve as directors; however, the Board of Directors has adopted guidelines for minimum share
ownership by the directors.
57
The Board of Directors is authorized to issue a maximum of (i) 25,000,000 preferred shares and (ii) 700,000,000 ordinary shares, consisting of
voting and non-voting ordinary shares without further shareholder approval. As of September 30, 2022, 120,842,660 ordinary shares were outstanding
(net of treasury shares) and no non-voting ordinary shares or preferred shares were outstanding. The rights, preferences and restrictions attaching to each
class of the shares are set out in the Memorandum and Articles and are as follows:
Preferred Shares
•
•
•
•
Issue — The preferred shares may be issued from time to time in one or more series of any number of shares up to the amount authorized.
Authorization to Issue Preferred Shares — Authority is vested in the directors from time to time to authorize the issue of one or more
series of preferred shares and to provide for the designations, powers, preferences and relative participating, optional or other special rights
and qualifications, limitations or restrictions thereon.
Relative Rights — All shares of any one series of preferred shares must be identical with each other in all respects, except that shares of
any one series issued at different times may differ as to the dates from which dividends shall accrue.
Liquidation — In the event of any liquidation, dissolution or winding-up of Amdocs Limited, the holders of preferred shares are entitled to
a preference with respect to payment over the holders of any shares ranking junior to the preferred in liquidation at the rate fixed in any
resolution or resolutions adopted by the directors in such case plus an amount equal to all dividends accumulated to the date of final
distribution to such holders. Except as provided in the resolution or resolutions providing for the issue of any series of preferred shares, the
holders of preferred shares are entitled to no further payment. If upon any liquidation our assets are insufficient to pay in full the amount
stated above, then such assets shall be distributed among the holders of preferred shares ratably in accordance with the respective amount
such holder would have received if all amounts had been paid in full.
•
Voting Rights — Except as otherwise provided for by the directors upon the issue of any new series of preferred shares, the holders of
preferred shares have no right or power to vote on any question or in any proceeding or to be represented at, or to receive notice of, any
meeting of shareholders.
Ordinary Shares and Non-Voting Ordinary Shares
Except as otherwise provided by the Memorandum and Articles, the ordinary shares and non-voting ordinary shares are identical and entitle
holders thereof to the same rights and privileges.
•
•
•
•
Dividends — When and as dividends are declared on our shares, the holders of voting ordinary shares and non-voting shares are entitled to
share equally, share for share, in such dividends except that if dividends are declared that are payable in voting ordinary shares or
non-voting ordinary shares, dividends must be declared that are payable at the same rate in both classes of shares.
Conversion of Non-Voting Ordinary Shares into Voting Ordinary Shares — Upon the transfer of non-voting ordinary shares from the
original holder thereof to any third party not affiliated with such original holder, non-voting ordinary shares are redesignated in our books
as voting ordinary shares and automatically convert into the same number of voting ordinary shares.
Liquidation — Upon any liquidation, dissolution or winding-up, any assets remaining after creditors and the holders of any preferred
shares have been paid in full shall be distributed to the holders of voting ordinary shares and non-voting ordinary shares equally share for
share.
Voting Rights — The holders of voting ordinary shares are entitled to vote on all matters to be voted on by the shareholders, and the
holders of non-voting ordinary shares are not entitled to any voting rights.
58
•
Preferences — The voting ordinary shares and non-voting ordinary shares are subject to all the powers, rights, privileges, preferences and
priorities of the preferred shares as are set out in the Articles.
As regards both preferred shares and voting and non-voting ordinary shares, we have the power to purchase any of our own shares, whether or not
they are redeemable and may make a payment out of capital for such purchase. If we repurchase shares off market, the repurchase must be approved by
special resolution of our shareholders. If we are making a market acquisition of our own shares, the acquisition must be approved by an ordinary
resolution of our shareholders. In practice, we expect that we would continue to effect any future repurchases of our ordinary shares through our
subsidiaries.
The Articles now provide that our directors, officers and other agents will be indemnified by us from and against all liabilities to Amdocs Limited
or third parties (including our shareholders) sustained in connection with their performance of their duties, except to the extent prohibited by the
Companies Law. Under the Companies Law, Amdocs Limited may not indemnify a director for certain excluded liabilities, which are:
•
•
•
•
•
fines imposed in criminal proceedings;
regulatory fines;
expenses incurred in defending criminal proceedings resulting in a conviction;
expenses incurred in defending civil proceedings brought by Amdocs Limited or an affiliated company in which judgment is rendered
against the director; and
expenses incurred in unsuccessfully seeking judicial relief from claims of a breach of duty.
In addition to the excluded liabilities listed above, directors may also not be indemnified by us for liabilities to us or any of our subsidiaries arising
out of negligence, default, breach of duty or breach of trust of a director in relation to us or any of our subsidiaries. The Companies Law authorizes
Guernsey companies to purchase insurance against such liabilities to companies or to third parties for the benefit of directors. We currently maintain
such insurance. Judicial relief is available for an officer charged with a neglect of duty if the court determines that such person acted honestly and
reasonably, having regard to all the circumstances of the case.
There are no provisions in the Memorandum or Articles that provide for a classified board of directors or for cumulative voting for directors.
If the share capital is divided into different classes of shares, Article 11 of the Articles provides that the rights attached to any class of shares
(unless otherwise provided by the terms of issue) may be varied with the consent in writing of the holders of three-fourths of the issued shares of that
class or with the sanction of a special resolution of the holders of the shares of that class.
A special resolution is defined by the Companies Law as being a resolution passed by a majority of shareholders representing not less than 75% of
the total voting rights of the shareholders present in person or by proxy.
Rather than attend general or special meetings of our shareholders, shareholders may confer voting authority by proxy to be represented at such
meetings. Generally speaking, proxies will not be counted as voting in respect of any matter as to which abstention is indicated, but abstentions will be
counted as ordinary shares that are present for purposes of determining whether a quorum is present at a general or special meeting. Nominees who are
members of NYSE and who, as brokers, hold ordinary shares in “street name” for customers have, by NYSE rules, the authority to vote on certain items
in the absence of instructions from their customers, the beneficial owners of the ordinary shares. If such nominees or brokers indicate that they do not
have authority to vote shares as to a particular matter, we will not count those votes in favor of such matter; however, such “broker non-votes” will be
counted as ordinary shares that are present for purposes of determining whether a quorum is present.
59
Provisions in respect of the holding of general meetings and extraordinary general meetings are set out at Articles 22-41 of the Articles. The
Articles provide that an annual general meeting must be held once in every calendar year (provided that not more than 15 months have elapsed since the
last such meeting) at such time and place as the directors appoint. The shareholders of the Company may waive the requirement to hold an annual
general meeting in accordance with the Companies Law. The directors may, whenever they deem fit, convene an extraordinary general meeting. General
meetings may be convened by any shareholders holding more than 10% in the aggregate of Amdocs Limited’s share capital. Shareholders may
participate in general meetings by video link, telephone conference call or other electronic or telephonic means of communication.
A minimum of ten days’ written notice is required in connection with an annual general meeting and a minimum of 14 days’ written notice is
required for an extraordinary general meeting, although a general meeting may be called by shorter notice if all shareholders entitled to attend and vote
agree. The notice shall specify the place, the day and the hour of the meeting, and in the case of any special business, the general nature of that business
and details of any special resolutions, waiver resolutions or unanimous resolutions being proposed at the meeting. The notice must be sent to every
shareholder and every director and may be published on a website.
At general meetings, the Chairman of the Board may choose whether a resolution put to a vote shall be decided by a show of hands or by a poll.
However, a poll may be demanded by not less than five shareholders having the right to vote on the resolution or by shareholders representing not less
than 10% of the total voting rights of all shareholders having the right to vote on the resolution.
A shareholder is entitled to appoint another person as his proxy to exercise all or any of his rights to attend and to speak and vote at a meeting of
Amdocs Limited.
Amdocs Limited may pass resolutions by way of written resolution.
There are no limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting
rights on the securities.
There are no provisions in the Memorandum or Articles that would have the effect of delaying, deferring or preventing a change in control of
Amdocs Limited or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or any of our subsidiaries).
There are no provisions in the Memorandum or Articles governing the ownership threshold above which our shareholder ownership must be
disclosed. U.S. federal law, however, requires that all directors, executive officers and holders of 10% or more of the stock of a company that has a class
of stock registered under the Securities Exchange Act of 1934, as amended (other than a foreign private issuer, such as Amdocs Limited), disclose such
ownership. In addition, holders of more than 5% of a registered equity security of a company (including a foreign private issuer) must disclose such
ownership.
The directors may reduce our share capital or any other capital subject to us satisfying the solvency requirements set out in the Companies Law.
Material Contracts
In March 2021, we entered into a Third Amended and Restated Credit Agreement among us, certain of our subsidiaries, the lenders from time to
time party thereto and JPMorgan Chase Bank, N.A., as administrative agent, providing for an unsecured $500 million five-year revolving credit facility
with a syndicate of banks (the “Amended and Restated Credit Agreement”). The facility is available for general corporate purposes, including
acquisitions and repurchases of our ordinary shares that we may consider from time to time, and has a maturity date in March 2026. The Amended and
Restated Credit Agreement replaces our Credit Agreement, dated as of December 11, 2017, by and among us, certain of our subsidiaries, JPMorgan
Chase Bank, N.A., as administrative agent, J.P. Morgan Europe Limited, as London agent, and JPMorgan Chase Bank, N.A., Toronto branch, as
Canadian agent. A copy of the Amended and Restated Credit Agreement is included as Exhibit 4.c to this Annual Report.
60
In November 2021, we entered into the First Amendment to the Amended and Restated Credit Agreement, in which we adopted technical changes
to facilitate moving from a LIBOR-based lending standard to a SONIA- based lending standard, as needed. A copy of the First Amendment to the
Amended and Restated Credit Agreement is included as Exhibit 4.c.1 to this Annual Report.
In October 2021, we entered into a Restated and Amended Master Services and Software License Agreement with AT&T Services, Inc., as
amended, which amends and restates the Master Services Agreement, as amended, that we entered into with AT&T Services, Inc. in February 2017. The
agreement, as amended, provides that Amdocs will provide software and services to AT&T as specified therein and remains in effect until October 15,
2025. A copy of the Restated and Amended Master Services and Software License Agreement, as amended, is included as Exhibits 4.a and 4.a.1 – 4.a.5
to this Annual Report.
In the past two years, we have not entered into any material contracts other than contracts entered into in the ordinary course of our business.
Taxation
Taxation of the Company
The following is a summary of certain material tax considerations relating to Amdocs and our subsidiaries. To the extent that the discussion is
based on tax legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the
discussion will be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax
advice and is not exhaustive of all possible tax considerations.
General
Our effective tax rate was 15.3% for fiscal 2022, compared to 15.5% for fiscal 2021 and 14.7% for fiscal 2020.
Our effective tax rate may fluctuate between periods as a result of discrete items that may affect a particular period and there can be no assurance
that our effective tax rate will not change over time as a result of a change in corporate income tax rates or other changes in the tax laws of Guernsey, the
jurisdiction in which our holding company is organized, or of the various countries in which we operate, including the potential impact, which we are
continuously assessing, of the tax reform in the United States. Moreover, our effective tax rate in future years may be adversely affected in the event that
a tax authority challenges the manner in which items of income and expense are allocated among us and our subsidiaries. In addition, we and certain of
our subsidiaries benefit from certain special tax benefits. The loss of any such tax benefits could have an adverse effect on our effective tax rate.
Certain Guernsey Tax Considerations
Tax legislation in Guernsey subjects us to the standard rate of corporate income tax for a Guernsey resident company of zero percent.
Certain Indian Tax Considerations
Through subsidiaries, we operate development centers and a business processing operations center in India. In 2022, the corporate tax rate
applicable in India on trading activities was 34.94% for development center and reduced corporate tax at 27.82% for business processing operations
having gross turnover up to a prescribed threshold. Our main subsidiary in India operates under specific favorable tax entitlements that are based upon
pre-approved information technology-related services activity. As a result, these activities are entitled to considerable corporate income tax concessions
on eligible profits from export of services derived from such pre-approved information technology activity, provided our subsidiary continues to meet
the conditions required for such tax benefits.
61
During the years 2016–2017, our main subsidiary in India changed its corporate legal structure from a private limited company (PLC) to a limited
liability partnership (LLP) through conversion by process of law effective February 28, 2017. Thereafter, all rights and liabilities of the PLC under
agreements are vested in the LLP by operation of law.
As of April 1, 2011, the Minimum Alternative Tax, or MAT, became applicable to all of our PLC Indian operations. The MAT is levied on book
profits at the effective rate of 17.48% and can be carried forward for 15 years to be credited against corporate income taxes. As for the LLP, as a result of
the conversion certain accumulated tax credits are not available to be set off against future income of the LLP; however, for LLP the Alternative
Minimum Tax, or AMT, provisions are applicable such that LLPs are subject to AMT at a rate of 21.55% on adjusted total income (income as computed
under the normal provisions, increased by prescribed adjustments) if tax on income under normal provisions is lower than the AMT, and can be carried
forward for 15 years.
Our main Indian subsidiary is subject to a separate tax entitlement under which its operating units are exempt from tax on the respective tax
incentive-eligible activity if 50% of the profits of the unit are credited to a specific reserve provided that such reserve is utilized for the purpose of
investments in plant and machinery within three years from the end of the year in which reserve is created. If such reserve is not utilized for the purpose
specified in the Indian Tax Laws, the same will be deemed as income in the year immediately following the period of three years in which the reserve is
made. The tax incentive regime also requires that employees work from specified designated premises. This requirement may conflict with our current
hybrid work model and, as such, our main Indian subsidiary is now planning to gradually exit the tax incentive regime. Once the exit is finalized, the tax
incentive of 50% reduction / deduction on corporate income tax will no longer be available. While the exact date of exit is not finalized as of the date of
filing, the authorities in India were notified in October 2022 by our Indian subsidiary of its decision to gradually exit the regime.
Further, in 2018 a new operation was commenced in another subsidiary in India with effect from May 1, 2018. The activity conducted by this
entity is generally entitled to a 100% reduction on its corporate income tax for the first five years of operation and a 50% reduction for the following
five years. MAT is levied on book profits at an effective rate of 16.69% and can be carried forward for 15 years to be credited against corporate income
taxes. One of the conditions for availment of this tax incentive is that the employees are required to work from specified designated premises. While this
condition has been fulfilled previously, due to the changing work environment following the COVID-19 pandemic, the authorities have provided an
option for companies to request for permission for a percentage of their employees to work from home and continue to avail of the incentives. An
application was accordingly filed by this subsidiary and permission has been granted by the Indian tax authorities, allowing for up to 80% of the total
workforce in such subsidiary to work from home. Accordingly, such permission is expected to ensure that the subsidiary continues to benefit from the
tax incentive similar to prior years.
Certain Israeli Tax Considerations
Our primary Israeli subsidiary, Amdocs (Israel) Limited, operates one of our largest development centers. Discussed below are certain Israeli tax
considerations relating to this subsidiary.
General Corporate Taxation in Israel. The general corporate tax rate on taxable income is 23%. However, the effective tax rate applicable to the
taxable income of an Israeli company that is eligible for tax benefits by virtue of the Law for the Encouragement of Capital Investments may be
considerably lower.
Law for the Encouragement of Capital Investments, 1959. Certain production and development facilities of our primary Israeli subsidiary have
been granted “Approved Enterprise” status pursuant to the Law for the Encouragement of Capital Investments, 1959, or the Investment Law, which
provides certain tax and financial benefits to investment programs that have been granted such status. Such status was subsequently extended and
expanded several times pursuant to the terms of the Investment Law of 2005.
62
More recently, our primary Israeli subsidiary has availed itself of tax benefits under the “Preferred Technological Enterprise” regime, which has
become available as a result of a further amendment to the Law for the Encouragement of Capital Investments which was enacted in 2017. Further
details can be found below.
Tax Benefits
Until December 31, 2020, our primary Israeli subsidiary had elected the alternative benefits route with respect to its Approved Enterprise and its
expansions, pursuant to which it enjoyed, in relation to its Approved Enterprise operations, certain tax holidays, based on the location of activities within
Israel, for a period of two to ten years and, in the case of a two year tax holiday, reduced tax rates for an additional period of up to eight years (and, in
certain cases, up to 13 years). In case it were to pay a dividend, at any time, out of exempt income generated during the tax holiday period in respect of
its Approved Enterprise, it would have been subject to corporate tax at the otherwise applicable rate of 10% of the taxable income from which such
dividend was paid. This corporate level tax, which was essentially a recapture of corporate tax from which the corporation was previously exempt, was
in addition to the shareholder level withholding tax on dividends as described below. The exempt earnings subject to potential recapture were commonly
referred to as “previously exempt earnings.”
