Elizabeth Grausam Eli Gelman - Director, Chief Executive Officer of Amdocs Management Limited and President of Amdocs Management Limited Tamar Rapaport-Dagim - Chief Financial Officer of Amdocs Management Limited and Senior Vice President of Amdocs Management Limited.

Ashwin Shirvaikar - Citigroup Inc, Research Division Jac Charles - Goldman Sachs Group Inc., Research Division Amit Singh - Jefferies LLC, Research Division Shaul Eyal - Oppenheimer & Co. Inc., Research Division Tom M. Roderick - Stifel, Nicolaus & Co., Inc., Research Division Kiera Kilkowski - BofA Merrill Lynch, Research Division.

Good day, everyone, and welcome to the Amdocs First Quarter 2014 Earnings Release Conference Call. Today's conference is being recorded and webcast. At this time, I will turn the call over to Ms. Elizabeth Grausam. Please go ahead..

Thank you, Shannon. Before we begin, I would like to point out that, during this call, we will discuss certain financial information that is not prepared in accordance with GAAP.

The company's management uses this financial information in its internal analysis in order to exclude the effect of acquisitions and other significant items that may have a disproportionate effect in a particular period.

Accordingly, management believes that isolating the effects of such events enables management and our investors to consistently analyze the critical components and results of operations of the company's business and to have a meaningful comparison to prior periods.

For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today's earnings release, which will also be furnished with the SEC on Form 6-K. Also, this call includes information that constitutes forward-looking statements.

Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties that may cause future results to differ from those anticipated.

These risks include, but are not limited to, the effects of general economic conditions and such other risks as discussed in our earnings release today and, at greater length, in the company's filings with the Securities and Exchange Commission, including in our annual report on Form 20-F for the fiscal year ended September 30, 2013, filed on December 9, 2013.

Amdocs may elect to update these forward-looking statements at some point in the future. However, the company specifically disclaims any obligation to do so. Participating on the call today with me are Eli Gelman, President and Chief Executive Officer of Amdocs Management Limited; and Tamar Rapaport-Dagim, Chief Financial Officer.

Before I hand the call over to Eli, I would like to let our investors and analysts know that Matt Smith, our Director of Investor Relations, who most of you know very well, will assume primary leadership to the Investor Relations group following this quarter.

I will be shifting more of my focus to the Corporate Strategy team, which I've had the pleasure of leading for the past 3 years but look forward to still speaking with you frequently in that capacity. With that, I will turn it over to Eli..

First, we are consistently discussing the many moving parts resulting from the consolidation activity in the North American wireless market.

This not only includes uncertainties arising from the M&A completed in calendar 2013 but extend to the potential for additional acquisition activity among North American carriers, the outcome of which are difficult to predict.

We continue to work with our customers to help them in their post-merger integration planning, but we are still in a certain degree of uncertainty on how awards of new business will progress due to these factors.

Taking this into consideration, our 2014 outlook reflects various scenarios, which we believe could play out in the coming quarters, but clearly, we cannot account for all possible outcomes. Second, we are seeing early indication that the Pay TV industry in North America may be at the cusp of consolidation.

Until the outlook begins to resolve, this type of uncertainty can result in relatively conscious discretionary spending of these customers. This activity, however, does support our long-held view that the Pay TV industry is likely to transform as it responds to rapidly changing competitive dynamics in the video line of business.

Our offering strategy in the multiplay and Pay TV is directly targeted at capturing the opportunities presented by this strength. Moving to Europe. We delivered year-over-year growth for the first time since fourth quarter of fiscal 2012.

Difficult macroeconomics and regulatory conditions persist in Europe and continue to present challenges to the region's carriers. It is therefore too early to say whether our strong Q1 performance represent the beginning of an improving trend, although we do see opportunities for long-term growth in Europe.

Recent activities in the quarter included the Vodafone Group, where we added another regional affiliate to the global managed services agreement during the quarter; and EE, a leading mobile operator in the U.K. where we were selected to deploy our MVNE solution under a Managed Services contract. Turning finally to the emerging markets.

Quarterly revenue trends continue to exhibit lumpiness, only primarily to the project orientation of our customer engagements. We are confident in our ability to execute on these highly complex transformation projects and we focus on enhancing our competitive position in these regions. Let me take a moment to briefly elaborate.

