What’s behind the layoffs at Amdocs?

Macro-economic challenges, the difficulty of raising new money on the public market, and the rise in interest rates, have led to extensive layoffs in many technology companies since last year. Some of them have had to carry out a second round of layoffs within a few months of the first, a tough measure that could indicate that the company’s management had not adequately planned in the first round, and an event liable to be perceived badly by both investors and employees.

Among Israeli technology companies that have carried out two rounds of layoffs are video solutions company Kaltura (Nasdaq: KLTR), Internet analytics company Similarweb (NYSE: SMWB), autotech company Otonomo (Nasdaq: OTMO), and Internet content recommendations company Outbrain (Nasdaq: OB).

These have now been joined by software giant Amdocs (Nasdaq: DOX), which will dismiss 2,000 employees around the world, about 200 of them in Israel. At the end of last September, Amdocs employed 30,288 people, and in January this year it laid off about 700 of them, 100 in Israel. That amounted to 2.3% of the company’s workforce. The forthcoming second round of layoffs will amount to 7% of the workforce.

In Israel, the proportion is lower, just 4% of the 5,000 employees in the country. The numbers have, however, not yet been finalized, and the company is working on a budget for its next fiscal year, and on a streamlining program.

On the face of it, Amdocs should not be a company that carries out layoffs twice in six months, and ought to have been able to avoid it. After all, this is a growing, profitable company that distributes dividends. It has not found itself in some kind of downward spiral, liquidity crisis, or sharp decline in market cap.

Amdocs, headed by Joshua (Shuki) Sheffer, provides IT systems and services, chiefly for billing and customer relations management to telecommunications companies around the world. Its market cap on Nasdaq is $11.7 billion.

Last year, Amdocs’s share price outperformed the market impressively, rising by more than 20% while the Nasdaq index fell 33%, but this year the stock has been an underperformer. It has risen 7.7% in the year to date, but in that time the Nasdaq index has risen 30.5%.

All the same, the stock is at an all-time high, and close to $100, a price it has never reached.

In the first half of the company’s 2023 fiscal year, that is, the six months to the end of March, Amdocs saw 6.8% growth in revenue to over $1.2 billion, and growth would have been 8.2% were it not for currency fluctuations.

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The goal: Maintaining long-term profitability

Revenue on North America, Amdocs’s main market, reached a record $829 million, which represents growth of 7.4%. Net profit for the first half was $279 million on a GAAP basis, lower than the $292 million net profit posted for the first half of 2022. On a non-GAAP basis, net profit rose 4% in comparison with the corresponding period, to $355 million.

Amdocs generated $378 million cash from regular operations in the first half of 2023, and had $862 million cash at the end of the period, versus long-term debt of $645 million, after buying back its own shares to the tune of $106 million during the second quarter.

Amdocs also announced the acquisition of the service assurance business of TEOCO for $90 million. A presentation published by Amdocs on the release of its first half financials states that the company has sufficient liquidity to support its business needs and to finance strategic investment in growth. The company also has a $500 million credit line to use if necessary.

As a service provider, Amdocs is exposed to changes in the ecosystem in which it operates, and has to respond to them in order to maintain its positive results in the long term. Even looking ahead, though, no significant difficulties are perceptible. The company reported a 7% rise in its orders backlog to $4.1 billion. According to guidance provided in the past, Amdocs will post revenue of $1.215-1.250 billion for its third fiscal quarter, and non-GAAP earnings per share of $1.45-1.51.

In the fiscal year to the end of September, the company is expected to record 6-8% growth in revenue and 9-13% growth in non-GAAP earnings per share, and to generate free cash flow of $700 million. Amdocs plans to distribute most of the cash flow to its shareholders.

Conservative on manpower

In the light of these figures, it seems that Amdocs is choosing to be conservative when it comes to manpower. The layoffs may also be a reaction against over-optimistic expansion in previous years. Between September 2020 and September 2022, the company’s headcount rose by 4,413, or about 17%.

As mentioned, many companies have been shedding employees recently, and even massive companies like Meta and Amazon have not managed to avoid some downsizing and have carried out more than one round of layoffs. Seen in that light, on the whole Amdocs seems to be stable, and in good company.

Amdocs stated in response: “”Amdocs, like other leading global companies, routinely examines the global macro-economic situation and acts as appropriate in order to ensure continued growth. Accordingly, from time to time we put in motion streamlining processes, while continuing to invest in growth areas, in line with our strategic plan.”

Published by Globes, Israel business news – en.globes.co.il – on July 10, 2023.

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