Within the framework of the Israeli budget law enacted on November 15, 2021 (the “Amendment”), a temporary order (“TO”) provided
companies with the opportunity to pay, at their discretion, a reduced corporate tax rate on such “previously exempt earnings” during one-year “window”,
which ends on December 14, 2022. The exact reduced corporate tax rate applicable to the “previously exempt earnings” is calculated by applying a
formula specified in the TO. In any event, the tax rate cannot be less than 6%.
In respect of our primary Israeli subsidiary, the 6% tax rate (instead of the 10% tax rate), i.e., the full benefit, will apply provided that the Israeli
subsidiary elects to apply the benefit to all of its previously exempt earnings within the defined period. Our primary Israeli subsidiary has elected to pay
the reduced corporate tax of 6% on all of its “previously exempt earnings,” and has notified the Israeli tax authorities accordingly. As of the date of
filing, our primary Israeli subsidiary has paid the tax at the reduced rate on all of its “previously exempt earnings.”
The tax benefits, available with respect to an Approved Enterprise only to taxable income attributable to that specific enterprise, are provided
according to an allocation formula set forth in the Investment Law or in the relevant approval, and are contingent upon the fulfillment of the conditions
stipulated by the Investment Law, the regulations issued thereunder and the instruments of approval for the specific investments in the Approved
Enterprises. In the event our primary Israeli subsidiary fails to comply with these conditions, the tax and other benefits could be rescinded, in whole or
in part, and the subsidiary might be required to refund the amount of the rescinded benefits, with the addition of CPI linkage differences and interest. We
believe that the Approved Enterprise of our primary Israeli subsidiary substantially complies with all such conditions currently, but there can be no
assurance that it will continue to do so.
Dividends. Dividends paid out of income derived by an Approved Enterprise are subject to withholding tax at a reduced rate (15%, compared with
the general rate of 30%). If a dividend is paid by our primary Israeli subsidiary, such dividend may be distributed out of income from both Approved
Enterprises and non-Approved Enterprises. As such, we expect the weighted average withholding tax rate applicable to such dividend to be
approximately 20%. This withholding tax shall be levied in addition to the corporate tax to which our primary Israeli subsidiary shall be subject in the
event it pays a dividend out of earnings generated during the tax holiday period related to its Approved Enterprise status.
The 2017 amendment (“Preferred Technological Enterprises”)
Amendment 73 to the Investment Law, which came into effect January 1, 2017, was followed by regulations promulgated on May 28, 2017, which
incorporated the “Nexus Principles,” based on OECD guidelines published as part of the Base Erosion and Profit Shifting (BEPS) project, into Israeli
law. The OECD has since then confirmed that the regime adopted by Israel is “not harmful.”
63
The new incentives regime applies to “Preferred Technological Enterprises” that meet certain conditions. A key condition for the application of the
benefits pursuant to the Preferred Technological Enterprise regime is the ownership of “Qualifying IP.”
The corporate tax rate applicable to the Preferred Technological Income generated by a Special Preferred Technological Enterprise (companies
that qualify as a Preferred Technological Enterprise and which are part of a group with annual consolidated revenue in excess of NIS 10 billion —
approximately US $3 billion at current exchange rates) is 6%. The reduced tax rate applies only with respect to the revenue attributable to the portion of
intellectual property developed in Israel. The Preferred Technological Income is calculated for each tax year by applying the “Nexus” formula as
detailed in Israeli regulations.
The withholding tax on dividends paid to a foreign parent company holding at least 90% of the shares of the distributing company out of earnings
that are eligible for the reduced corporate tax rate (in our case, 6%) is 4%. For other dividend distributions out of earnings of a Preferred Technological
Enterprise, the withholding tax rate is 20% (or a lower rate under a tax treaty, if applicable). The application of the Preferred Technological Enterprise is
not limited to a particular time period.
In 2021, our primary Israeli subsidiary elected for the first time to apply the Preferred Technological Enterprise regime to its activities.
Accordingly, our primary Israeli subsidiary will be eligible for the benefits of the Preferred Technological Enterprise regime to the extent of its Preferred
Technological Income for the tax (calendar) year 2021 and for any subsequent tax year in which it meets the conditions stipulated in the Encouragement
Law. Provided that the consolidated annual turnover of the group continues to be in excess of the NIS 10 billion threshold (as has been the case in recent
years), we expect that our primary Israeli subsidiary will qualify as a Special Preferred Technological Enterprise also in calendar tax year 2022 and in
future years and, as a result, its Preferred Technological Income will be taxed at a rate of 6% and dividends distributed out of earnings generated under
the Special Preferred Technological Enterprise regime will be subject to withholding tax at a rate of 4%. However, there can be no assurance that this
beneficial tax treatment will apply in any future year (for example, as a result of a change in law or if any of the conditions stipulated in the
Encouragement Law are not met in a particular year).
Taxation of Holders of Ordinary Shares
Certain Guernsey Tax Considerations
Under the laws of Guernsey as currently in effect, a holder of our ordinary shares who is not a resident of Guernsey (which includes Alderney and
Herm for these purposes) and who does not carry on business in Guernsey through a permanent establishment situated there is not subject to Guernsey
income tax on dividends paid with respect to the ordinary shares and is not liable for Guernsey income tax on gains realized upon sale or disposition of
such ordinary shares. In addition, Guernsey does not impose a withholding tax on dividends paid by us to a holder of our ordinary shares who is not a
resident of Guernsey and who does not carry on business in Guernsey through a permanent establishment situated there. Under Guernsey tax legislation,
a holder of our ordinary shares who is a Guernsey resident or who carries on business in Guernsey through a permanent establishment may, depending
on their circumstances, be subject to Guernsey income tax in connection with dividends paid by us and where such holder is a Guernsey resident
individual, such tax may be collected by way of withholding from the dividend. We do not believe this legislation affects the taxation of a holder of
ordinary shares who is not a resident of Guernsey and who does not carry on business in Guernsey through a permanent establishment situated there.
There are no capital gains, gift or inheritance taxes levied by Guernsey, and the ordinary shares generally are not subject to any transfer taxes,
stamp duties or similar charges on issuance or transfer.
64
Certain United States Federal Income Tax Considerations
The following discussion describes material U.S. federal income tax consequences to a U.S. holder of the ownership or disposition of our ordinary
shares. A U.S. holder is a beneficial owner of our ordinary shares that is:
(i) an individual who is a citizen or resident of the United States;
(ii) a corporation created or organized in, or under the laws of, the United States or of any state thereof;
(iii) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
(iv) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S.
persons has the authority to control all substantial decisions of the trust.
This summary generally considers only U.S. holders that own ordinary shares as capital assets. This summary does not discuss the U.S. federal
income tax consequences to an owner of ordinary shares that is not a U.S. holder.
This discussion is based on current provisions of the Code, current and proposed Treasury regulations promulgated thereunder, and administrative
and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis. This discussion does not address all
aspects of U.S. federal income taxation that may be relevant to a U.S. holder of ordinary shares based on such holder’s particular circumstances, U.S.
federal income tax consequences to certain U.S. holders that are subject to special treatment (such as broker-dealers, insurance companies, tax-exempt
organizations, financial institutions, U.S. holders that hold ordinary shares as part of a “straddle,” “hedge” or “conversion transaction” with other
investments, U.S. holders that hold ordinary shares in connection with a trade or business outside the United States, U.S. holders who acquired ordinary
shares pursuant to the exercise of an employee stock option or otherwise as compensation or U.S. holders owning directly, indirectly or by attribution at
least 10% of the ordinary shares), or any aspect of state, local or non-U.S. tax laws. Additionally, this discussion does not consider the tax treatment of
persons who hold ordinary shares through a partnership or other pass-through entity, the possible application of U.S. federal gift or estate taxes or any
alternative minimum or Medicare contribution tax consequences.
This summary is for general information only and is not binding on the Internal Revenue Service, or the IRS. There can be no assurance that the
IRS will not challenge one or more of the statements made herein. U.S. holders are urged to consult their own tax advisers as to the particular tax
consequences to them of owning and disposing of our ordinary shares. Except as described in “— Passive Foreign Investment Company
Considerations” below, this discussion assumes that we are not and have not been a passive foreign investment company, or a PFIC, for any taxable
year.
Dividends. In general, a U.S. holder receiving a distribution with respect to the ordinary shares will be required to include such distribution
(including the amount of non-U.S. taxes, if any, withheld therefrom) in gross income as a taxable dividend to the extent such distribution is paid from
our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Any distributions in excess of such earnings and
profits will first be treated, for U.S. federal income tax purposes, as a nontaxable return of capital to the extent of the U.S. holder’s tax basis in the
ordinary shares, and then, to the extent in excess of such tax basis, as gain from the sale or exchange of a capital asset. However, since we do not
calculate our earnings and profits under U.S. federal income tax principles, it is expected that any distribution will be reported as a dividend. In general,
U.S. corporate shareholders will not be entitled to any deduction for distributions received as dividends on the ordinary shares.
65
Dividend income is taxed as ordinary income. However, a preferential U.S. federal income tax rate applies to “qualified dividend income”
received by individuals (as well as certain trusts and estates), provided that certain holding period and other requirements are met. “Qualified dividend
income” includes dividends paid on shares of a foreign corporation that are readily tradable on an established securities market in the United States.
Since our ordinary shares are listed on the Nasdaq, we believe that dividends paid by us with respect to our ordinary shares should constitute “qualified
dividend income” for U.S. federal income tax purposes, provided that the applicable holding period and other applicable requirements are satisfied. U.S.
holders should consult their tax advisers regarding the availability of these preferential rates in their particular circumstances.
Dividends paid by us generally will be foreign-source “passive category income” or, in certain cases, “general category income” for U.S. foreign
tax credit purposes, which may be relevant in calculating a U.S. holder’s foreign tax credit limitation.
Disposition of Ordinary Shares. Subject to the PFIC rules described below, upon the sale, exchange or other disposition of our ordinary shares, a
U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized on the disposition by such
U.S. holder and its tax basis in the ordinary shares. Such capital gain or loss will be long-term capital gain or loss if the U.S. holder has held the ordinary
shares for more than one year at the time of the disposition. In the case of a U.S. holder that is an individual, trust or estate, long-term capital gains
realized upon a disposition of the ordinary shares generally will be subject to a preferential U.S. federal income tax rate. Gains realized by a U.S. holder
on a sale, exchange or other disposition of ordinary shares generally will be treated as U.S. source income for U.S. foreign tax credit purposes. The
deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Considerations. If, for any taxable year, 75% or more of our gross income consists of certain types of
passive income, or 50% or more of the average value of our assets including goodwill (generally determined on a quarterly basis) consists of passive
assets (generally, assets that generate passive income), we will be treated as a PFIC for such year. If we are treated as a PFIC for any taxable year during
which a U.S. holder owns our ordinary shares, the U.S. holder generally will be subject to increased tax liability upon the sale of our ordinary shares or
upon the receipt of certain excess distributions, unless such U.S. holder makes an election to mark our ordinary shares to market annually.
We believe that we were not a PFIC for our taxable year ended September 30, 2022. However, because the tests for determining PFIC status for
any taxable year are dependent upon a number of factors, some of which are beyond our control, including the value of our assets, which may be
determined by reference to the market price of our ordinary shares (which may be volatile), and the amount and type of our gross income, we cannot
guarantee that we will not become a PFIC for the current or any future taxable year or that the IRS will agree with our conclusion regarding our current
PFIC status.
In addition, if we were a PFIC for any taxable year in which we make a distribution or the preceding taxable year, the preferential rules on
“qualified dividend income” described above would not apply. If a U.S. holder owns ordinary shares during any year in which we are a PFIC, the U.S.
holder generally must file annual reports to the IRS.
Information Reporting and Backup Withholding. U.S. holders generally will be subject to information reporting requirements with respect to
dividends that are paid within the United States or through U.S.-related financial intermediaries, as well as with respect to gross proceeds from
disposition of our ordinary shares, unless the U.S. holder is an “exempt recipient.” U.S. holders may also be subject to backup withholding on such
payments, unless the U.S. holder provides a taxpayer identification number and a duly executed IRS Form W-9 or otherwise establishes an exemption.
Backup withholding is not an additional tax and the amount of any backup withholding will be allowed as a credit against a U.S. holder’s U.S. federal
income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
66
Certain U.S. holders who are individuals or certain specified entities are required to report information with respect to their investment in our
ordinary shares not held through a custodial account with a U.S. financial institution to the IRS. In general a U.S. holder holding specified “foreign
financial assets” (which generally would include (i) our ordinary shares not held through a custodial account with a financial institution, and (ii) a
custodial account with a non-U.S. financial institution through which our ordinary shares may be held) with an aggregate value exceeding certain
threshold amounts should report information about those assets on IRS Form 8938, which must be attached to the U.S. holder’s annual income tax
return. Investors who fail to report required information could become subject to substantial penalties.
Documents On Display
We are subject to the reporting requirements of foreign private issuers under the U.S. Securities Exchange Act of 1934. Pursuant to the Exchange
Act, we file reports with the SEC, including this Annual Report on Form 20-F. We also submit reports to the SEC, including Form 6-K Reports of
Foreign Private Issuers. You may call the SEC at 1-800-SEC-0330 for further information about the Public Reference Room. Such reports are also
available to the public on the SEC’s website at www.sec.gov. Some of this information may also be found on our website at www.amdocs.com.
You may request copies of our reports, at no cost, by writing to or telephoning us as follows:
Amdocs, Inc.
Attention: Matthew E. Smith
625 Maryville Centre Drive, Suite 200
Saint Louis, Missouri 63141
Telephone: 314-212-7000
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We manage our foreign subsidiaries as integral direct components of our operations. The operations of our foreign subsidiaries provide the same
type of services with the same type of expenditures throughout the Amdocs group. We have determined that the U.S. dollar is our functional currency.
We periodically assess the applicability of the U.S. dollar as our functional currency by reviewing the salient indicators as indicated in the authoritative
guidance for foreign currency matters.
During fiscal year 2022, approximately 70% to 80% of our revenue and approximately 50% to 60% of our operating expenses were denominated
in U.S. dollars or linked to the U.S. dollar. If more customers seek contracts in currencies other than the U.S. dollar, the percentage of our revenue and
operating expenses in the U.S. dollar or linked to the U.S. dollar may decrease over time and our exposure to fluctuations in currency exchange rates
could increase.
In managing our foreign exchange risk, we enter into various foreign exchange contracts. We do not hedge all of our exposure in currencies other
than the U.S. dollar, but rather our policy is to hedge significant net exposures in the major foreign currencies in which we operate, assuming the costs
of executing these contracts are worthwhile. We use such contracts to hedge net exposure to changes in foreign currency exchange rates associated with
revenue denominated in a foreign currency, primarily in Canadian dollar and European Euros, and anticipated costs to be incurred in a foreign currency,
primarily New Israeli Shekels and Indian Rupees. We also use such contracts to hedge the net impact of the variability in exchange rates on certain
balance sheet items such as accounts receivable and employee related accruals denominated primarily in New Israeli Shekels, Indian Rupees, Philippine
Pesos, European Euros, Canadian dollars, Indonesian Rupees, as well as other foreign currency of jurisdictions in which we operate. We seek to
minimize the net exposure that the anticipated cash flow from sales of our products and services, cash flow required for our expenses and the net
exposure related to our balance sheet items, denominated in a currency other than our functional currency will be affected by changes in exchange rates.
Please see Note 7 to our consolidated financial statements.
67
The table below presents the total volume or notional amounts and fair value of our derivative instruments as of September 30, 2022. Notional
values are in U.S. dollars and are translated and calculated based on forward rates as of September 30, 2022, for forward contracts, and based on spot
rates as of September 30, 2022 for options.
Foreign exchange contracts (in millions)
Notional
Value*
$ 1,903
Fair Value of
Derivatives
48.9
$
(*) Gross notional amounts do not quantify risk or represent assets or liabilities of the Company, but are used in the calculation of settlements under
the contracts.
Interest Rate Risk
Our interest expense and income are sensitive to changes in interest rates, as all of our cash investments and some of our borrowings, are subject
to interest rate changes. Our short-term interest-bearing investments, if applicable, are generally invested in short-term conservative debt instruments,
primarily U.S. dollar-denominated, and consist mainly of bank deposits, money market funds, corporate bonds securities, U.S. government treasuries
and municipal bonds.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
68
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
PART II
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15.
CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. With the participation of the
Chief Executive Officer and Chief Financial Officer of Amdocs Management Limited, our management evaluated the effectiveness of our disclosure
controls and procedures as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company
in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, the Chief Executive Officer and the Chief
Financial Officer of Amdocs Management Limited concluded that, as of such date, our disclosure controls and procedures were effective at the
reasonable assurance level. Ernst and Young LLP, the independent registered public accounting firm that audited the financial statements included in this
Annual Report on Form 20-F, has issued an attestation report on our internal control over financial reporting as of September 30, 2022, which is
included herein.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during
the fiscal year ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Management’s report on our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), and
the related reports of our independent public accounting firm, are included on pages F-2 through F-7 of this Annual Report on Form 20-F, and are
incorporated herein by reference.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that there are at least two audit committee financial experts, Adrian Gardner and Sarah Ruth Davis, serving
on our Audit Committee. Our Board of Directors has determined that Mr. Gardner and Ms. Davis are independent directors.
ITEM 16B. CODE OF ETHICS
Our Board of Directors has adopted a Code of Ethics and Business Conduct that sets forth legal and ethical standards of conduct for our directors
and employees, including our principal executive officer, principal
69
financial officer and other executive officers, of our subsidiaries and other business entities controlled by us worldwide.
Our Code of Ethics and Business Conduct is available on our website at www.amdocs.com, or you may request a copy of our code of ethics, at no
cost, by writing to or telephoning us as follows:
Amdocs, Inc.
Attention: Matthew E. Smith
625 Maryville Centre Drive, Suite 200
Saint Louis, Missouri 63141
Telephone: 314-212-7000
We intend to post on our website within five business days all disclosures that are required by law or Nasdaq rules concerning any amendments to,
or waivers from, any provision of the code.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
During each of the last three fiscal years, Ernst & Young LLP has acted as our independent registered public accounting firm.
Audit Fees
Ernst & Young billed us approximately $3.5 million for audit services for fiscal 2022, including fees associated with the annual audit and reviews
of our quarterly financial results submitted on Form 6-K, consultations on various accounting issues and performance of local statutory audits. Ernst &
Young billed us approximately $3.6 million for audit services for fiscal 2021.
Audit-Related Fees
Ernst & Young billed us approximately $1.4 million for audit-related services for fiscal 2022. Audit-related services principally include SOC 1
report issuances and due diligence examinations. Ernst & Young billed us approximately $2.5 million for audit-related services for fiscal 2021.
Tax Fees
Ernst & Young billed us approximately $1.1 million for tax advice, including fees associated with tax compliance, tax advice and tax planning
services, for fiscal 2022. Ernst & Young billed us approximately $1.3 million for tax advice in fiscal 2021.
All Other Fees
Ernst & Young did not bill us for services other than Audit Fees, Audit-Related Fees and Tax Fees described above for fiscal 2022 or fiscal 2021.
Pre-Approval Policies for Non-Audit Services
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by
our independent registered public accounting firm. These policies generally provide that we will not engage our independent registered public
accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is
entered into pursuant to the pre-approval procedure described below.
70
From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to us by our independent
registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be
provided and is also generally subject to a maximum dollar amount. In fiscal 2022, our Audit Committee approved all of the services provided by
Ernst & Young.
ITEM 16D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table provides information about purchases by us and our affiliated purchasers during the fiscal year ended September 30, 2022 of
equity securities that are registered by us pursuant to Section 12 of the Exchange Act:
Ordinary Shares
Period
10/1/21-10/31/21
11/1/21-11/30/21
12/1/21-12/31/21
01/1/22-01/31/22
02/1/22-02/28/22
03/1/22-03/31/22
04/1/22-04/30/22
05/1/22-05/31/22
06/1/22-06/30/22
07/1/22-07/31/22
08/1/22-08/31/22
09/1/22-09/30/22
Total
(a)
Total Number of
Shares
Purchased
253,895
696,974
1,362,930
530,469
563,182
573,933
390,067
575,231
255,530
357,076
364,979
554,675
6,478,941
(b)
Average Price
Paid per Share(1)
78.76
$
74.39
$
72.66
$
75.38
$
78.13
$
80.17
$
82.59
$
80.88
$
83.10
$
84.01
$
87.76
$
82.03
$
78.47
$
(c)
Total Number of
Shares
Purchased as Part
of Publicly
Announced Plans
or Programs
(d)
Maximum Number (or
Approximate Dollar Value)
of Shares that
May Yet Be Purchased Under
the Plans or Programs(2)
253,895
696,974
1,362,930
530,469
563,182
573,933
390,067
575,231
255,530
357,076
364,979
554,675
6,478,941
$
$
$
$
$
$
$
$
$
$
$
$
$
978,487,277
926,641,991
827,614,145
787,628,127
743,629,102
697,614,346
665,398,244
618,873,069
597,639,241
567,640,221
535,611,458
490,108,787
490,108,787
Excludes broker and transaction fees.
(1)
(2) On May 12, 2021, our board of Directors adopted a share repurchase plan authorizing the repurchase of up to an additional $1.0 billion of our
outstanding ordinary shares with no expiration date. The May 2021 plan has no expiration date and permits us to purchase our ordinary shares in
the open market or through privately negotiated transactions at times and prices that we consider appropriate. In fiscal year 2022, we repurchased
approximately 6.5 million ordinary shares at an average price of $78.47 per share (excluding broker and transaction fees). As of September 30,
2022, we had remaining authority to repurchase up to $490.1 million of our outstanding ordinary shares under the May 2021 plan.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
71
ITEM 16G. CORPORATE GOVERNANCE
We believe there are no significant ways that our corporate governance practices differ from those followed by U.S. domestic issuers under the
Nasdaq listing standards. For further information regarding our corporate governance practices, please refer to our Notice and Proxy Statement to be
mailed to our shareholders in December 2022 and to our website at www.amdocs.com.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
72
PART III
ITEM 17.
FINANCIAL STATEMENTS
Not applicable.
ITEM 18.
FINANCIAL STATEMENTS
Financial
Statements and Schedule
The following Financial Statements and Financial Statement Schedule of Amdocs Limited, with respect to financial results for the fiscal years
ended September 30, 2022, 2021 and 2020, are included at the end of this Annual Report:
Audited Financial Statements of Amdocs Limited
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2022 and 2021
Consolidated Statements of Income for the fiscal years ended September 30, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2022, 2021 and 2020
Consolidated Statements of Changes in Equity for the fiscal years ended September 30, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2022, 2021 and 2020
Notes to the Consolidated Financial Statements
Financial Statement Schedules of Amdocs Limited
Valuation and Qualifying Accounts
All other schedules have been omitted since they are either not required or not applicable, or the information has otherwise been included.
ITEM 19.
EXHIBITS
The exhibits listed hereof are filed herewith in response to this Item.
Exhibit
No.
1.1
1.2
EXHIBIT INDEX
Description
Amended and Restated Memorandum of Incorporation of Amdocs Limited (incorporated by reference to Exhibit 99.1 to Amdocs’ Form
6-K filed January 26, 2009)
Amended and Restated Articles of Incorporation of Amdocs Limited (incorporated by reference to Exhibit 1.2 to Amdocs’ Annual Report
on Form 20-F, filed December 7, 2010)
2
Description of rights of each applicable class of securities registered under Section 12 of the Securities Exchange Act of 1934
73
Exhibit
No.
2.1
2.2
4.a†
4.a.1†
4.a.2†
4.a.3†
4.a.4†
4.a.5†
4.b
4.c
4.c.1
8
12.1
12.2
13.1
13.2
14.1
Description
Base Indenture between Amdocs Limited, as Issuer, and The Bank of New York Mellon, as Trustee, dated as of June 24, 2020
(incorporated by reference to Exhibit 4.1 to Amdocs’ Form 6-K filed June 24, 2020)
First Supplemental Indenture to the Base Indenture between Amdocs Limited, as Issuer, and The Bank of New York Mellon, as Trustee,
dated as of June 24, 2020 (incorporated by reference to Exhibit 4.2 to Amdocs’ Form 6-K filed June 24, 2020)
Restated and Amended Master Services and Software License Agreement between Amdocs, Inc. and AT&T Services, Inc. for Software
and Professional Services, effective October 14, 2021
Sixth Amendment to the Restated and Amended Master Services and Software License Agreement between Amdocs, Inc. and AT&T
Services, Inc. for Software and Professional Services, effective October 14, 2021
Seventh Amendment to the Restated and Amended Master Services and Software License Agreement between Amdocs, Inc. and AT&T
Services, Inc. for Software and Professional Services, effective October 14, 2021
Eighth Amendment Eight to the Restated and Amended Master Services and Software License Agreement between Amdocs, Inc. and
AT&T Services, Inc. for Software and Professional Services, effective October 14, 2021
Ninth Amendment to the Restated and Amended Master Services and Software License Agreement between Amdocs, Inc. and AT&T
Services, Inc. for Software and Professional Services, effective October 14, 2021
Tenth Amendment to the Restated and Amended Master Services and Software License Agreement between Amdocs, Inc. and AT&T
Services, Inc. for Software and Professional Services, effective October 14, 2021
Amdocs Limited 1998 Stock Option and Incentive Plan, as amended (incorporated by reference to Exhibit 99.1 to Amdocs’
Registration Statement on Form S-8, filed on August 17, 2020)
Third Amended and Restated Credit Agreement, dated as of March 19, 2021, among Amdocs Limited, certain of its subsidiaries, the
lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 4.c
to Amdocs’ Annual Report on Form 20-F, filed December 9, 2021)
First Amendment to the Third Amended and Restated Credit Agreement, dated as of November 23, 2021, among Amdocs Limited,
certain of its subsidiaries, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent
(incorporated by reference to Exhibit 4.c.1 to Amdocs’ Annual Report on Form 20-F, filed December 9, 2021)
Subsidiaries of Amdocs Limited
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350
Consent of Ernst & Young LLP
74
Exhibit
No.
100.1
104
†
Description
The following financial information from Amdocs Limited’s Annual Report on Form 20-F for the year ended September 30, 2022,
formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of September 30, 2022 and 2021, (ii)
Consolidated Statements of Income for the years ended September 30, 2022, 2021 and 2020, (iii) Consolidated Statements of
Comprehensive Income for the years ended September 30, 2022, 2021 and 2020, (iv) Consolidated Statements of Changes in Equity for
the fiscal years ended September 30, 2022, 2021 and 2020, (v) the Consolidated Statements of Cash Flows for the years ended
September 30, 2022, 2021 and 2020, (vi) Notes to Consolidated Financial Statements, and (vii) Valuation and Qualifying Accounts
Cover Page Interactive Data File (embedded within the Inline XBRL document)
Certain information has been excluded from the exhibit because it is both (i) not material and (ii) is the type that the registrant treats as private or
confidential.
75
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
SIGNATURES
AMDOCS LIMITED
By: /s/ Matthew E. Smith
Name: Matthew E. Smith
Title: Secretary and Authorized Signatory
Date: December 13, 2022
76
AMDOCS LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number:42)
Consolidated Balance Sheets as of September 30, 2022 and 2021
Consolidated Statements of Income for the fiscal years ended September 30, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2022, 2021 and 2020
Consolidated Statements of Changes in Equity for the fiscal years ended September 30, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2022, 2021 and 2020
Notes to the Consolidated Financial Statements
Financial Statement Schedule
Valuation and Qualifying Accounts
F-1
Page
F-2
F-3
F-8
F-9
F-10
F-11
F-12
F-13
F-42
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies
and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of
the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022. In
making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) in Internal Control-Integrated Framework.
Based on its assessment, management concluded that, as of September 30, 2022, the Company’s internal control over financial reporting is
effective based on those criteria.
The financial statements and internal control over financial reporting have been audited by Ernst & Young LLP, an independent registered public
accounting firm which has issued an attestation report on the Company’s internal control over financial reporting included elsewhere in this Annual
Report on Form 20-F.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Amdocs Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Amdocs Limited (the “Company”) as of September 30, 2022 and 2021, the related
consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended
September 30, 2022, and the related notes and the financial statement schedule listed in the Index at Item 18 of Part III (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company at September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended
September 30, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Company’s internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated December 13, 2022
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and
(2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-3
Revenue recognition for projects
Description of the
Matter
As discussed in Note 2 to the consolidated financial statements, the Company’s software solutions usually require significant
customization, modification, implementation and integration. As a result, a significant portion of the Company’s project
revenue is recognized over time, based on the percentage that incurred labor effort to date bears to total projected labor effort.
Auditing the recognition of the Company’s project revenue was especially subjective and complex because of the significant
estimation required by management to determine the total projected labor effort to complete a project. Determining the
estimate of labor effort requires the knowledge of project-specific details, including the specific terms and conditions of the
contract, remaining performance obligations, changes to the project schedule, and complexity of the project. Changes in this
estimate can have a material effect on the timing of revenue recognition.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the projected labor
effort estimation process. For example, for a sample of projects, we tested controls over management’s review of the initial
estimate of total projected labor effort to complete a project, as well as the ongoing evaluation of those estimates through the
life of the project. Additionally, for a sample of completed projects, we tested the retrospective review controls performed by
management to assess the reasonableness of the estimated labor effort throughout the life of the project.
Our audit procedures included, among others, evaluating the significant assumptions and the accuracy and completeness of the
underlying data used in management’s estimate. For example, for a sample of contracts, we tested management’s estimate of
total projected labor effort through a combination of analytical procedures, such as comparison of the estimated labor effort
period over period and inspection of contracts to understand the specific terms and conditions as well as the remaining
obligations in the contract. For a sample of projects, we also met with various executives throughout the organization,
including project managers, to obtain an understanding of project status and other factors considered in developing the
estimate of projected labor effort including project challenges, completed milestones, customer change orders and delays. In
addition, we performed a retrospective review of actual labor effort incurred compared to previously estimated projected labor
effort to evaluate management’s historical ability to accurately estimate projected labor effort.
Uncertain Tax Positions
Description of the
Matter
As discussed in Notes 2 and 10 to the consolidated financial statements, the Company operates in a multinational tax
environment and is subject to tax treaty provisions and transfer pricing guidelines for intercompany transactions. The
Company uses significant judgment to (1) determine whether, based on the technical merits, a tax position is more likely than
not to be sustained and (2) measure the amount of tax benefit that qualifies for recognition. As of September 30, 2022, the
total amount of unrecognized tax benefits for uncertain tax positions was $213 million.
Auditing management’s analysis of the Company’s uncertain tax positions was especially subjective and complex due to the
significant judgments made by management to determine the provisions for tax uncertainties. These provisions are based on
interpretations of complex tax laws and legal rulings across various jurisdictions in which the Company operates and the
determination of arm’s length pricing for certain intercompany transactions. The assumptions underlying the provisions for
uncertain tax positions include the potential tax exposure resulting from management’s interpretations and the determination
of the cumulative probability that the uncertain tax position will be upheld upon regulatory examination.
F-4
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s
process to assess and review their tax positions. For example, we tested the controls over management’s review of
assumptions used in the estimation calculation, including the review over existing and potential tax controversies and tax audit
results, and the computation of the impact to uncertain tax positions and tax reserves.
We involved our tax professionals to assist us with obtaining an understanding of the Company’s tax structure, assessing the
Company’s compliance with tax laws, related developments in administrative rulings and court cases, identifying tax law
changes in jurisdictions that may impact the Company’s unrecognized tax benefits and assessing the technical merits of the
Company’s tax positions. We inspected the Company’s correspondence with the relevant tax authorities and evaluated income
tax opinions. Our audit procedures also included, among others, evaluating the assumptions management used to develop its
uncertain tax positions and related unrecognized income tax benefit amounts by jurisdiction and testing the completeness and
accuracy of the underlying data used by management to calculate the uncertain tax positions. For certain tax positions related
to intercompany transactions, we assessed the assumptions and pricing method used in determining arm’s length prices and the
documentation to support the pricing. We also evaluated the adequacy of the Company’s financial statement disclosures
related to these tax matters.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1988.
New York, NY
December 13, 2022
F-5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Amdocs Limited
Opinion on Internal Control over Financial Reporting
We have audited Amdocs Limited’s internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria).