First, we continue to strengthen our relationship at strategic accounts. During the first quarter, we formalized our partnership with one of Asia Pacific leading Pay TV providers by signing a 5-year Managed Services agreement that includes components of new development.

At another strategic account in the region, we further expanded our penetration by deploying Amdocs MVNE solution as part of our long-term contract. Second, in the CALA region, towards the end of the first fiscal quarter, we completed a niche but strategic acquisition of a small Latin America -- a Latin American IT service company.

This acquisition accelerates our existing workforce in North America -- in Latin America and helps to expand our penetration in the region. Overall, we believe the long-term drivers in this emerging markets region remains highly favorable and Amdocs is strategically well-placed to execute against the rich pipeline of opportunities we see ahead.

Looking forward, we believe we can deliver full year total revenue growth of 5% to 8% in fiscal 2014, which is slightly ahead of our regional guidance. The change is primarily due to the timing and performance of recently acquired assets.

As noted in our press release, we completed the acquisition of Celcite on January 1 and the post measuring integration with Actix is underway. These acquisitions are a good demonstration of our execution in a new strategic domain, which has been under review for over a year prior to announcing the deals.

Both companies secured new customer wins during quarter 1. We anticipate additional success over the longer term, as we realize the benefits and the synergies of an integrated network software effort under Amdocs.

With respect to our core business, we would like to remind you of the many moving parts in our outlook, particularly in light of the increasing level of industry consolidation amongst North American carriers.

We believe we're executing well but the current condition is going to introduce a level of uncertainty for our customers and therefore for Amdocs. I would like to reemphasize that we remain committed to returning cash to shareholders over the long term.

During Q1, we executed on our share repurchase program at levels above the one suggested by our 50-50 framework. We will likely maintain a similar approach in the second fiscal quarter. Taking all these factors into consideration, we remain comfortable with our non-GAAP earnings per share growth outlook of 6% to 9% in fiscal year 2014.

Finally, I would like to remind you that our board approved increasing our quarterly cash dividend payment by 19% to $0.155 per quarter. This increased dividend, if it is approved at tomorrow's annual general meeting of shareholders, will be paid in April. With that, I will turn the call over to Tamar..

Thank you, Eli. First fiscal quarter of revenue of $864 million was within our guidance range of $845 million to $875 million, with a positive impact from foreign currency fluctuation of approximately $2 million relative to the fourth fiscal quarter of 2013.

The revenue includes a negligible impact from the acquisition of a small Latin American IT service provider, which closed within the last days of the quarter. Our first fiscal quarter non-GAAP operating margin was 16.8%, an increase of 10 basis points compared with the fourth fiscal quarter of 2013 and within our target range of 16% to 17%.

Below the operating line, net interest and other expense was $1 million in Q1. For forward-looking purposes, we continue to expect a net expense in the range of $2 million quarterly due to foreign currency fluctuations. Diluted non-GAAP EPS was $0.76 in Q1 compared to our guidance range of $0.72 to $0.78.

Free cash flow was robust at $160 million in Q1. This was comprised of cash flow from operations of approximately $187 million plus $27 million in net capital expenditures and other. As usual, we anticipate free cash flow in the second fiscal quarter will be lower due to the timing of annual bonus payments.

DSO of 72 days decreased by 1 day quarter-over-quarter. Total unbilled receivables rose by $7 million as compared to the fourth fiscal quarter of 2013. Our total deferred revenue, both short term and long term, increased by $20 million sequentially in Q1. These changes are consistent with normal fluctuations in these items.

Our cash balance at the end of first fiscal quarter was approximately $1.2 billion. Please note that this balance does not reflect the acquisition of Celcite, which closed on January 1 for cash consideration of $141 million.

Our 12-month backlog, which includes anticipated revenue related to contracts, estimated revenue from Managed Services contracts, letters of intent, maintenance and estimated ongoing support activities, was $2.89 billion at the end the first fiscal quarter, up $20 million sequentially.

During the first fiscal quarter, we repurchased $84 million of our ordinary shares under our current $500 million authorization plan. We have $252 million remaining under this authorization as of December 31. Now turning to our outlook. We expect revenue to be within the range of $880 million to $910 million for the second fiscal quarter of 2014.

Our guidance incorporates a full quarter of revenue contribution from our recently completed acquisition of Celcite and the Latin American IT service provider. We anticipate minimal sequential impact from foreign currency fluctuations as compared to Q1.