In our opinion, Amdocs Limited (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of September 30, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in
equity and cash flows for each of the three years in the period ended September 30, 2022, and the related notes and the financial statement schedule
listed in the Index at Item 18 of Part III and our report dated December 13, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
F-6
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, NY
December 13, 2022
F-7
AMDOCS LIMITED
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term interest-bearing investments
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Lease assets
Goodwill
Intangible assets, net
Other noncurrent assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Accrued personnel costs
Lease liabilities
Deferred revenue
Total current liabilities
Deferred income taxes and taxes payable
Lease liabilities
Long-term debt, net of unamortized debt issuance costs
Other noncurrent liabilities
Total liabilities
Equity:
Amdocs Limited Shareholders’ equity:
Preferred Shares — Authorized 25,000 shares; £0.01 par value; 0 shares issued and outstanding
Ordinary Shares — Authorized 700,000 shares; £0.01 par value; 284,400 and 281,945 issued and 120,842 and
124,866 outstanding, in 2022 and 2021, respectively
Additional paid-in capital
Treasury stock, at cost — 163,558 and 157,079 ordinary shares in 2022 and 2021, respectively
Accumulated other comprehensive (loss) income
Retained earnings
Total Amdocs Limited Shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
F-8
As of September 30,
2022
2021
$
573,377
244,603
946,777
238,390
2,003,147
794,287
176,884
2,662,825
178,312
574,938
$ 6,390,393
$
134,400
612,656
208,602
43,336
253,686
1,252,680
312,237
138,378
645,117
481,703
2,830,115
$
709,064
256,527
866,819
235,089
2,067,499
698,768
233,162
2,622,644
259,032
630,669
$ 6,511,774
$
121,199
612,303
274,275
58,714
237,374
1,303,865
304,538
177,906
644,553
445,728
2,876,590
—
—
4,548
4,105,900
(6,731,789)
(72,476)
6,211,586
3,517,769
42,509
3,560,278
$ 6,390,393
4,516
3,951,201
(6,223,317)
9,338
5,850,937
3,592,675
42,509
3,635,184
$ 6,511,774
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Revenue
Operating expenses:
Cost of revenue
Research and development
Selling, general and administrative
Amortization of purchased intangible assets and other
Operating income
Interest and other expense, net
Gain from sale of a business
Income before income taxes
Income taxes
Net income
Basic earnings per share
Diluted earnings per share
Year Ended September 30,
2021
$ 4,576,697 $ 4,288,640 $ 4,169,039
2020
2022
2,957,547
354,706
528,572
71,075
3,911,900
664,797
(26,391)
10,000
648,406
98,905
549,501 $
2,810,967
312,941
487,255
78,784
3,689,947
598,693
(10,797)
226,410
814,306
125,932
688,374 $
2,755,563
282,042
458,539
78,137
3,574,281
594,758
(11,436)
—
583,322
85,482
497,840
$
$
$
4.47 $
4.44 $
5.36 $
5.32 $
3.73
3.71
The accompanying notes are an integral part of these consolidated financial statements.
F-9
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income, net of tax:
Net change in fair value of cash flow hedges(1)
Net change in fair value of available-for-sale securities(2)
Net actuarial gain (loss) on defined benefit plan(3)
Other comprehensive (loss) income, net of tax
Comprehensive income
Year Ended September 30,
2021
$549,501 $688,374 $497,840
2020
2022
(60,353)
(21,523)
62
(81,814)
14,891
(2)
(680)
14,209
$467,687 $686,050 $512,049
(5,063)
(1,272)
4,011
(2,324)
(1) Net of tax benefit (expense) of $2,076, $3,369 and $(2,371) for the fiscal years ended September 30, 2022, 2021 and 2020, respectively, please see
Note 7.
(2) No tax benefit (expense) for the fiscal years ended September 30, 2022, 2021 and 2020.
(3) Net of tax expense of $(80), $(1,461) and $(11) for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-10
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except per share data)
Balance as of September 30, 2019
Comprehensive income:
Net income(2)
Other comprehensive income
Comprehensive income
Employee stock options exercised
Repurchase of shares
Cash dividends declared ($1.2675 per ordinary share)
Issuance of restricted stock, net of forfeitures
Equity-based compensation expense related to
employees
Balance as of September 30, 2020
Comprehensive income:
Net income(2)
Other comprehensive loss
Comprehensive income
Employee stock options exercised
Repurchase of shares
Cash dividends declared ($1.4075 per ordinary share)
Issuance of restricted stock, net of forfeitures
Equity-based compensation expense related to
employees
Balance as of September 30, 2021
Comprehensive income:
Net income(2)
Other comprehensive loss
Comprehensive income
Employee stock options exercised
Repurchase of shares
Cash dividends declared ($1.545 per ordinary share)
Issuance of restricted stock, net of forfeitures
Equity-based compensation expense related to
employees
Balance as of September 30, 2022
Ordinary Shares
Shares
Amount
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
(Loss)
Income(1)
Total
Amdocs
Limited
Shareholders’
Equity
Retained
Earnings
Non-controlling
interests(2)
Total
Equity
134,773 $ 4,452 $3,667,662 $ (5,182,409) $
(2,547) $5,012,799 $ 3,499,957 $
42,509 $3,542,466
—
—
—
—
1,871
(5,668)
—
559
24
—
—
7
—
—
97,819
—
—
—
—
—
—
14,209
497,840
—
—
(360,912)
—
—
—
—
—
—
—
—
(168,732)
—
497,840
14,209
512,049
97,843
(360,912)
(168,732)
7
—
131,535 $ 4,483 $3,807,915 $ (5,543,321) $
—
42,434
—
—
—
11,662 $5,341,907 $ 3,622,646 $
42,434
—
—
—
—
1,541
(9,036)
—
826
21
—
—
12
—
—
89,037
—
—
—
—
—
—
(2,324)
688,374
—
—
(679,996)
—
—
—
—
—
—
—
—
(179,344)
—
688,374
(2,324)
686,050
89,058
(679,996)
(179,344)
12
—
124,866 $ 4,516 $3,951,201 $ (6,223,317) $
—
54,249
—
—
—
9,338 $5,850,937 $ 3,592,675 $
54,249
—
—
—
—
1,431
(6,479)
—
1,024
17
—
—
15
—
—
82,892
—
—
—
—
—
—
(81,814)
549,501
—
—
(508,472)
—
—
—
—
—
—
—
—
(188,852)
—
549,501
(81,814)
467,687
82,909
(508,472)
(188,852)
15
—
120,842 $ 4,548 $4,105,900 $ (6,731,789) $
—
71,807
—
—
—
(72,476) $ 6,211,586 $ 3,517,769 $
71,807
—
—
—
—
—
—
—
497,840
14,209
512,049
97,843
(360,912)
(168,732)
7
—
42,434
42,509 $3,665,155
—
—
—
—
—
—
—
688,374
(2,324)
686,050
89,058
(679,996)
(179,344)
12
—
54,249
42,509 $3,635,184
—
—
—
—
—
—
—
549,501
(81,814)
467,687
82,909
(508,472)
(188,852)
15
—
71,807
42,509 $3,560,278
(1)
(2)
As of September 30, 2022, 2021 and 2020, accumulated other comprehensive (loss) income is comprised of unrealized (loss) gain on derivatives, net of tax, of $(46,580), $13,773 and
$18,836, unrealized loss on short-term interest-bearing investments, net of tax, of $(22,797), $(1,274) and $(2) and unrealized loss on defined benefit plan, net of tax, of $(3,099),
$(3,161) and $(7,172).
In fiscal years 2022, 2021 and 2020, all of the Company’s net income is attributable to Amdocs Limited as the net income attributable to the Non-controlling interests is negligible.
The accompanying notes are an integral part of these consolidated financial statements.
F-11
AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash Flow from Operating Activities:
Net income
Reconciliation of net income to net cash provided by operating activities:
Depreciation, amortization and impairment
Amortization of debt issuance cost
Equity-based compensation expense
Gain from sale of a business
Deferred income taxes
Loss from short-term interest-bearing investments
Net changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable, net
Prepaid expenses and other current assets
Other noncurrent assets
Lease assets and liabilities, net
Accounts payable, accrued expenses and accrued personnel
Deferred revenue
Income taxes payable, net
Other noncurrent liabilities
Net cash provided by operating activities
Cash Flow from Investing Activities:
Purchase of property and equipment, net(1)
Proceeds from sale of short-term interest-bearing investments
Purchase of short-term interest-bearing investments
Net cash paid for business and intangible assets acquisitions
Net cash received from sale of a business
Other
Net cash used in investing activities
Cash Flow from Financing Activities:
Borrowings under financing arrangements
Payments under financing arrangements
Proceeds from issuance of debt, net
Repurchase of shares
Proceeds from employee stock option exercises
Payments of dividends
Payment of contingent consideration from a business acquisition
Other
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplementary Cash Flow Information
Interest and Income Taxes Paid
Cash paid for:
Income taxes, net of refunds
Interest(2)
2022
Year Ended September 30,
2021
2020
$ 549,501
$ 688,374
$ 497,840
224,535
564
71,807
(10,000)
(3,292)
2,728
(64,978)
(3,527)
19,760
1,394
(83,932)
(22,456)
15,648
58,967
756,719
(227,219)
21,948
(34,275)
(24,430)
10,000
(8,525)
(262,501)
—
—
—
(508,472)
82,924
(186,073)
(18,284)
—
(629,905)
(135,687)
709,064
$ 573,377
208,830
548
54,249
(226,410)
(50,605)
1,726
(69,051)
(17,041)
(50,038)
9,630
122,224
193,655
26,814
32,902
925,807
(210,438)
18,205
(276,978)
(142,697)
288,990
(6,082)
(329,000)
—
(100,000)
—
(679,996)
89,056
(177,472)
(2,519)
—
(870,931)
(274,124)
983,188
$ 709,064
198,409
144
42,434
—
30,239
—
134,584
(10,815)
(23,329)
(7,881)
(190,354)
(15,184)
(9,281)
11,330
658,136
(205,510)
—
(753)
(249,358)
—
(6,104)
(461,725)
450,000
(350,000)
643,919
(360,912)
97,850
(164,061)
(1,411)
(240)
315,145
511,556
471,632
$ 983,188
$ 80,419
16,741
$ 146,442
19,371
$ 45,398
5,392
(1)
(2)
The amounts under “Purchase of property and equipment, net,” include proceeds from sale of property and equipment of $521, $328, and $194 for
the years ended September 30, 2022, 2021 and 2020, respectively
The amounts under “Interest” include payments of interest to financial institution, tax authorities and other.
The accompanying notes are an integral part of these consolidated financial statements.
F-12
Note 1 — Nature of Entity
Amdocs Limited (the “Company”) is a leading provider of software and services to communications, cable and satellite, entertainment and media
industry service providers of all sizes throughout the world. The Company and its consolidated subsidiaries operate in one segment and design, develop,
market, support, implement and operate its open and modular cloud portfolio.
The Company is a Guernsey limited company, which directly or indirectly holds numerous subsidiaries around the world, the vast majority of
which are wholly-owned. The majority of the Company’s customers are in North America, Europe, Asia-Pacific and the Latin America region. The
Company’s main development facilities are located in Brazil, Canada, Cyprus, India, Ireland, Israel, Mexico, the Philippines, the United Kingdom and
the United States.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP and are
denominated in U.S. dollars.
Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, the vast majority of which are wholly-owned. All
intercompany transactions and balances have been eliminated in consolidation.
In December 2017, the Company entered into agreements with Union Investments and Development Limited (“Union”) to partner through a legal
entity that is equally owned by the Company and Union for the purpose of acquiring specific land which the Company uses as the site for a new campus
in Ra’anana, Israel. On January 2, 2018, the Company completed the acquisition of the land. Pursuant to the agreements between the Company and
Union, as the Company has control over the construction and ongoing operations of the new campus, the new entity’s financial information is
consolidated into the Company’s consolidated financial statements with the portion not owned classified as non-controlling interests. The Company is
obligated to distribute in the future the new entity’s earnings under certain conditions, in fiscal years 2022, 2021 and 2020 the new entity had negligible
earnings or losses and, therefore, an immaterial effect on consolidated financial statements of Amdocs Limited.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
From time to time, certain immaterial amounts in prior year financial statements may be reclassified to conform to the current year presentation.
Functional Currency
The Company manages its foreign subsidiaries as integral direct components of its operations. The operations of the Company’s foreign
subsidiaries provide the same type of services with the same type of expenditures throughout the Amdocs group. The Company has determined that its
functional currency is the U.S.
F-13
dollar. The Company periodically assesses the applicability of the U.S. dollar as the Company’s functional currency by reviewing the salient indicators
as indicated in the authoritative guidance for foreign currency matters.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and interest-bearing investments with insignificant interest rate risk and maturities from acquisition date
of 90 days or less.
Accounts Receivable Factoring
From time to time, the Company uses non-recourse factoring arrangements, to sell accounts receivable to third-party financial institutions. The
sale of the receivables in these arrangements are accounted for as a true sale.
Investments
The Company has short-term interest-bearing investments comprised of marketable securities and bank deposits. The Company classifies all of its
marketable securities as available-for-sale securities and considers all of its marketable debt securities as available for use to meet the Company’s
operational needs, including those with maturity dates beyond one year, and therefore classifies these securities within current assets on the consolidated
balance sheets. Such marketable securities consist primarily of money market funds, corporate bonds, U.S. government treasuries and municipal bonds,
which are stated at market value. The available-for-sale investments are carried at estimated fair value with any unrealized gains and losses, net of taxes,
included in accumulated other comprehensive (loss) income in shareholders’ equity. The Company recognizes an impairment when there is a decline in
the fair value of its investments below the amortized cost basis. For securities with an unrealized loss that the Company intends to sell, or it is more
likely than not that the Company will be required to sell before recovery of their amortized cost basis, the entire difference between amortized cost and
fair value is recognized in earnings and the available-for-sale debt security’s amortized cost basis is written down to its fair value at the reporting date.
For securities that do not meet these criteria, the Company needs to assess whether the decline is as result of a credit loss, and if so, the decline is
recognized in earnings, while declines in fair value related to other factors are recognized in other comprehensive (loss) income. The Company uses a
discounted cash flow analysis to estimate credit losses. Realized gains and losses on short-term interest-bearing investments are included in earnings and
are determined based on specific identification method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the asset,
which primarily ranges from three to ten years. Leasehold improvements are amortized over the shorter of the estimated useful lives or the term of the
related lease. Property and equipment that have been fully depreciated and are no longer in use are netted against accumulated depreciation.
The Company capitalizes certain expenditures for software that is internally developed for use in the business, which is classified as computer
equipment. Amortization of internal use software begins when the software is ready for service and continues on the straight-line method over the
estimated useful life.
The Company capitalizes the expenditures related to the new campus in Israel, which are classified as building and land. Amortization will begin
in fiscal year 2023 and will be amortized on the straight-line basis over the estimated useful life.
Leases
As a lessee, the majority of the Company’s lease obligation is for office real estate. The significant judgments used in determining its lease
obligation include whether a contract is or contains a lease and the determination of
F-14
the discount rate used to calculate the lease liability. The Company elected the practical expedient not to separate non-lease components from lease
components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single
lease component for its real estate and vehicle leases.
The Company’s leases may include the option to extend or terminate before the end of the contractual term and are often non-cancelable or
cancelable only by the payment of penalties. The lease assets and liabilities include these options in the lease term when it is reasonably certain that they
will be exercised. In certain cases, the Company subleases excess office real estate to third-party tenants in immaterial amounts.
Lease assets and liabilities recognized at the lease commencement date are determined predominantly as the present value of the payments due
over the lease term. Unless the implicit rate can be determined, the Company uses its incremental borrowing rate on that date to calculate the present
value. The incremental borrowing rate approximates the rate at which the Company could borrow, on a secured basis for a similar term, an amount equal
to its lease payments in a similar economic environment.
When the Company is the lessee, all leases are recognized as lease liabilities and associated lease assets on the consolidated balance sheets. Lease
liabilities represent the Company’s obligation to make payments arising from the lease. Lease assets represent the Company’s right to use an underlying
asset for the lease term and may also include advance payments, initial direct costs or lease incentives. Fixed and variable payments that depend upon an
index or rate, such as the Consumer Price Index (CPI), are included in the recognition of lease assets and liabilities at the commencement-date rate.
Other variable payments, such as common area maintenance, property and other taxes, utilities and insurance that are based on the lessor’s cost, are
recognized in the Consolidated Income Statement in the period incurred. Operating lease expense is recorded on a straight-line basis over the lease term.
Goodwill, Intangible Assets and Long-Lived Assets
The total purchase price of business acquisitions accounted for using the purchase method is allocated first to identifiable assets and liabilities
based on estimated fair values. The excess of the purchase price over the fair value of net assets of purchased businesses is recorded as goodwill.
Other definite-life intangible assets consist primarily of core technology and customer relationships. Core technology acquired by the Company is
amortized over its estimated useful life on a straight-line basis.
Some of the acquired customer relationships are amortized over their estimated useful lives in proportion to the economic benefits realized. This
accounting policy generally results in accelerated amortization of such customer relationships as compared to the straight-line method. All other
acquired customer relationships are amortized over their estimated useful lives on a straight-line basis.
Goodwill and intangible assets deemed to have indefinite lives are subject to an annual impairment test or more frequently if impairment
indicators are present. The Company annual evaluation of impairment consists of either using a qualitative approach to determine whether it is more
likely than not that the fair value of the assets is less than their respective carrying values or a quantitative impairment test, if necessary. The goodwill
impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for
the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit. There was no impairment of goodwill in fiscal years 2022, 2021 or 2020.