Translating our second quarter to the full fiscal year, we now expect total revenue growth in the range of 5% to 8% on a constant currency and reported basis. This compares with our previously guided annual range of 4% to 8% growth.

The difference is mostly attributable to the performance of recently acquired assets, as well as the timing of M&A deal closing. As reflected in our outlook, we anticipate that our overall sequential revenue growth rate will moderate in the second half of the fiscal year.

Also, within the full year outlook and consistent with our prior expectations, we still anticipate revenue from our Directory business in fiscal 2014 to decrease in the double-digit percentage range, placing about a 1% drag on the total company results.

We anticipate our non-GAAP operating margin for fiscal 2014 to continue to be within our long-term target range of 16% to 17%. We also expect our non-GAAP effective tax rate to be in the range of 13% to 15% for fiscal 2014. We expect the second fiscal quarter non-GAAP EPS to be in a range of $0.75 to $0.81.

Our second fiscal quarter non-GAAP EPS guidance also incorporates an expected average diluted share count of roughly 163 million shares and the likelihood of a negative impact from foreign exchange fluctuations in net interest and other expense.

We excluded the impact of incremental future share buyback activity during the second fiscal quarter as the level of activity will depend on market conditions. Factoring in our second quarter outlook for the full fiscal year, we are on track to deliver on our guidance for non-GAAP EPS growth of 6% to 9% in fiscal year 2014.

With that, we can turn it back to the operator to begin our question-and-answer session..

[Operator Instructions] And we first goes to Ashwin Shirvaikar with Citi..

Congratulations on the quarter and with the sales momentum, which actually is where my question is.

With regards to the new deals that you had announced for mobile network optimization, could you provide some incremental information with regards to the nature of these deals in terms of, let's say, average-sized duration, the license versus services break out, things like that. And talk about the upcoming pipeline as well, if you could..

Sure, Ashwin. Thank you for the question. In terms of the -- some color around these deals. First of all, the topic or the space of RAN optimization, radio access network optimization, have been on our agenda for quite some time. We just eventually managed to find the right assets and we completed this deals.

The nature of these deals are relatively different from the one you expect on BSS transformation or even OSS transformation project. Usually, each one of the deals are relatively small. Could be in the $1 million, $2 million, $3 million each. Usually, the tendency is to augment it with addition projects.

Now in some cases, you will see a company streamlining around an Actix product, for example, for 3G optimization, 3G network optimization. And they will then pay a different or subsequent license for the 4G and then LTE. That could be something different from small serves and different technologies. Same goes about the regions.

It usually could be pure segments of market or subsets of markets. And that's kind of the trend with the Actix product. With the Celcite, it's similar but on the services side.

So usually, we provide optimization services around Celcite tools and now we're combining it with the Actix infrastructure product but we'll basically offer the services to a certain market or submarket for a certain technology, sometimes certain network equipment providers. So it could be 3G of Ericsson in market X versus 4G of ALU in market Y.

So the nature of these deals are that they're incremental, but this company has had a tendency to do a very good job. And therefore, we believe that we can see subsequent sales once we get into a carrier or into a certain market, then it can repeat itself. I cannot kind of give you a feeling for the type of activity.

The end result is that we are saving a lot of money to the operators in running more efficiently the networks.

Now what we are doing as we speak in integrating these companies together and into Amdocs BSS is we are connecting this network optimization software and services into the BSS and allowing a better customer experience, if you will, by providing a better network to any given region or coverage or -- and even connecting it to the amount of money that is associated with good or bad in between networks or not-so-good networks.

So you can estimate the effect of the impact on your customers. So kind of -- this is kind of to give you a glimpse of that as we move forward. Probably, we'll provide more data and more information so you would understand better the assets and how they work separately and with the rest of the company..

Okay, great. That's very useful. The -- I guess, just a clarification.

Now that the Celcite deal is closed, those numbers, they should be in the guidance, right? And what's the breakout of acquisition versus organic?.

So the numbers for Q2 and for the year as a whole include already full second quarter with the Celcite and the small IT service provider we acquired in Latin America. In terms of the breakout, as we said in the beginning of the year, we expected around 2% to 3% coming from acquired assets.

Now we are seeing a slightly better picture, especially given, a, timing of the closing of such deals and; b, the fact that we see better performance in conjunction with the fact that the IT service provider in Latin America was not baked into the original guidance of the year.

So you should expect a slightly better performance from the acquired assets relative to this 2% to 3%..

But it maintained the full year? I mean, it maintained the overall....