The Company tests long-lived assets, including definite life intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Impairment indicators include any significant changes in the manner of its use
of the assets or the strategy of its
F-15
overall business, significant negative industry or economic trends and significant decline in our share price for a sustained period. Determination of
recoverability of long-lived assets is based on an estimate of the undiscounted future cash flows resulting from the use of the cash generating unit and its
eventual disposition. Measurement of an impairment loss for long-lived assets, including definite life intangible assets that management expects to hold
and use is based on the fair value of the cash generating unit. Long-lived assets, including definite life intangible assets, to be disposed of are reported at
the lower of carrying amount or fair value less costs to sell. There was an immaterial impairment of long-lived assets in fiscal year 2022, and no
impairment for fiscal years 2021 or 2020.
Comprehensive Income
Comprehensive income, net of related taxes where applicable, includes, in addition to net income:
(i) net change in fair value of available-for-sale securities;
(ii) net change in fair value of cash flow hedges; and
(iii) net actuarial gains and losses on defined benefit plans.
Treasury Stock
The Company repurchases its ordinary shares from time to time on the open market or in other transactions and holds such shares as treasury
stock. The Company presents the cost to repurchase treasury stock as a reduction of equity.
Business Combinations
In accordance with business combinations accounting, assets acquired and liabilities assumed, as well as any contingent consideration that may be
part of the acquisition agreement, are recorded at their respective fair values at the date of acquisition. The Company allocates the purchase price of
acquired companies to the tangible and intangible assets acquired and liabilities assumed, as well as to in-process research and development based on
their estimated fair values. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible
assets, as a result the Company obtains the assistance of independent valuation firms. The Company completes these assessments as soon as practical
after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
For acquisitions that include contingent consideration, the fair value is estimated on the acquisition date as the present value of the expected
contingent payments, determined using weighted probabilities of possible payments. The Company remeasures the fair value of the contingent
consideration at each reporting period until the contingency is resolved. Except for measurement period adjustments, the changes in fair value are
recognized in the consolidated statements of income. The Company considers several factors when determining that contingent consideration liabilities
are part of the purchase price, such as the following: the valuation of the acquisitions is not supported solely by the initial consideration paid, and the
contingent consideration payments are not affected by employment termination. Any earn-out which is not considered a contingent consideration is
recognized as compensation expense over expected service period.
Although the Company believes the assumptions and estimates of fair value it has made in the past have been reasonable and appropriate, they are
based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and
subject to refinement. Critical estimates in valuing certain assets acquired and liabilities assumed include but are not limited to: future expected cash
flows from license and service sales, maintenance, customer contracts and acquired developed technologies, expected costs to develop the in-process
research and development into commercially viable products and estimated cash flows from the projects when completed and the acquired company’s
brand awareness and discount rate. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such
F-16
assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, the
Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to
conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets
acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are
recorded in its consolidated statements of income.
The Company estimates the fair values of its services, hardware, software license and maintenance obligations assumed. The estimated fair values
of these performance obligations are determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the
costs related to fulfilling the obligations plus a normal profit margin.
The Company may establish a valuation allowance for certain deferred tax assets and estimate the value of uncertain tax positions of a newly
acquired entity. This process requires significant judgment and analysis.
Income Taxes
The Company records deferred income taxes to reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting and tax purposes. Deferred taxes are computed based on enacted tax rates anticipated to be in effect when the deferred
taxes are expected to be paid or realized. A valuation allowance is provided for deferred tax assets if it is more likely than not, the Company will not be
able to realize their benefit. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized and adjust the valuation allowances accordingly. Factors considered in making this
determination include the period of expiration of the tax asset, planned use of the tax asset, tax planning strategies and historical and projected taxable
income as well as tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowances will be subject to change in each future
reporting period as a result of changes in one or more of these factors.
Deferred tax liabilities and assets are classified as noncurrent liabilities and noncurrent assets, respectively, on the consolidated balance sheets.
Deferred tax liabilities also include anticipated withholding taxes due on subsidiaries’ earnings when paid as dividends to the Company.
The Company recognizes the tax benefit from an uncertain tax position only if the weight of available evidence indicates that it is more likely than
not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The tax benefits recognized in the
financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.
Significant judgment is required in evaluating the uncertain tax positions and determining the provision for income taxes. The Company adjusts
these reserves in light of changing facts and circumstances, such as the closing of a tax audit, or changes in tax law. To the extent that the final tax
outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such
determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate.
Please see Note 10 to the consolidated financial statements.
The Company applies an estimated annual effective tax rate to its quarterly operating results to determine the interim provision for income tax
expense. A change in judgment that impacts the measurement of a tax position taken in a prior year is recognized as a discrete item in the interim period
in which the change occurs. In the event there is a significant unusual or infrequent item recognized in the quarterly operating results, the tax attributable
to that item is recorded in the interim period in which it occurs. As a result, the Company’s quarterly effective tax rate may fluctuate throughout the
course of a fiscal year.
F-17
Revenue Recognition
The Company recognizes revenue under the five-step methodology required under ASC 606, which requires the Company to identify the contract
with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance
obligations identified, and recognize revenue when (or as) each performance obligation is satisfied.
Revenue is recognized net of any revenue-based taxes assessed by a governmental authority that are both imposed on and concurrent with a
specific revenue-producing transaction and collected by the Company from a customer (for example, sales, use and value added taxes).
The Company’s primary revenue categories, related performance obligations, and associated recognition patterns are as follows:
Revenue Recognition for projects — The Company usually sells its software licenses as part of an overall solution offered to a customer including
significant customization, modification, implementation and integration. Those services are deemed essential to the software. As a result, revenue related
to these projects is recognized over time, usually based on a percentage that incurred labor effort to date bears to total projected labor effort. Incurred
effort represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Revenue from
customization, implementation, modification and integration services is also recognized over the course of the projects. When total cost estimates for
these types of arrangements exceed revenues in a fixed-price arrangement, the estimated losses are recognized immediately based upon the cost
applicable to the delivering unit. Significant judgment is required when estimating total labor effort and progress to completion on these arrangements,
as well as whether a loss is expected to be incurred on the project.
As a significant portion of the Company’s revenue is satisfied over time as work progresses, the annual and quarterly operating results may be
affected by the size and timing of the initiation of customer projects as well as the Company’s progress in completing such projects.
Revenue Recognition for subsequent license fee — Subsequent license fee revenue is recognized when the customer has access to the license and
the right to use and benefit from the license. In cases when the conditions require delivery, then delivery must have occurred for purposes of revenue
recognition. Subsequent license fee is based on a customer’s subscriber level, transaction volume or other measurements when greater than the level
specified in the contract for the initial license fee.
Revenue Recognition for term-based license and perpetual license — Revenue related to software solutions that do not require significant
customization, implementation and modification are recognized upon delivery.
Revenue Recognition for maintenance — Maintenance revenue is recognized ratably over the term of the maintenance agreement.
Revenue Recognition for ongoing services — Revenue from ongoing support services and revenue from other ongoing services is recognized over
time as services are performed, using one method of measuring performance such as time elapsed, output produced, volume of data processed or
subscriber count that provides the most faithful depiction of the transfer of services.
Revenue Recognition for managed services arrangements — Managed services arrangements include management of data center operations and
IT infrastructure, application management and ongoing support, management of end-to-end business processes, and managed transformation that
includes both a transformation project as well as taking over managed services responsibility.
The revenue from managed services arrangements is recognized for each individual performance obligation according to its relevant revenue
category, including, but not limited to, revenue from the management of a customer’s operations, revenue from projects and revenue from ongoing
support services.
F-18
Revenue from the management of a customer’s operations pursuant to managed services arrangements is recognized over time as services are
performed, using one method of measuring performance such as time elapsed, output produced, volume of data processed or subscriber count that
provides the most faithful depiction of the transfer of services, pursuant to the specific contract terms of the managed services arrangements. Typically,
managed services arrangements are long term in duration and are not subject to significant seasonality.
Revenue Recognition for third-party hardware software and services — Third-party hardware sales are typically recognized upon delivery or
installation, and revenue from third-party software sales is recognized upon delivery. Maintenance revenue is recognized ratably over the term of the
maintenance agreement. Revenue from third-party hardware and software sales is recorded at a gross amount for transactions in which the Company
controls the third-party hardware and software prior to fulfilling the performance obligation. In specific circumstances where the Company does not
meet the above criteria, revenue is recognized on a net basis. In certain arrangements, the Company may earn revenue from other third-party services
which is recorded at a gross amount as it controls the services before transferring them to the customer.
Arrangements with Multiple Performance Obligations — Many of the Company’s agreements include multiple performance obligations. The
Company allocates the transaction price for each contract to each performance obligation identified in the contract based on the relative standalone
selling price (SSP). The Company determines SSP for the purposes of allocating the transaction price to each performance obligation by considering
several external and internal factors including, but not limited to, transactions where the specific performance obligation sold separately, historical actual
pricing practices and geographies in which the Company offers its services in accordance with ASC 606. The determination of SSP requires the exercise
of judgement. If a specific performance obligation is sold for a broad range of amounts (that is, the selling price is highly variable) or if the Company
has not yet established a price for that good or service, and the good or service has not previously been sold on a standalone basis (that is, the selling
price is uncertain), the Company applies the residual approach whereby all other performance obligations within a contract are first allocated a portion
of the transaction price based upon their respective SSPs with any residual amount of transaction price allocated to the remaining specific performance
obligation.
Billing terms and conditions generally vary by contract category. Amounts are typically billed as work progresses in accordance with agreed-upon
contractual terms, either at periodic intervals (e.g., monthly or quarterly) or upon achievement of contractual milestones. In cases where timing of
revenue recognition significantly differs from the timing of invoicing, the Company considers whether a significant financing component exists. The
Company elected to use the practical expedient in assessing the financing component in contracts where the time between cash collection and
performance is less than one year.
Accounts Receivable — Billed — Billed accounts receivables include all outstanding invoices to customers, as well as amounts allowed to be
billed according to contractual billing terms with customers.
Accounts Receivable — Unbilled — Unbilled accounts receivable is recorded when revenue recognition criteria is met prior to contractual billing
terms being met. Unbilled accounts receivable that are expected to be billed beyond the next 12 months are considered long-term unbilled receivables
and included in other noncurrent assets.
Deferred Revenue — Deferred revenue represents billings to customers for which revenue has not yet been recognized. Deferred revenue that is
expected to be recognized beyond the next 12 months is considered long-term deferred revenue and included in other noncurrent liabilities.
Assets Recognized from the Costs to Obtain a Contract with a Customer — Incremental costs of obtaining a contract (e.g., sales commissions) are
capitalized and amortized on a pro-rata basis over the contract period if the Company expects to recover those costs. Commissions on renewals are
commensurate with the commission from the initial arrangement. Incremental costs of obtaining a contract include only those costs the Company incurs
to obtain a contract that it would not have incurred if the contract had not been obtained. The Company has
F-19
determined that certain sales commissions programs meet the requirements to be capitalized, which prior to the adoption of ASC 606, were previously
expensed as incurred. Additionally, as a practical expedient, the Company expenses costs to obtain a contract as incurred if the amortization period
would have been a year or less. The amortization of these costs is included in selling, general and administrative expenses in the Company’s
consolidated statements of income.
In certain circumstances where the Company enters into a contract with a customer for the provision of managed services for a defined period of
time, the Company defers certain direct costs incurred at the inception of the contract. These costs include expenses incurred in association with the
origination of a contract. In addition, if the revenue for a delivered item is not recognized because it is not separable from the undelivered item, then the
Company also defers the cost of the delivered item. The deferred costs are amortized on a straight-line basis over the managed services period, or over
the recognition period of the undelivered item. Revenue associated with these capitalized costs is deferred and is recognized over the same period.
Cost of Revenue
Cost of revenue consists of all costs associated with providing software licenses and services to customers, third party hardware and software
including identified losses on contracts. Estimated losses on projects satisfied over time as work performed are recognized in the period in which the
loss is identified.
Cost of revenue also includes costs of third-party products associated with selling third-party computer hardware and software products to
customers and other third-party services, when the related revenue is recorded at the gross amount. Customers purchasing third-party products and
services from the Company generally do so in conjunction with the purchase of the Company’s software and services.
Research and Development
Research and development expenditures consist of costs incurred in the development of new software modules and product offerings, as part of
the Company’s internal product development programs, which are sold, leased or otherwise marketed. Research and development costs are expensed as
incurred.
Based on the Company’s product development process, technological feasibility is established upon completion of a detailed program design or, in
the absence thereof, completion of a working model. Costs incurred by the Company after achieving technological feasibility and before the product is
ready for customer release have been insignificant.
Equity-Based Compensation
The Company measures and recognizes the compensation expense for all equity-based payments to employees and directors based on their
estimated fair values. The Company estimated the fair value of employee stock options at the date of grant using a Black-Scholes valuation model. The
Company values restricted stock including performance restricted stock based on the market value of the underlying shares at the date of grant which is
reduced by the present value of estimated dividends for grants of restricted stock units that do not accrue dividends. The Company recognizes
compensation costs using the graded vesting attribution method that results in an accelerated recognition of compensation costs in comparison to the
straight-line method. Performance restricted stock are subject to certain performance criteria; accordingly, compensation expense is recognized for such
awards when it becomes probable that the related performance condition will be satisfied.
The Company uses a combination of implied volatility of the Company’s traded options and historical stock price volatility (“blended volatility”)
as the expected volatility assumption required in the Black-Scholes option valuation model. As equity-based compensation expense recognized in the
Company’s consolidated statements of income is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.
F-20
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, short-
term interest-bearing investments, trade receivables and unbilled receivable. Cash and cash equivalents are maintained with several financial institutions.
Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal
credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple financial institutions and monitoring the risk profiles
of these counterparties. The Company has conservative investment policy guidelines under which it invests its excess cash primarily in highly liquid
U.S. dollar-denominated securities. The Company’s revenue is generated primarily in North America. To a lesser extent, revenue is generated in Europe
and the rest of the world. Most of the Company’s customers are among the largest communications and media companies in the world (or are owned by
them). The Company’s business is subject to the effects of general global economic conditions and market conditions in the communications industry.
The Company performs ongoing credit analyses of its customer base and generally does not require collateral.
The Company evaluates accounts receivable and unbilled receivables to determine if they ultimately will be collected. Significant judgments and
estimates are involved in performing this evaluation, which are based on factors that may affect a customer’s ability to pay, such as past experience,
credit quality of the customer, age of the receivable balance and current economic conditions, reasonable and supportable forecasts of future economic
conditions, and other factors that may affect its ability to collect from customers. The allowance for doubtful accounts, net of credit losses is for
expected credit losses resulting from accounts receivable and unbilled receivables for which their collection is not reasonably probable. The allowance
for doubtful accounts as of September 30, 2022 and 2021, was $16,627 and $20,065, respectively. As of September 30, 2022, the Company had two
customers with accounts receivable balances of more than 10% of total accounts receivable, aggregating to 41%. As of September 30, 2021, the
Company had two customers with accounts receivable balances of more than 10% of total accounts receivable, aggregating to 40%, please see Note 21.
Earnings per Share
Basic earnings per share is calculated using the weighted average number of shares outstanding during the period. Diluted earnings per share is
computed on the basis of the weighted average number of shares outstanding and the effect of dilutive outstanding equity-based awards using the
treasury stock method. The Company includes participating securities (unvested restricted stock that contain non-forfeitable rights to dividends or
dividend equivalents) in the computation of earnings per share pursuant to the two-class method, which calculates earnings per share for common shares
and participating securities.
Derivatives and Hedging
The Company carries out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to
hedge the Company’s exposure in currencies other than the U.S. dollar. The Company recognizes derivative instruments as either assets or liabilities and
measures those instruments at fair value. If a derivative meets the definition of a cash flow hedge and is so designated, changes in the fair value of the
derivative are recognized in other comprehensive (loss) income until the hedged item is recognized in earnings. The ineffective portion of a derivative
designated as a cash flow hedge is recognized in earnings. If a derivative does not meet the definition of a cash flow hedge, the changes in the fair value
are included in earnings.
Recent Accounting Standards
In September 2022, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU No. 2022-04, “Liabilities
— Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The ASU requires from entities that use
supplier finance programs to disclose sufficient information about the program’s nature, activity during the period, changes from period to
F-21
period, and potential magnitude. This ASU will be effective for the Company on October 1, 2024, and early adoption is permitted. The Company is
currently evaluating the impact of adoption of this ASU on its consolidated financial statements.
In August 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers.” The ASU requires companies to apply ASC 606 to recognize and measure contract assets and contract
liabilities from contracts with customers acquired in a business combination. This ASU will be effective for the Company on October 1, 2023 and early
adoption is permitted.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial
Reporting.” The ASU provides temporary optional expedients and exceptions on certain contract modifications, hedge relationships and other
transactions that reference London Inter-Bank Offered Rate (“LIBOR”) or other reference rates expected to be discontinued due to the reference rate
reform. This ASU is effective as of March 12, 2020 through December 31, 2022. The Company expects that the adoption of this ASU will not have a
material impact on its consolidated financial statements.
Note 3 — Acquisitions and Divestiture of a Subsidiary
Divestiture of a Subsidiary
On November 10, 2020, the Company signed an agreement for the divestiture of OpenMarket for approximately $300,000 cash with Infobip
Limited, a company in which One Equity Partners is the primary institutional investor. With this transaction, the Company divested a non-strategic asset
in the mobile messaging domain, remaining laser-focused on its core strategic growth initiatives.
On December 31, 2020, the Company completed the divestiture. Based on the total consideration, the Company recorded pre-tax gain of $226,410 (net
of immaterial transaction costs) in the Consolidated Statements of Income during the fiscal year ended September 30, 2021. In connection with this
divestiture, $9,194 of net assets and $61,396 of goodwill, were disposed. During fiscal year 2022, the Company recorded additional pre-tax gain of
$10,000 in the Consolidated Statements of Income as a result of achievement of certain performance metrics and received such additional consideration
in cash during fiscal year 2022. The divestiture does not represent a strategic shift that will have a major effect on operations and financial results and,
therefore, did not qualify for presentation as a discontinued operation, please see also Note 10.
Acquisitions
Entities acquired by the Company during the last three fiscal years have been consolidated into the Company’s results of operations since their
respective acquisition dates. These acquisitions, individually and in the aggregate, were not material in any fiscal year. During fiscal year 2022, the
Company completed two immaterial acquisitions of technology companies, DevOps and Roam, for an aggregate net consideration of $54,091 in cash,
and additional contingent consideration subject to the achievement of certain performance metrics. In May 2022, the Company entered into a definitive
agreement to acquire MYCOM-OSI, for approximately $188,000 in cash. Recently, the Company and MYCOM-OSI mutually and amicably decided not
to move forward with the planned acquisition following a longer than expected regulatory review process in the United Kingdom (that was still not
complete). The definitive agreement has been terminated without any payments by either party to the other. As previously disclosed, this acquisition was
not material and the decision not to pursue it is not expected to have an impact on the Company’s guidance.
During fiscal year 2021, the Company acquired three technology companies, for an aggregate net consideration of $101,864 in cash, and
additional contingent consideration subject to the achievement of certain performance metrics. Among them the largest of the three is Sourced Group, a
leading global technology consultancy specializing in large-scale cloud transformations for sophisticated, high-end enterprise customers in
F-22
different industries such as communications, financial services and others. During fiscal year 2020, the Company acquired three companies and other
intangible assets for an aggregate net consideration of approximately $280,808, among them the largest is Openet, which offers cloud-native
capabilities, network pedigree, and deep 5G charging, policy and data management expertise and whose solutions complement the Amdocs portfolio.
Note 4 — Revenue
Contract Balances
The following table provides information about Accounts receivable, both billed and unbilled and deferred revenue:
Accounts receivable — billed (net of allowances for doubtful accounts
of $16,627 and $20,065 as of September 30, 2022 and 2021,
respectively)
Accounts receivable — unbilled (current)
Accounts receivable — unbilled (non-current)
Total Accounts receivable — unbilled
Deferred revenue (current)
Deferred revenue (non-current)
Total Deferred revenue
As of
September 30,
2022
September 30,
2021
789,611
$
157,166
$
27,417
$
$
184,583
$ (253,686)
$
(69,907)
$ (323,593)
704,541
$
162,278
$
38,252
$
$
200,530
$ (237,374)
$ (108,675)
$ (346,049)
Revenue recognized during the year ended September 30, 2022, which was included in deferred revenue (current) as of September 30, 2021 was
$222,581. Revenue recognized during the year ended September 30, 2021, which was included in deferred revenue (current) as of September 30,
2020 was $115,474.
Remaining Performance Obligations from Contracts with Customer
As of September 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations that are unsatisfied or
partially unsatisfied was approximately $6.3 billion. Remaining performance obligations typically include the remaining non-cancelable, committed and
fixed portion of contracts for their entire duration and therefore it is not comparable to what the Company considers to be next 12 months backlog.
Given the profile of contract terms, the majority of this amount is expected to be recognized as revenue over the next three years.
Disaggregation of Revenue
The Company considers information that is regularly reviewed by its chief operating decision makers in evaluating financial performance to
disaggregate revenue. Please see Note 21 — Segment Information and Sales to Significant Customers.
Note 5 — Fair Value Measurements
The Company accounts for certain assets and liabilities at fair value. Fair value is the price that would be received from selling an asset or that
would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous
market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market.
The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair
value measurement in its entirety.
F-23
The three levels of inputs that may be used to measure fair value are as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions (less active
markets), or other inputs that are observable (model-derived valuations in which significant inputs are observable) or can be derived principally
from, or corroborated by, observable market data; and
Level 3: Unobservable inputs that are supported by little or no market activity that is significant to the fair value of the assets or liabilities.
The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and 2021:
Available-for-sale securities:
Money market funds
Corporate bonds
U.S. government treasuries
Municipal bonds
Supranational and sovereign debt
Asset backed obligations
Total available-for-sale securities
Equity Investments
Derivative financial instruments, net
Other liabilities
Total
Available-for-sale securities:
Money market funds
Corporate bonds
U.S. government treasuries
Supranational and sovereign debt
Asset backed obligations
Total available-for-sale securities
Equity Investments
Derivative financial instruments, net
Other liabilities
Total
Level 1
$266,362
—
40,229
—
—
—
306,591
—
—
—
$306,591
Level 1
$ 209,026
—
54,752
—
—
263,778
—
—
—
$ 263,778
As of September 30, 2022
Level 2
Level 3
Total
$ —
168,308
—
16,125
10,594
9,347
204,374
—
(48,901)
—
$ 155,473
$ —
—
—
—
—
—
—
46,015
—
(23,390)
$ 22,625
$ 266,362
168,308
40,229
16,125
10,594
9,347
510,965
46,015
(48,901)
(23,390)
$ 484,689
As of September 30, 2021
Level 2
Level 3
Total
$ —
190,437
—
7,453
3,885
201,775
—
10,979
—
$ 212,754
$ —
—
—
—
—
—
37,581
—
(51,590)
$ (14,009)
$ 209,026
190,437
54,752
7,453
3,885
465,553
37,581
10,979
(51,590)
$ 462,523
Available-for-sale securities that are classified as Level 2 assets are priced using observable data that may include quoted market prices for similar
instruments, market dealer quotes, market spreads, non-binding market prices that are corroborated by observable market data and other observable
market information. The Company’s derivative instruments are classified as Level 2 as they represent foreign currency forward and option contracts
valued primarily based on observable inputs including forward rates and yield curves. The Company did not have
F-24
any transfers between Level 1 and Level 2 fair value measurements during fiscal year 2022. Level 3 liabilities relate to certain acquisition-related
liabilities, which were generally valued using a Monte-Carlo simulation model and based on estimates of potential pay-out scenarios, valued during
fiscal years 2022 and 2021. These liabilities were included in both accrued expenses and other current liabilities and other noncurrent liabilities as of
September 30, 2022 and 2021. The decrease in Level 3 liabilities was primarily attributable to payments of certain acquisition-related liabilities, changes
in the fair value recorded in the consolidated statement of income in fiscal year 2022, partially offset by changes recorded against goodwill in
connection with recent acquisitions. Level 3 assets relate to equity investments, which were valued based on price changes in orderly transactions for
similar private investments of the same issuer. The increase in Level 3 assets is a result of equity investments made during fiscal year 2022, as well as
changes in the fair value was recorded in the consolidated statement of income.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, accrued
personnel costs approximate their fair value because of the relatively short maturity of these items, for the fair value of the Senior Notes, please see Note
12.
Note 6 — Available-For-Sale Securities
Available-for-sale securities consist of the following interest-bearing investments:
Money market funds
Corporate bonds
U.S. government treasuries
Municipal bond
Supranational and sovereign debt
Asset backed obligations
Total(1)
Amortized
Cost
$266,362
183,266
44,658
17,759
11,882
9,835
$533,762
As of September 30, 2022
Gross
Gross
Unrealized
Unrealized
Losses
Gains
$ —
$ —
14,958
—
4,429
—
1,634
—
1,288
—
488
—
$ 22,797
$ —
Fair Value
$266,362
168,308
40,229
16,125
10,594
9,347
$510,965
(1) Available-for-sale securities with maturities longer than 90 days from the date of acquisition were classified as short-term interest-bearing
investments and available-for-sale securities with maturities of 90 days or less from the date of acquisition were included in cash and cash
equivalents on the Company’s consolidated balance sheets. As of September 30, 2022, $244,603 of securities were classified as short-term
interest-bearing investments and $266,362 of securities were classified as cash and cash equivalents.
Money market funds
Corporate bonds
U.S. government treasuries
Supranational and sovereign debt
Asset backed obligations
Total(1)
Amortized
Cost
$209,026
191,445
54,987
7,479
3,890
$466,827
As of September 30, 2021
Gross
Gross
Unrealized
Unrealized
Losses
Gains
$ —
$ —
1,084
76
239
4
26
—
5
—
1,354
80
$
$
Fair Value
$209,026
190,437
54,752
7,453
3,885
$465,553
(1) Available-for-sale securities with maturities longer than 90 days from the date of acquisition were classified as short-term interest-bearing
investments and available-for-sale securities with maturities of 90 days or less
F-25
from the date of acquisition were included in cash and cash equivalents on the Company’s consolidated balance sheets. As of September 30, 2021,
$256,527 of securities were classified as short-term interest-bearing investments and $209,026 of securities were classified as cash and cash
equivalents.
As of September 30, 2022, the unrealized losses attributable to the Company’s available-for-sale securities were primarily due to credit spreads
and interest rate movements, the majority of the securities that have unrealized losses as of September 30, 2022, also had immaterial unrealized losses as
of September 30, 2021. The Company assessed whether such unrealized losses for the investments in its portfolio were caused by expected credit loss.
Based on this assessment, the Company did not recognize any credit losses in the fiscal years ended September 30, 2022 and 2021. Realized gains and
losses on short-term interest-bearing investments are included in earnings and are determined based on specific identification method.
As of September 30, 2022, the Company’s available-for-sale securities had the following maturity dates:
Due within one year
1 to 2 years
2 to 3 years
3 to 4 years
Thereafter
Market Value
$ 285,671
59,726
85,794
67,113
12,661
$ 510,965
Note 7 — Derivative Financial Instruments
The Company’s risk management strategy includes the use of derivative financial instruments to reduce the volatility of earnings and cash flows
associated with changes in foreign currency exchange rates. The Company does not enter into derivative transactions for trading purposes.
The Company’s derivatives expose it to credit risks from possible non-performance by counterparties. The Company utilizes standard
counterparty master netting agreements that net certain foreign currency transactions in the event of the insolvency of one of the parties to the
transaction. These master netting arrangements permit the Company to net amounts due from the Company to counterparty with amounts due to the
Company from the same counterparty. Although all of the Company’s recognized derivative assets and liabilities are subject to enforceable master
netting arrangements, the Company has elected to present these assets and liabilities on a gross basis. Taking into account the Company’s right to net
certain gains with losses, the maximum amount of loss due to credit risk that the Company would incur if all counterparties to the derivative financial
instruments failed completely to perform, according to the terms of the contracts, based on the gross fair value of the Company’s derivative contracts
that are favorable to the Company, was approximately $3,349 as of September 30, 2022. The Company has limited its credit risk by entering into
derivative transactions exclusively with investment-grade rated financial institutions and monitors the creditworthiness of these financial institutions on
an ongoing basis.
The Company classifies cash flows from its derivative transactions as cash flows from operating activities in the consolidated statements of cash
flows.
The table below presents the total volume or notional amounts of the Company’s derivative instruments as of September 30, 2022. Notional values
are in U.S. dollars and are translated and calculated based on forward rates as of September 30, 2022 for forward contracts.
Foreign exchange contracts
Notional Value*
$ 1,902,786
(*) Gross notional amounts do not quantify risk or represent assets or liabilities of the Company but are used in the calculation of settlements under
the contracts.
F-26
The Company records all derivative instruments on the consolidated balance sheets at fair value. For further information, please see Note 5 to the
consolidated financial statements. The fair value of the open foreign exchange contracts recorded as an asset or a liability by the Company on its
consolidated balance sheets as of September 30, 2022 and September 30, 2021, is as follows:
Derivatives designated as hedging instruments
Prepaid expenses and other current assets
Other noncurrent assets
Accrued expenses and other current liabilities
Other noncurrent liabilities
Derivatives not designated as hedging instruments
Prepaid expenses and other current assets
Accrued expenses and other current liabilities
Net fair value
Cash Flow Hedges
As of September 30,
2022
2021
$ 1,226
—
(35,659)
(16,413)
(50,846)
10,808
(8,863)
1,945
$(48,901)
$ 6,962
3,068
(70)
—
9,960
4,230
(3,211)
1,019
$10,979
In order to reduce the impact of changes in foreign currency exchange rates on its results, the Company enters into foreign currency exchange
forward and option contracts to purchase and sell foreign currencies to hedge a significant portion of its foreign currency net exposure resulting from
revenue and expense transactions denominated in currencies other than the U.S. dollar. The Company designates these contracts for accounting purposes
as cash flow hedges. The Company currently hedges its exposure to the variability in future cash flows for a maximum period of approximately three
years. A significant portion of the forward and option contracts outstanding as of September 30, 2022 is scheduled to mature within the next 12 months.
The effective portion of the gain or loss on the derivative instruments is initially recorded as a component of other comprehensive (loss) income, a
separate component of equity, and subsequently reclassified into earnings in the same line item as the related forecasted transaction and in the same
period or periods during which the hedged exposure affects earnings. The cash flow hedges are evaluated for effectiveness quarterly. As the critical
terms of the forward contract or option and the hedged transaction are matched at inception, the hedge effectiveness is assessed generally based on
changes in the fair value for cash flow hedges, as compared to the changes in the fair value of the cash flows associated with the underlying hedged
transactions. Hedge ineffectiveness, if any, is recognized immediately in interest and other expense, net.
The effect of the Company’s cash flow hedging instruments in the consolidated statements of income for the fiscal years ended September 30,
2022, 2021 and 2020, respectively, which partially offsets the foreign currency impact from the underlying exposures, is summarized as follows:
Line item in consolidated statements of income:
Revenue
Cost of revenue
Research and development
Selling, general and administrative
Total
F-27
(Losses) Gains Reclassified from
Accumulated Other Comprehensive
(Loss) Income (Effective Portion)
Year Ended September 30,
2022
2021
2020
$
445
(9,194)
(3,376)
(3,910)
$(16,035)
$ (473)
20,209
6,069
6,347
$32,152
$ 834
4,166
1,646
2,500
$9,146
The activity related to the changes in net unrealized gains (losses) on cash flow hedges recorded in accumulated other comprehensive (loss)
income, net of tax, is as follows:
Net unrealized gain (loss) on cash flow hedges, net of tax, beginning of period
Changes in fair value of cash flow hedges, net of tax
Reclassification of (losses) gains into earnings, net of tax
Net unrealized (losses) gains on cash flow hedges, net of tax, end of period
$ 13,773
(75,226)
14,873
$(46,580)
$ 18,836
24,239
(29,302)
$ 13,773
2022
Year Ended September 30,
2021
2020
$ 3,945
21,903
(7,012)
$18,836
Net unrealized (losses) gains from cash flow hedges recognized in other comprehensive (loss) income were $(78,465), $23,720 and $26,408, or
$(75,226), $24,239 and $21,903, net of taxes, during the fiscal years ended September 30, 2022, 2021 and 2020, respectively.
Of the net gains related to derivatives designated as cash flow hedges and recorded in accumulated other comprehensive (loss) income as of
September 30, 2022, a net loss of $32,736 will be reclassified into earnings during fiscal 2023 and will partially offset the foreign currency impact from
the underlying exposures. The amount ultimately realized in earnings will likely differ due to future changes in foreign exchange rates.
The ineffective portion of the change in fair value of a cash flow hedge, including the time value portion excluded from effectiveness testing for
the fiscal years ended September 30, 2022, 2021 and 2020, was not material.
Cash flow hedges are required to be discontinued in the event it becomes probable that the underlying forecasted hedged transaction will not
occur. The Company did not discontinue any cash flow hedges during any of the periods presented nor does the Company anticipate any such
discontinuance in the normal course of business.