That was the full year, yes. We're not guiding on a quarter-by-quarter basis now breaking up the acquired assets. We start integration day 1. We start moving forward and including that as part of our portfolio and suite of products moving forward..

So you can basically do the pro rata on a quarterly basis.

But maybe the one comment I would like to add is that I expect all these acquisitions, including the IT company in Latin America and Actix and Celcite, to be blended so quickly into the rest of the company that it will be very hard for us even to -- within very few quarters to really identify where does the old companies start and when does the rest of the Amdocs continue..

And next, we go to David Kaplan with Barclays..

This is Kris [ph] on for David. The recent announcement by AT&T around both the connected current sponsor data seem to point to a pickup of 2 long-term themes that you've talked about, including M2M and monetization of data.

Do you expect any or either of these to have an impact on revenues in fiscal year '14?.

So, Kris [ph], that's a very good question. This -- well, first of all, we are a part of this trend in the industry in North America and elsewhere. And this deal in general are not huge in the beginning. We believe it will be a trend, it will grow.

So the size of projects are baked into the overall numbers and they are not changing, moving the needle significantly. On the other hand, it is exciting because people were talking about the telco getting into the connected cars and the connected homes and security and machine to machine in general for quite some time.

And now we could start seeing it, especially North America, but not only. And it's -- and also, it's in the U.S., AT&T announced it. Rogers in Canada is doing something slightly different with security as an offering. And you can see different permutation of the same concept. So we are part of it. Our products are very relevant, our services as well.

But in terms of the size of it, I wouldn't try to depict it as something that can change the guidance. It is basically baked in the overall numbers and it's in there for now. I mean, if it will accelerate dramatically, maybe 2015 will be different..

Okay. If I could just -- another question on the spend in cable vertical.

Do you see those customers making moves to BSS/OSS solutions from vendors? And is this a scenario that you consider for M&A activity?.

So on the Pay TV, which is cable and satellite and IPTV or any permutation of that, I would imagine you will see all the different scenarios that we have known. I think that, yes, they will go out to buy BSS system, an OSS system and upgrade to legacy.

They haven't done it for a long time but I can also see a lot of home-grown development or home-sponsored development in some cases. And I would imagine that every one of these MSOs will have just a different view for that. Now that's on the space of BSS and OSS and some of it will be delivery project. Some of it will be, what we call projects.

Some of it will be managed services. So again, you will see different scenarios in different places. But what we are trying to depict in the script is that we just see the beginning of some of these activities. Now in terms of our capabilities, in the space of BSS and OSS, most likely we don't need M&As.

But we are looking also at extending our capabilities in the video space, into areas that might require some of the technology and then we may go after acquisition. I'm not obviously referring to capability -- we are not obviously referring to acquisition that -- for expanding market share or stuff like this.

I'm talking about acquisition that may augment our offering. And again, BSS/OSS, we don't need any. If we're moving to additional components of the video space in general, we may need to -- or want to accelerate with M&A..

And we next go to Paul Thomas with Goldman Sachs..

This is Jac Charles on behalf of Paul Thomas. I guess, the first place I'd like to dig into a little bit of your regional growth dynamics. So with Europe, previously, you mentioned that you were in the process of getting by some large client resets.

And I guess, can you give us an update on how that's progressing?.

It wasn't necessarily a large client reset of the time. It was just a natural ramp down of the transformation project that was running, part of the regular cycle. Once you pass the peak of the transformation project, you move forward and go to more of an ongoing support mode.

But having said that, the pickup we're seeing right now is a combination of several factors. One would be the Vodafone activity around the Managed Services deal that we announced. We are ramping up the responsibility we're having around the affiliates. We already announced in the past, such as Germany and Netherlands, as well as the U.K.

We also talk now about an additional regional affiliate we are -- we have won as part of this frame agreement. And in addition to Vodafone, we have more activities around different examples. We talked about, for example, Everything Everywhere, adopting our MVNE solution..

Rebranded as EE..

So EE, yes, adopting our MVNE solution. And there were other things going on in the region as well. The fact we became more cautious about the sequential trends.

Moving forward is still this region is facing some challenges from the overall macroeconomic and regulatory pressures, as well as the fact that our own business in Europe is still heavily relying on project activity, which is a bit lumpy in nature..

Okay, great.

And then, I guess, in the emerging markets, can you maybe give us some color on whether this blip in 1Q, should we expect you to make that up on the remainder of the year or is it kind of going to maybe drag a little bit on the whole of fiscal 2014?.

So we continue to hold a positive view on our growth opportunities in emerging markets, both in terms of the different themes in the marketplace, drive investment with the service providers, customer experience becoming a very major theme, for example.

The whole notion of moving into triple play, quadruple play, different aspects that actually coincide with our philosophy and our portfolio of offerings into the market.

At the same time, we are running several, or many, I would say, projects in parallel in the regions of emerging markets both in Latin America and Southeast APAC, which all have their own pattern in terms of execution, timers and deliverables, according to the customers' appetite and program, which may create some fluctuations on a quarter-to-quarter basis.

But the vector itself in terms of how we see the business momentum both within fiscal '14 and longer term remains very healthy..

Okay, great.

And then, finally, given that you raised sales guidance on acquisitions but not EPS guidance, could you discuss what you're seeing in terms of accretion from the deals and when you might expect to see more immediate accretion impact on the bottom line?.

So as we said in the beginning of the year, the acquisitions are actually modestly accretive on the EPS. The fact we are more optimistic right now on top line and not translating it directly into the EPS growth expectation is primarily because of the share price change that is impacting the share count.

The share price has gone up in the recent few months in a way that is impacting the calculations of the expected share count. And we've just taken into consideration that this is a bit of an offset to the fundamentals looking better..

Just to make sure that it's clear. We don't have any complaints about the share price going up. Jac, I would just like to add to what Tamar said about Europe.

What you see in Europe is actually an interesting phenomenon that we are making progress with a galaxy like -- what we call galaxy like Vodafone, okay? So it's a long time to sign a contract with Vodafone headquarter and corporate in England.

And then you need to repeat the same process and winning the hearts and minds of Vodafone Germany, Vodafone U.K., Vodafone Netherlands or what have you. And we see progress with that. This quarter specifically, we signed another one. But that's one trend that you see.

We have similar trends with Deutsche Telekom on our policy product that we implemented. We signed a contract with their corporate and then we implemented in certain affiliates.

And now I think it's about 6 or 7 affiliates already of Deutsche Telekom all across Europe are using the same for policy standardizing on Amdocs as a certain component of the business. But not less encouraging is the fact that you see some business that we announced in Luxembourg or in Telekom Austria, A1 in Austria and in other places.

So you see kind of variety of different businesses. And the combination of those are encouraging and also the fact that some of them are managed services, some of them are very advanced technology and some of them are Turbo Charging application.

So you see a variety of solutions, which again give some signs of better business in Europe but we don't want to be carried away, not in Europe and not in any other region..

And next, we go to Jason Kupferberg with Jefferies..

This is Amit Singh for Jason. Just going back to Europe real quick. I mean, the quarter -- this quarter, the revenue growth was, of course, good.

Just wanted to check, how much of that was benefited by -- how much of the recent acquisition benefited that growth in Europe? And also, the new deals that you talked about in Europe, how are they ramping up, just so that we have a sense of how the revenue growth is going to be over the next few quarters?.

So the impact on Q1 sequential performance in Europe was a combination of the core activity, as well as some contribution coming from Actix. I would say, the smaller part of the growth was the M&A. Actually, the larger part was core activities of Actix.

There was, as well, some positive impact quarter by quarter from currencies that impact us but in a small amount. And in general, we are seeing the ramp up of the deals that we have in Europe. Yes, on plan, moving forward in terms of both on boarding additional responsibilities we took over as part of the Managed Services.

I think the -- another proof point to the satisfaction overall of the group from the progress we are seeing in this execution is the fact we were awarded another regional affiliate this quarter. So we feel comfortable that we're moving on plan there..

Great. And just one more thing. AT&T recently ruled out that Vodafone bid.

So I just wanted to check, how much of future sort of growth -- if this deal were to happen, how much of future growth was incorporated into your views earlier? And do you see any sort of hiccup in spending from AT&T because of the deal not going through?.

Amit, that is a very good question. I'm not sure we have a very good answer for that. Everybody's trying to analyze this deal. I'll start with the fact that we do not bake any future growth in Vodafone, for example, because of a tailwind that we may potentially get from AT&T acquisition. It may happen or it may not happen. It's not in our FY '14 numbers.

We assume some kind of business as usual. The second thing I will tell you is that I think that what is happening is AT&T keeps all its options open.