Other Risk Management Derivatives
The Company also enters into foreign currency exchange forward and option contracts that are not designated as hedging instruments under hedge
accounting and are used to reduce the impact of foreign currency on certain balance sheet exposures and certain revenue and expense transactions.
These instruments are generally short-term in nature, with typical maturities of less than 12 months, and are subject to fluctuations in foreign
exchange rates.
The effect of the Company’s derivative instruments not designated as hedging instruments in the consolidated statements of income for the fiscal
years ended September 30, 2022, 2021 and 2020, respectively, which partially offsets the foreign currency impact from the underlying exposure, is
summarized as follows:
Line item in statements of income:
Cost of revenue
Research and development
Selling, general and administrative
Interest and other expense, net
Income taxes
Total
F-28
(Losses) Gains
Recognized in Income
Year Ended September 30,
2022
2021
2020
$ (8,731)
(2,195)
(2,375)
(2,132)
3,018
$(12,415)
$ 4,786
1,187
1,301
1,808
(3,125)
$ 5,957
$ (718)
(341)
(559)
255
(679)
$(2,042)
Note 8 — Property and Equipment, Net
The components of property and equipment, net are:
Computers, related equipment and software
Building and land(1)
Leasehold improvements
Furniture, fixtures and other
Property and equipment, gross
Less accumulated depreciation
Property and equipment, net
(1)
For more details, please see also Note 2.
As of September 30,
2022
$ 1,267,230
392,110
199,972
64,025
1,923,337
(1,129,050)
794,287
$
2021
$ 1,195,787
291,262
244,858
55,353
1,787,260
(1,088,492)
698,768
$
Total depreciation expense for fiscal years 2022, 2021 and 2020, was $127,447, $125,014 and $117,632, respectively. Property and equipment that
have been fully depreciated and are no longer in use are netted against accumulated depreciation.
As of September 30, 2022 and 2021, the costs, net of accumulated depreciation of software assets developed for internal use were $154,731 and
$165,529, respectively.
Note 9 — Goodwill and Intangible Assets, Net
The following table presents details of the Company’s total goodwill:
As of September 30, 2020
Goodwill resulting from acquisitions(1)
Decrease in goodwill as a result of divestiture(2)
Other
As of September 30, 2021
Goodwill resulting from acquisitions(3)
Other
As of September 30, 2022
$ 2,578,645
104,151
(61,396)
1,244
$ 2,622,644
48,395
(8,214)
$ 2,662,825
(1) Mainly relates to the acquisition of Sourced Group. In allocating the total purchase price for Sourced Group, based on estimated fair values, the
Company recorded $79,863 of goodwill, $18,211 of customer relationships to be amortized over approximately seven years and $3,056 of core
technology to be amortized over three years.
(2) Relates to the divestiture of OpenMarket completed on December 31, 2020, see also Note 3.
(3) Mainly relates to the acquisitions of DevOps and Roam, see also Note 3. In allocating the total preliminary purchase price for Roam, based on
estimated fair values, the Company recorded $24,607 of goodwill, $11,454 of customer relationships to be amortized over approximately five
years and $2,299 of core technology to be amortized over two years. In allocating the total preliminary purchase price for DevOps, based on
estimated fair values, the Company recorded $23,787 of goodwill, $2,616 of customer relationships to be amortized over approximately five
years.
The Company performs an annual goodwill impairment test during the fourth quarter of each fiscal year, or more frequently if impairment
indicators are present. The Company operates in one operating segment, and this segment comprises its only reporting unit. Where a quantitative
impairment test is necessary, in calculating the fair value of the reporting unit, the Company uses its market capitalization and a discounted cash flow
methodology. There was no impairment of goodwill in fiscal years 2022, 2021 or 2020.
F-29
The following table presents details regarding the Company’s total definite-lived purchased intangible assets:
September 30, 2022
Core technology
Customer relationships
Other
Total
September 30, 2021
Core technology
Customer relationships
Other
Total
Gross
Accumulated
Amortization
$ 898,448
703,824
47,540
$ 1,649,812
$ 896,149
689,754
47,540
$ 1,633,443
$ (837,404)
(591,119)
(42,977)
$ (1,471,500)
$ (777,419)
(556,716)
(40,276)
$ (1,374,411)
Net
$ 61,044
112,705
4,563
$ 178,312
$ 118,730
133,038
7,264
$ 259,032
The amortization expenses related to the Company’s definite-lived purchased intangible assets were $97,088, $83,816 and $80,777 for the years
ended 2022, 2021 and 2020, respectively.
The estimated future amortization expense of definite-lived purchased intangible assets as of September 30, 2022 is as follows:
Fiscal year:
2023
2024
2025
2026
2027
Thereafter
Total
Amount
$ 53,213
43,721
39,759
23,334
10,893
7,392
$ 178,312
Note 10 — Income Taxes
The provision (benefit) for income taxes consists of the following:
Current
Deferred
Income taxes
2022
Year Ended September 30,
2021
$102,197
(3,292)
$ 98,905
$176,537
(50,605)
$125,932
2020
$55,243
30,239
$85,482
All income taxes are from continuing operations reported by the Company in the applicable taxing jurisdiction. Income taxes also include
anticipated withholding taxes due on subsidiaries’ earnings when paid as dividends to the Company.
The Company maintained a tax receivable balance of $56,959 and $53,925 as of September 30, 2022 and 2021, respectively, which is included in
Prepaid expenses and other current assets.
F-30
Deferred income taxes are comprised of the following components:
Deferred tax assets:
Deferred revenue
Employee compensation and benefits
Intangible assets, computer software and intellectual property
Tax credits, net capital and operating loss carryforwards
Lease liabilities
Other
Total deferred tax assets
Valuation allowances
Total deferred tax assets, net
Deferred tax liabilities:
Anticipated withholdings on subsidiaries’ earnings
Intangible assets, computer software and intellectual property
Lease assets
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
The effective income tax rate varied from the statutory Guernsey tax rate as follows:
As of September 30,
2022
2021
$ 18,470
90,445
64,719
110,764
44,443
48,171
377,012
(56,868)
320,144
(57,566)
(109,419)
(38,454)
(73,166)
(278,605)
$ 41,539
$ 25,282
76,020
75,200
156,209
50,780
46,372
429,863
(65,550)
364,313
(84,755)
(109,526)
(47,822)
(97,638)
(339,741)
$ 24,572
Year Ended September 30,
2021
2022
2020
Statutory Guernsey tax rate
Foreign taxes(1)
Effective income tax rate
0%
0%
0%
15.3
15.3%
15.5
15.5%
14.7
14.7%
As a Guernsey company subject to a corporate tax rate of zero percent, the Company’s overall effective tax rate is attributable to foreign taxes.
The Company’s income before income tax expense is considered to be foreign income.
(1) Foreign taxes for the year ended Sep 30, 2022:
In fiscal year 2022, the Company recorded a tax benefit of $37,000 related to the release of accrued withholding taxes on unremitted
earnings accumulated in Israel. The release of the accrued withholding taxes followed the Company’s funding decisions relating to the
construction of its new Israeli campus; such funding decisions have also taken into consideration recent changes in Israeli law and the recent
application of the Preferred Technological Enterprise regime to the company’s main Israeli operating subsidiary.
Foreign taxes in fiscal year 2022 also included a benefit of $8,871 relating to changes in tax regulations in certain jurisdiction, and an
expense of $3,193 for the estimated additional tax charge as a result of the gain from sale of a business (see also Note 3).
Foreign taxes in fiscal year 2022 also included a total amount of releases, net of additions related to prior years, of gross unrecognized tax
benefits of $4,757 relating to effectively settled arrangements with tax
F-31
authorities, changes in facts and circumstances resulting in a change in measurement of certain positions and expiration of the periods set forth in
statutes of limitations in certain jurisdictions.
Foreign taxes in fiscal year 2022 also included an expense of $1,211 resulting from the creation of valuation allowances on deferred tax
assets at certain of the Company’s subsidiaries, which will not likely be realized due to the Company’s projections of future taxable income.
(1) Foreign taxes for the year ended Sep 30, 2021:
In fiscal year 2021, foreign taxes included an expense of $39,596 for the estimated additional tax charge as a result of the gain from sale of a
business, please see also Note 3.
Foreign taxes in fiscal year 2021 also included a benefit of $10,933 resulting from internal structural changes in certain jurisdictions in
which the Company operates.
Foreign taxes in fiscal year 2021 also included a total amount of releases, net of additions related to prior years, of gross unrecognized tax
benefits of $7,701 relating to effectively settled arrangements with tax authorities, changes in facts and circumstances resulting in a change in
measurement of certain positions and expiration of the periods set forth in statutes of limitations in certain jurisdictions. The net release was offset
by decrease in tax assets and as a result the net impact on income tax expense for fiscal year 2021 was not material.
Foreign taxes in fiscal year 2021 also included a benefit of $6,006 resulting from the release of valuation allowances on deferred tax assets
at certain of the Company’s subsidiaries, which will, more likely than not, be realized due to the Company’s projections of future taxable income.
(1) Foreign taxes for the year ended Sep 30, 2020:
In fiscal year 2020, foreign taxes included a total amount of releases of gross unrecognized tax benefits of $47,582 relating to effectively
settled arrangements with tax authorities, changes in facts and circumstances resulting in a change in measurement of certain positions and
expiration of the periods set forth in statutes of limitations in certain jurisdictions. The majority of the release was offset by decrease in tax assets
and increase in tax liabilities and as a result a net benefit of $14,971 was included within income tax expense for fiscal year 2020.
Foreign taxes in fiscal year 2020 also included a benefit of $15,438 resulting from the release of valuation allowances on deferred tax assets
at certain of the Company’s subsidiaries, which will, more likely than not, be realized due to the Company’s projections of future taxable income.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide
certain relief as a result of the COVID-19 outbreak. Some of the key income tax-related provisions of the CARES Act include modification in the
usage of net operating losses, interest deductions and payroll benefits. Furthermore, other governments have offered and may continue to offer
support to companies who operate in those countries.
Foreign taxes in fiscal year 2020 also included a tax benefit of $4,964 resulting from tax enactments related to the COVID-19 in certain
jurisdictions.
As of September 30, 2022 and 2021, the Company indefinitely reinvest certain undistributed earnings of its foreign subsidiary and as a result has
not recorded deferred tax liabilities in amounts of $59,000 and $28,795 respectively.
During fiscal year 2022, the net decrease in valuation allowances was $8,682. The valuation allowances, related to the uncertainty of realizing tax
benefits primarily for tax credits, net capital and operating loss carryforwards related to certain of the Company’s subsidiaries. As of September 30,
2022, the Company had tax credits, net capital and operating loss carryforwards of $516,270 of which $104,079 have expiration dates through 2042, and
the remainder do not expire.
F-32
During fiscal year 2021, the net decrease in valuation allowances was $3,905. The valuation allowances, related to the uncertainty of realizing tax
benefits primarily for tax credits, net capital and operating loss carryforwards related to certain of the Company’s subsidiaries. As of September 30,
2022, the Company had tax credits, net capital and operating loss carryforwards of $756,414 of which $170,430 have expiration dates through 2041, and
the remainder do not expire.
The aggregate changes in the balance of the Company’s gross unrecognized tax benefits were as follows:
Balance at beginning of fiscal year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements with tax authorities(1)
Lapse of statute of limitations
Balance at end of fiscal year
2022
Year Ended September 30,
2021
$195,196
22,386
8,359
(7,262)
(1,344)
(4,304)
$213,031
$168,186
25,662
23,849
(7,467)
(10,245)
(4,789)
$195,196
2020
$169,322
23,154
23,292
(15,214)
(29,400)
(2,968)
$168,186
(1)
The changes in the years ended September 30, 2021 and 2020 were $10,245 and $29,400 respectively, the majority of which were offset by
income tax payments or changes in Tax receivables, Tax payables and deferred tax assets.
The total amount of unrecognized tax benefits, which includes interest and penalties, was $213,031 as of September 30, 2022, and $195,196 as of
September 30, 2021, all of which would affect the effective tax rate if realized.
The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of September 30, 2022,
the Company had accrued $35,471 in income taxes payable for interest and penalties relating to unrecognized tax benefits, of which $10,460 was
recognized in the statements of income in fiscal year 2022, net of interest and penalty reversals. As of September 30, 2021, the Company had accrued
$25,011 in income taxes payable for interest and penalties relating to unrecognized tax benefits. Total amount of interest and penalty releases, net that
was recognized in the statements of income in fiscal year 2021 was $9,199.
The Company is currently under tax audit in several jurisdictions for the tax years 2007 and onwards. Timing of the resolution of audits is highly
uncertain and therefore, as of September 30, 2022, the Company cannot estimate the change in unrecognized tax benefits resulting from these audits
within the next 12 months.
It is reasonably possible that the amount of unrecognized tax benefits may decrease by up to $2,636 during fiscal year 2023 as a result of lapse of
statutes of limitations in jurisdictions in which the Company operates.
Note 11 — Repurchase of Shares
From time to time, the Company’s Board of Directors can adopt share repurchase plans authorizing the repurchase of the Company’s outstanding
ordinary shares. On May 12, 2021, the Company’s Board of Directors adopted a share repurchase plan for the repurchase of up to an additional
$1,000,000 of the Company’s outstanding ordinary shares with no expiration date. The May 2021 plan permits the Company to purchase our ordinary
shares in the open market or through privately negotiated transactions at times and prices that the Company considers appropriate. In the year ended
September 30, 2022, the Company repurchased 6,479 ordinary shares at an average price of $78.47 per share (excluding broker and transaction fees). As
of September 30, 2022, the Company had remaining authority to repurchase up to $490,109 of its outstanding ordinary shares under the May 2021 plan.
F-33
Note 12 — Financing Arrangements
In December 2011, the Company entered into the unsecured $500,000 five-year revolving credit facility with a syndicate of banks (the “Revolving
Credit Facility”). In December 2014, December 2017 and March 2021, the Revolving Credit Facility was amended and restated to, among other things,
extend the maturity date of the facility to December 2019, December 2022 and March 2026, respectively. In March 2020, the Company drew an
aggregate of $300,000 under the Revolving Credit Facility and repaid it in full in June 2020 in connection with the issuance of our Senior Notes. As of
September 30, 2022, the Company was in compliance with the financial covenants and had no outstanding borrowings under the Revolving Credit
Facility.
In addition, unassociated with the Revolving Credit Facility discussed above, in the second quarter of fiscal year 2020, the Company entered into
a $50,000 short-term loan and repaid it in full in June 2020 in connection with the issuance of our Senior Notes. In May 2020, the Company entered into
an additional $100,000 one year loan which was repaid in full in May 2021.
In June 2020, the Company issued an aggregate principal amount of $650,000 in Senior Notes that will mature in June 2030 and bear interest at a
fixed rate of 2.538 percent per annum (the “Senior Notes”). The interest is payable semi-annually in June and December of each year, commencing in
December 2020. The Company incurred issuance costs of $6,121 in relation with the Senior Notes which are being amortized to interest expenses over
the term of the Senior Notes using the effective interest rate. The Senior Notes are senior unsecured obligations of the Company and rank equally in
right of payment with all existing and future senior indebtedness of the Company, including any indebtedness the Company may incur from time to time
under the Revolving Credit Facility.
The total interest expense recognized in connection with the Senior Notes for the year ended September 30, 2022 was $17,052. The accrued
interest on the Senior Notes is included in accrued expenses and other current liabilities and was $4,805 as of September 30, 2022. As of September 30,
2022, the noncurrent outstanding principal portion was $650,000.
The total estimated fair value of the Senior Notes as of September 30, 2022 was $516,620. The fair value was determined based on the closing
trading price of Senior Notes as of September 30, 2022 and is deemed a Level 2 liability within the fair value measurement framework.
As of September 30, 2022, the Company had additional uncommitted lines of credit available for general corporate and other specific purposes
and had outstanding letters of credit and bank guarantees from various banks totaling $77,924. These were supported by a combination of the
uncommitted lines of credit that the Company maintains with various banks.
Note 13 — Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
Ongoing accrued expenses
Project-related provisions
Taxes payable
Dividends payable(1)
Derivative instruments(2)
Other
As of September 30,
2022
$208,230
88,174
34,204
47,735
44,522
189,791
$612,656
2021
$ 206,905
125,612
34,717
44,956
3,281
196,832
$ 612,303
(1)
The amounts payable as a result of the August 3, 2022 and the August 4, 2021 dividend declarations, please see Note 19 to the consolidated
financial statements.
F-34
(2)
Includes derivatives that are designated as hedging instruments and derivatives that are not designated as hedging instruments, please see Note 7
to the consolidated financial statements.