They have to answer to the regulatory authorities in Europe and that means that they would not do anything in the next 28 days and it does mean that they would not have us -- they will not solicit in the next few months. But it does not mean that they cannot do it, if they elect to do it.

And obviously, they would do whatever they need to do for their own shareholders. We don't think right now that it will affect AT&T activity in North America, per se. North America is very, as we also alluded in the script, is very dynamic.

Some of it is creating uncertainties for us and we are not crazy about it, but this is the nature of a lot of consolidations. But it also means that the North American market is very competitive. I don't see AT&T, regardless if they do this move or not, losing their focus on North America.

So if they would do it eventually, it will have probably maybe new activities in Vodafone. But as we said all along, we have growing business with Vodafone as is right now and we don't plan on any of that. If it will happen, we'll start analyzing it. It's one of these things that is so up in the air until it happens.

When it happens, it might be positive..

And next, we go to Shaul Eyal with Oppenheimer..

Apologies in advance if my question was asked already.

Eli, how is the status within the Latin American carrier, the wins from the past 18, 24 months; and thinking about those going forward, is the possibility of those becoming galaxy customers down the road?.

So we don't provide information that might cause some of our customers some anxiety.

And you can understand that there are very few, very large galaxies in Latin America, namely 2 or 3 of them, okay? If you follow all of our announcements, you will probably be able to connect the dots and see that we are fairly active with all of them in different levels.

And what we are doing in what stage, implementation, strategy and so and so forth, it's actually very sensitive, this market. So we cannot tell you that we are doing country X with carrier Y because that's quite significant information for all the competition there. In general, I would say that we are making progress, significant progress.

It depends on the quarter. It's a little bit lumpy, but altogether, the general direction in Latin America is very positive. Projects are sizable, complex, the stuff that we know how to do and others do not.

And I would tell you that the acquisitions of this little -- small, not little, small IT shop help -- would help us to accelerate our growth there. In terms of these are people that are within our domain expertise. They are in the region. They speak the language.

They have already bases there and it also may help with some of the customers in the region. So altogether, I'm bullish on Latin America..

And next, we go to Tom Roderick with Stifel..

So, Eli, first question for you. Just in terms of -- maybe a follow-up to Ashwin's question earlier about the recent acquisitions on the network optimization side.

Can you talk a little bit more about what you're doing to integrate the respective salesforces as you do work the Actix and the Celcite acquisition into your business? And maybe more importantly around that, what is happening to their pipelines, as you put your balance sheet and reputation and brand and customer set behind it? Is it accelerating any new opportunities, making opportunities that they might have otherwise had bigger? Maybe talk a little bit about that process, as it seems to be going, perhaps, even a little better than expected..

So, Tom, thank you very much for the question. Look, first of all, in terms of the way we're organizing it, I would share with you that by and large, we created a business unit that will deal with this type of business, especially the network optimization and the derivatives of this space is slightly more complex than we can explain today.

Maybe in the Analyst Day, we can go to do to greater details. But what -- but the task of this business unit is actually combining tools from Celcite and know-how on services with Actix product on one hand. That's kind of on the product and the offerings side. Then connecting this entire thing to Amdocs' BSS and OSS. That's on one aspect.

The other component of integration is about the sales. We are actually trying to create eventually one sales force. It won't happen in the next couple of weeks, but it will probably happen the next couple of quarters.

We are careful there just to make sure that we are not slowing down each one of these units for the sake of clarity and organization, stuff like this. We don't want to confuse activities with achievements.

So and the third thing is that we think that we see already what is a very short period so we don't want to set a trend, but the thing we see already, the pipeline in general improving because of the presence of Amdocs. We have a very strong presence all around the world.

We're a known brand and it definitely helps this younger company to use our brand for their sake. On the other hand, you need to remember that in the beginning, you have all kinds of adjustment you need to make. Just to give you an idea, Actix product was so good that some of the NEPS [ph] use them underneath the hood, selling them on the white label.

So needless to say that some of these NEPS [ph] are not our friends and we're not going to continue with it.

So you may think about the fact that you may have some adjustments, but in general, I think that the pipeline will improve and the response of the customers, which is the most important thing, is very, very positive to both acquisition and in -- the general -- the next direction of Amdocs.

We are getting a lot of support from our customers who wants to understand the acquisition and what we are trying to do with it and so on and so forth. So altogether, we are -- we think we are on track or a little bit better than the track..