Note 14 — Interest and other expense, net
Interest and other expense, net, consists of the following:
Interest income
Interest expense(1)
Foreign exchange loss(2)
Other, net
Year Ended September 30,
2021
2022
$ (7,821)
16,911
16,720
581
$26,391
$ (4,822)
21,275
1,110
(6,766)
$10,797
2020
$ (4,233)
10,427
3,382
1,860
$11,436
(1)
(2)
For further details, please see Note 12 to the consolidated financial statements.
The Foreign exchange loss increase in fiscal year 2022 is primarily attributable to volatility of certain currencies’ exchange rates for which
hedging the exposure through derivatives financial instruments was not cost effective as well as to the cost of executing our hedging policy
through derivatives financial instruments.
Note 15 — Leases
As discussed in Note 2, the operating lease expense is recorded on a straight-line basis over the lease term.
Lease costs were as follows:
Total net lease cost(1)
(1) Variable lease cost is immaterial.
2022
107,883
$
Year Ended September 30,
2021
97,169
$
2020
91,025
$
Supplemental information related to operating lease transactions was as follows:
Lease liability payments
Lease assets obtained in exchange for liabilities
Weighted average remaining lease term — Operating leases
Weighted average discount rate — Operating leases
F-35
Year Ended September 30,
2022
79,495
$
15,115
$
2021
79,028
$
14,580
$
As of September 30,
2022
5.9 Years
3.5%
2021
6.4 Years
3.7%
The following maturity analysis presents future undiscounted cash outflows for operating leases as of September 30, 2022:
For the year ended September 30,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
$ 49,433
37,062
30,863
24,909
17,872
47,403
$207,542
(25,828)
$181,714
As of September 30, 2022 and September 30, 2021, the Company had no material finance leases.
Note 16 —Contingencies and Commitments
Legal Proceedings
The Company is involved in various legal claims and proceedings arising in the normal course of its business. The Company accrues for a loss
contingency when it determines that it is probable, after consultation with counsel, that a liability has been incurred and the amount of such loss can be
reasonably estimated. At this time, the Company believes that the results of any such contingencies, either individually or in the aggregate, will not have
a material adverse effect on the Company’s financial position, results of operations or cash flows.
Certain of the Company’s subsidiaries are currently in a dispute with a state-owned telecom enterprise in Ecuador, which appears to have political
aspects. The Company’s counterparty has claimed monetary damages. The dispute is over contracts, under which the Company was providing certain
services, which have been terminated by the counterparty in connection with such dispute and which are under scrutiny by certain local governmental
authorities. The Company believes it has solid arguments and is vigorously defending its rights. While the Company has achieved positive results in
many of the procedures, a number of the procedures are still ongoing. The Company is unable to reasonably estimate the ultimate outcome of the above
dispute.
Guarantor’s Accounting and Disclosure Requirements for Guarantees
In the ordinary course of its business, the Company provides certain customers with financial performance guarantees which, in certain cases, are
backed by lines of credit. The Company is only liable for the amounts of those guarantees in the event of the Company’s nonperformance, which would
permit the customer to exercise the guarantee.
The Company generally offers its products with a limited warranty. The Company’s policy is to accrue for warranty costs, if needed, based on
historical trends in product failure. Based on the Company’s experience, only minimal warranty charges have been incurred after revenue was fully
recognized and, as a result, the Company did not accrue any amounts for product warranty liability during fiscal years 2022, 2021 and 2020.
The Company generally indemnifies its customers against claims made by third parties arising from the use of the Company’s software and certain
other matters. To date, the Company has incurred and recorded immaterial costs as a result of such obligations in its consolidated financial statements.
Note 17 — Employee Benefits
The Company accrues severance pay mainly for the employees of its Israeli operations in accordance with Israeli law and certain employment
procedures on the basis of the latest monthly salary paid to these employees
F-36
and the length of time that they have worked for the Israeli operations. The severance pay liability amounted to $298,099 and $298,044 as of
September 30, 2022 and 2021, respectively, and is included as accrued employee costs in other noncurrent liabilities. This liability is partially funded by
amounts on deposit with insurance companies that totaled $217,591 and $233,749 as of September 30, 2022 and 2021, respectively, and are included in
other noncurrent assets. The accrued severance expenses were $52,768, $35,015 and $33,354 for fiscal years 2022, 2021 and 2020, respectively.
The Company sponsors defined contribution plans covering certain employees around the world. The plans primarily provide for Company
matching contributions based upon a percentage of the employees’ contributions. The Company’s contributions in fiscal years 2022, 2021 and 2020
under such plans were not material compared to total operating expenses.
The Company maintains non-contributory defined benefit plans that provide for pension, other retirement and post-employment benefits for
certain employees of a Canadian subsidiary based on length of service and rate of pay. The Company accrues its obligations to these employees under
employee benefit plans and the related costs net of returns on plan assets. Pension expense and other retirement benefits earned by employees are
actuarially determined using the projected benefit method pro-rated on service and based on management’s best estimates of expected plan investments
performance, salary escalation, retirement ages of employees, discount rate, inflation and expected health care costs. The fair value of the employee
benefit plans’ assets is based on market values. The plan assets are valued at market value for the purpose of calculating the expected return on plan
assets and the amortization of experienced gains and losses. The Company recognized the funded status of such plans in the consolidated balance sheets.
The pension and other benefits costs related to the non-contributory defined benefit plans were immaterial in fiscal years 2022, 2021 and 2020.
Note 18 — Stock Option and Incentive Plan
In January 1998, the Company adopted the 1998 Stock Option and Incentive Plan, or Equity Incentive Plan, which provides for the grant of
restricted stock awards, restricted stock units and stock options and other equity-based awards to employees, officers, directors, and consultants. Since
its adoption, the Equity Incentive Plan has been amended on several occasions to, among other things, increase the number of ordinary shares issuable
under the Equity Incentive Plan. In January 2020, the maximum number of ordinary shares authorized to be granted under the Equity Incentive Plan was
increased from 67,550 to 70,550. Awards granted under the Equity Incentive Plan generally vest over a period of three to four years subject to service
based conditions or a combination of service and performance-based conditions and stock options have a term of ten years. Also, in accordance with the
Equity Incentive Plan, options were issued at or above the market price at the time of the grant.
The following table summarizes information about options to purchase the Company’s ordinary shares, as well as changes during the fiscal year
ended September 30, 2022:
Outstanding as of October 1, 2021
Granted
Exercised
Forfeited
Outstanding as of September 30, 2022(1)
Exercisable as of September 30, 2022(1)
Number of
Share
Options
3,988
—
(1,431)
(116)
2,441
1,598
$
Weighted Average
Exercise Price
61.00
—
57.93
64.15
62.66
$
$
61.17
(1) As of September 30, 2022, the weighted average remaining contractual life of outstanding and exercisable options was 5.85 and 5.31 years,
respectively.
F-37
The following tables summarize information relating to awards of restricted stock and restricted stock units, as well as changes during the fiscal
year ended September 30, 2022:
Restricted stock:
Outstanding as of October 1, 2021
Granted
Vested
Forfeited
Outstanding as of September 30, 2022
Restricted stock units:
Outstanding as of October 1, 2021
Granted
Vested
Forfeited
Outstanding as of September 30, 2022
Number of
Shares
1,366
1,080
(539)
(133)
1,774
Number of
Stock Units
221
325
(77)
(24)
445
Weighted Average
Grant Date Fair
Value
$
$
66.57
73.71
65.86
70.59
70.83
Weighted Average
Grant Date Fair
Value
$
$
69.35
72.31
68.83
71.26
71.50
The total intrinsic value of options exercised during fiscal years 2022, 2021 and 2020 was $33,096, $27,023 and $31,220, respectively.
The value of restricted stock vested during fiscal years 2022, 2021 and 2020 was $40,615, $25,400 and $25,520, respectively.
The value of restricted stock units vested during fiscal years 2022, 2021 and 2020 was $5,891, $3,282 and $3,207, respectively.
The aggregate intrinsic value of outstanding and exercisable stock options as of September 30, 2022 was $40,985 and $29,208, respectively.
Employee equity-based compensation pre-tax expense for the years ended September 30, 2022, 2021 and 2020 was as follows:
Cost of revenue
Research and development
Selling, general and administrative
Total
2022
$32,096
5,631
34,080
$71,807
Year Ended September 30,
2021
$22,691
4,021
27,537
$54,249
2020
$ 20,005
3,058
19,371
$ 42,434
As of September 30, 2022, there was $65,513 of unrecognized compensation expense related to unvested stock options, unvested restricted stock
awards and unvested restricted stock units which is expected to be recognized over a weighted average period of approximately one year, based on the
vesting periods of the grants.
F-38
The fair value of options granted was estimated on the date of grant using the Black-Scholes pricing model with the assumptions noted in the
following table (all in weighted averages for options granted during the year):
Risk-free interest rate(1)
Expected life of stock options(2)
Expected volatility(3)
Expected dividend yield(4)
Fair value per option
Year Ended September 30*,
2021
2020
0.30%
4.50
21.3%
2.22%
7.82
$
1.41%
4.50
17.3%
1.75%
8.85
$
There were no options grants during fiscal year 2022.
*
(1) Risk-free interest rate is based upon U.S. Treasury yield curve appropriate for the term of the Company’s employee stock options.
(2)
(3)
(4)
Expected life of stock options is based upon historical experience.
Expected volatility is based on blended volatility.
Expected dividend yield is based on the Company’s history and future expectation of dividend payouts.
Note 19 — Dividends
The Company’s Board of Directors declared the following dividends during the fiscal years ended September 30, 2022, 2021 and 2020:
Declaration Date
August 3, 2022
May 11, 2022
February 1, 2022
November 2, 2021
August 4, 2021
May 12, 2021
February 2, 2021
November 10, 2020
August 5, 2020
May 7, 2020
February 4, 2020
November 12, 2019
Dividends Per
Ordinary Share
0.395
$
0.395
$
0.395
$
0.36
$
0.36
$
0.36
$
$
0.36
0.3275
$
0.3275
$
0.3275
$
0.3275
$
0.285
$
Record Date
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
Total Amount
$47,735
$48,180
$48,527
$44,410
$44,956
$45,580
$45,958
$42,850
$43,084
$43,568
$43,723
$38,357
Payment Date
October 28, 2022
July 29, 2022
April 29, 2022
January 28, 2022
October 29, 2021
July 23, 2021
April 23, 2021
January 22, 2021
October 23, 2020
July 24, 2020
April 24, 2020
January 24, 2020
The amounts payable as a result of the August 3, 2022, August 4, 2021 and August 5, 2020 declarations were included in accrued expenses and
other current liabilities as of September 30, 2022, 2021 and 2020, respectively.
On November 8, 2022, the Company’s Board of Directors approved quarterly dividend payment of $0.395 per share, and set December 30, 2022
as the record date for determining the shareholders entitled to receive the dividend, which is payable on January 27, 2023.
On November 8, 2022, the Company’s Board of Directors also approved, subject to shareholder approval at the January 2023 annual general
meeting of shareholders, an increase in the quarterly cash dividend to $0.435 per share, anticipated to be paid in April 2023.
F-39
Note 20 — Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Net income and dividends attributable to participating restricted stock
Numerator for basic earnings per common share
Undistributed income allocated to participating restricted stock
Undistributed income reallocated to participating restricted stock
Numerator for diluted earnings per common share
Denominator:
Weighted average number of shares outstanding — basic
Weighted average number of participating restricted stock
Weighted average number of common shares — basic
Effect of dilutive stock options and restricted stock units granted
Weighted average number of common shares — diluted
Basic earnings per common share
Diluted earnings per common share
2022
Year Ended September 30,
2021
2020
$549,501
(7,880)
$541,621
5,159
(5,124)
$541,656
122,812
(1,761)
121,051
838
121,889
$
$
4.47
4.44
$688,374
(7,052)
$681,322
5,199
(5,167)
$681,354
128,495
(1,316)
127,179
789
127,968
$
$
5.36
5.32
$497,840
(3,663)
$494,177
2,417
(2,406)
$494,188
133,590
(983)
132,607
642
133,249
$
$
3.73
3.71
For the fiscal years ended September 30, 2022, 2021 and 2020, 42, 858 and 2,634 shares, respectively, on a weighted average basis, were
attributable to antidilutive outstanding stock options and restricted stock units. Shares attributable to antidilutive outstanding stock options and restricted
stock units were not included in the calculation of diluted earnings per share.
Note 21 — Segment Information and Sales to Significant Customers
The Company and its subsidiaries operate in one operating segment, providing software products and services for the communications,
entertainment and media industry service providers.
Geographic Information
The following is a summary of revenue and long-lived assets by geographic area. Revenue is attributed to geographic region based on the location
of the customers.
Revenue
North America (mainly United States)
Europe
Rest of the world
Total
2022
Year Ended September 30,
2021
2020
$ 3,100,038
582,192
894,467
$ 4,576,697
$ 2,791,472
622,780
874,388
$ 4,288,640
$ 2,720,911
613,751
834,377
$ 4,169,039
F-40
Long-lived Assets(1)
Europe
North America
Rest of the world:
Israel(2)
India
Others
Total
(1)
(2)
Property and equipment, net.
For more details, please see also Note 2.
Revenue by nature of activities
Managed services arrangements
Others
Total
Sales to Significant Customers
As of September 30,
2022
2021
$153,021
88,049
$ 182,746
94,149
490,694
49,487
13,036
$794,287
358,329
48,326
15,218
$ 698,768
2022
$ 2,755,486
1,821,211
$ 4,576,697
Year Ended September 30,
2021
$ 2,546,330
1,742,310
$ 4,288,640
2020
$ 2,398,691
1,770,348
$ 4,169,039
The following table summarizes the percentage of sales to significant customer groups which accounted for at least ten percent of its total revenue
in each of fiscal years 2022, 2021 and 2020.
Year Ended September 30,
2021
2022
2020
Revenue
Customer 1
Customer 2(*)
26.8%
20.1%
25.0%
19.1%
25.8%
12.1%
* Starting April 1, 2020, following the merger of two significant customers, their respective revenue was consolidated and comprise Customer 2.
Note 22 — Selected Quarterly Results of Operations (Unaudited)
The following are details of the unaudited quarterly results of operations for the three months ended:
2022
2021
Revenue
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Revenue
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$ 1,166,504
171,686
128,936
1.06
1.05
$ 1,087,309
154,330
123,525
0.98
0.97
F-41
$ 1,160,290
169,314
128,466
1.05
1.04
$ 1,066,254
154,919
146,150
1.15
1.14
$ 1,145,271
163,651
158,497
1.29
1.28
$ 1,048,734
149,244
119,067
0.92
0.91
$ 1,104,632
160,146
133,602
1.07
1.07
$ 1,086,343
140,200
299,632
2.29
2.28
AMDOCS LIMITED
Financial Statement Schedule
VALUATION AND QUALIFYING ACCOUNTS
(dollar and share amounts in thousands, except per share data or as otherwise disclosed)
Balance as of September 30, 2019
Charged to costs and expenses
Charged to other accounts
Deductions
Balance as of September 30, 2020
Charged to costs and expenses
Charged to other accounts
Deductions
Balance as of September 30, 2021
Charged to costs and expenses
Charged to other accounts
Deductions
Balance as of September 30, 2022
$
Accounts
Receivable
Allowances
36,121
18,465
(3,523)
(27,644)(3)
23,419
10,345
156
(13,855)(5)
20,065
8,263
(424)
(11,277)(7)
16,627
$
Valuation
Allowances on
Net Deferred
Tax Assets
$
85,533
8,521
1,005(1)
(25,604)(2)
69,455
6,382
3,720(1)
(14,007)(4)
65,550
3,840
584(1)
(13,106)(6)
56,868
$
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Includes valuation allowances on deferred tax assets incurred in connection with an acquisition.
$2,283 of valuation allowances on deferred tax assets were written off against the related deferred tax assets, and the remaining deductions in the
valuation allowances on net deferred tax assets were released to earnings.
$4,969 of accounts receivable allowances were written off against the related accounts receivables, $7,089 were written off against deferred
revenue and the remaining deductions in the accounts receivable allowances were released to earnings.
$1,557 of valuation allowances on deferred tax assets were written off against the related deferred tax assets, and the remaining deductions in the
valuation allowances on net deferred tax assets were released to earnings.
$8,486 of accounts receivable allowances were written off against the related accounts receivables, and the remaining deductions in the accounts
receivable allowances were released to earnings.
$4,684 of valuation allowances on deferred tax assets were written off against the related deferred tax assets, and the remaining deductions in the
valuation allowances on net deferred tax assets were released to earnings.
$6,361 of accounts receivable allowances were written off against the related accounts receivables, and the remaining deductions in the
accounts receivable allowances were released to earnings.
F-42