Great. Tamar, a quick follow-up question for you, just in terms of the margin structure.

Continuing to drift towards the high end of your 16% to 17% range, what would it take for the margins to break out above 17%? Is that something that you could see happening in the next few years? Is there something structural that would have to happen from a pricing standpoint or investment standpoint? Or do you think this is kind of the appropriate range to think about, not just for the immediate future but sort of the midterm as well?.

So when we talked about this as the long-term range, we talked about '13 through fiscal '15 at the time. We have not changed our view about -- I think the range is applicable.

Having the combination of, on the one hand, the very good momentum we are seeing in terms of win rate and in terms of the acceptance of the market of our offering and at the same time, our expansion in so many new directions, both on a regional perspective, as well as the type of offerings we come to the market with.

We feel this is a good balance to be in, a very healthy range that can support both the healthy operational margins, as well as growth opportunities we see in front of us. And of course, under the hood, to generate this kind of performance, we go through many cost efficiency programs.

So the company continued to focus on how we are managing our cost of labor from a global perspective, as well as other elements that impact our cost structure because, as we said in the past, we assume that over time, customers continue to expect more for the same price and we work under this inception moving forward as well..

And, Tom, maybe I can add another angle to that. We don't really run the company by this number. We are really running a very tight shift in terms of the operation and efficiency and so on and so forth.

But at the end of the day, you have to remember that we are still -- and probably more so today than a year ago -- living in a very, very challenging environment. We have competitors which are very, very big names. The fact that they cannot catch up with us to a large extent does not mean that they are not very aggressive.

Some of them are getting aggressive, as aggressive -- to the level of becoming a nonrational competitor. So that's on one hand. The second -- on the second hand, there are not that many transformational projects. And we are trying to win the larger part of them. But obviously, we don't have a 100% win rate.

We never promised that and probably will never have that. So we need to remember that we need to feed the sales machine and I want to have this ability to win projects for the long term. If I run the company only by this parameter, it might jeopardize some other activities.

And on top of it, don't forget that we are coming up with a lot of new offerings. A lot of activities and the company penetration into regions, countries, so on and so forth and offerings in terms of products and services. All of these cost money.

And what we are trying to do, if think about it, is we are trying to do all this and maintain a very good competitive and win rate and good position against our competition, while protecting the investors from fluctuation in this profitability line. So that's why we are keeping this range.

That's why we are not getting so upset when it goes to 16 6 or whatever or 20 basis points higher. If it will cross -- if it will maintain 1 quarter, I will not have a celebration. Just within the fluctuation of the normal cost of doing business.

But the bigger picture is that we are trying to do all the -- what I mentioned before and compete in a very competitive landscape, while protecting the investment, meaning not aligned this profitability to deflect too much. So that's kind of the big picture you need to keep in mind.

And the answer is eventually yes, we -- there's nothing in the company that prevents us to go to slightly higher number. But that should not be the #1 parameter or not even the #2 parameter that we run the company by. I hope it's helpful..

And next, we will take Kiera Kilkowski with Bank of America Merrill Lynch..

I just have a few quick follow-ups and some questions on your prepared remarks. First, I want to speak a little bit more about the environment that you're seeing in North America. I think you sort of mentioned last quarter, you were expecting more moderate growth rate for the region in 2014. And it seems like it's off to a strong start.

And I'm wondering if this is -- I know you talked about it a little in your prepared remarks but is this more a question of timing? Or is it -- are you seeing a real improvement in the activity levels in this region? And then to follow up on the emerging markets.

I understand it's a lumpy project grant and type business, but should we look for acceleration in this region, or should we think of 2014 as more of a year of investment and implementation?.

So, Kiera, 2 great questions. Let me see if we can shed some light on that. In terms of North America, the problem is on one hand -- almost contradicting vectors. On one hand, you see higher competition. There is a higher need for our services and products and so on and so forth. That's within the -- that's a wireless mainly space.

Now the consolidation in the market actually creating situations, they have fewer and fewer carriers. So we went from, I think, 7 or 8 carrier in North America to about 4 within 2 quarters, including MetroPCS bought by T-Mobile and Cricket bought by AT&T. And not all of them approved but I assume it will all be approved.

And then you have SoftBank getting into Sprint and I can go on. And now when you talk about -- maybe start consolidation in the cable and satellite industry. You've seen Taiwan and Jordan. You may see others. So short term, all these activities create some kind of uncertainty. It may slow down some projects.

People may say, Okay, I'll save the money for after the integration, or get very creative about whatever they want to do with it. Longer term, I think it's actually good for the business, good for Amdocs specifically. Not in all cases, I would mention, but I hope in many of them.

So in North America, it really depends on the pace of these activities and what we'll do with the philosophy of the post merger of these companies because companies can merge and stay in terms of IT vacant systems.

Some will stay completely separate or they can go to what was executed perfectly throughout the years by AT&T, creating all the time, one company. So you have very different philosophies about IT consolidation, modernization, so on and so forth, after acquisitions.

So I'm just trying to give you the idea why it's really hard to predict the growth rate in North America. We predicted that the second half of the year will be a little bit slower because they had such a strong start of the year. But again, we don't really have a very clear crystal ball on that.

In terms of the emerging market, we believe that -- as we said, that we -- that this can be a growth engine for double-digit growth in the years to come, not only this year or previous year or next year, but that's kind of the half of the market. But it's lumpy.

So some quarters it grows and some quarters, it slows down and then it grows again dramatically. It's mainly due to the fact that projects are either being delayed or executed or the pace of conversion, stuff that are happening all the time. But in these regions, it really fluctuates much more than you will see in North America and Europe.

So I would imagine that we will keep seeing growth in emerging market, both in Latin America and Southeast Asia and the developing APAC. And it will be a little bit hard to depict each one of the -- or predict each one of the quarters. But on an annual basis, I think it will be double digits this year and probably for the following couple of years..

And we will take our final question from Andrew [indiscernible] with Robert W. Baird..

Just quickly on free cash flow, the quarter was really strong. It's really your third quite excellent quarter on free cash flow in a row. Is there anything -- I know you don't want to guide on free cash flow.

Is there anything later in the second half of this year that we should be thinking about in terms of capital expenditures or working capital that would be unusual or different compared to previous years?.

So I would say, in general, that we are tracking -- the recent 12 months have been in earnings to cash conversion rate of about 130%. That's not a sustainable place to be at in a long-term basis, right? So we do see healthy opportunity to continue with the right collection from our customers.

I don't expect any major CapEx expansion unless we win any specific deal that requires some buildup of a data center that is meaningful enough and then we'll come and explain it to you and I'm sure you'll be happy about it. But given what we see now, I don't expect any unusual changes in the pattern of capital usage for the business.

At the same time, we may see fluctuations and will not necessarily continue. For example, we talked about the fact that Q2 is the annual bonus payment. That always has been the case. So there are some changes quarter-to-quarter..

Okay. And then maybe finally, on Asia Pac, I know you guys signed the prior-year deal Pay TV and India and China have not historically been markets where you penetrated.

Is there anything about this new deal or your recent Pay TV deal that would make you think you could penetrate those markets, either medium term or longer term?.

Andrew, it's a great question but this one specifically is not in India or in China. So it's not really related per se. So that we can tell you that much. And we would love to show the name of this strong company but we just have to respect the sensitivity. It's mainly strategic sensibility.

You need to understand that most carriers or MSOs see a major deal with Amdocs as a strategic vehicle in their competitiveness and their ability to grow the business in the market. So that's why many times, they're sensitive about the specific names. In terms of -- in general -- look, China, we decided not to be involved in.

And we didn't change our mind so far because we didn't find a way right until now to make money. And intellectual property exposure is -- outweigh any potential that we see in the near future. In terms of India, we have some projects in India, not -- it's not a huge market for us today. It's under consideration today.

We believe there is a chance that there is a need, fundamental need to the type of offering that Amdocs has because, again, even the Indian markets are moving more and more from them grabbing prepaid simple system to customer experience, more postpaid, more combination of prepaid and postpaid, more data.

Young generation wants data and smartphones all over the world, including India. So it may change our direction in India, but it's actually a part of the strategic ability we are having as we speak. We have some projects and we have nothing against business in India.

It's just that we want to be very cautious that we can make EBIT, make profit in this project..

And with no further questions in queue, I would like to turn the conference back over to Ms. Liz Grausam for any closing or additional remarks..

Thank you. As always, thank you so much for joining us in the call this evening. We really appreciate your ongoing interest in the company. And we look forward to hearing from you in the next few days. Matt and I will both be available in the Investor Relations group. Thank you so much and have a great night..

And that does conclude today's conference. We do thank you for your participation. Have a great rest of your day..