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 $40.1 million, or 5.6%, to $756.8 million in the
three months ended December 31, 2022, from $716.7 million in the three months ended December 31, 2021. The Cost of revenue as a percentage of revenue, decreased to 63.8% in the three months ended December 31, 2022, from 64.9% in
the three months ended December 31, 2021. This decrease in cost of revenue as a percentage of revenue was primarily attributable to operational excellence and efficiency initiatives through the ongoing implementation of automation and other
sophisticated tools.
Research and Development. Research and development expense is primarily comprised of compensation
expense. Research and development expense increased by $13.8 million, or 16.8%, to $95.7 million in the three months ended December 31, 2022, from $81.9 million in the three months ended December 31, 2021. Research and
development expense increased as a percentage of revenue from 7.4% in the three months ended December 31, 2021, to 8.1% in the three months ended December 31, 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, 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.
Selling, General and Administrative. Selling, general and administrative expense, which is primarily comprised of compensation
expense, increased by $15.1 million, or 11.8%, to $143.2 million in the three months ended December 31, 2022, from $128.1 million in the three months ended December 31, 2021. Selling, general and administrative expense
increased as a percentage of revenue from 11.6% in the three months ended December 31, 2021, to 12.1% in the three months ended December 31, 2022. The increase in selling expense was commensurate with the revenue growth. The increase in
general and administrative expense was primarily attributable to changes in account receivable allowances. 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 in the three months ended December 31, 2022, decreased by $2.4 million, or 13.7% to $15.3 million from $17.7 million in the three
months ended December 31, 2021. The decrease in amortization of purchased intangible assets and other was primarily attributable to a completion of amortization of previously purchased intangible assets.
Restructuring Charges. Restructuring charges for the three months ended December 31, 2022, were $24.5 million, with no
such charges in the three months ended December 31, 2021. The restructuring charges were primarily associated with alignment of our workforce around the global site strategy, as well as the optimization of our hybrid work model. Please see Note
9 to our consolidated financial statements.
Operating Income. Operating income decreased by $10.1 million, or 6.3%, in
the three months ended December 31, 2022, to $150.1 million, or 12.7% of revenue, from $160.1 million, or 14.5% of revenue, in the three months ended December 31, 2021. The decrease in operating income as a percentage of revenue
was attributable primarily to restructuring charges, which was partially offset by decrease in cost of revenue as a percentage of revenue and positive foreign exchange impacts.
Interest and Other Expense, Net. Interest and other expense, net, changed from a net expense of
$2.6 million in the three months ended December 31, 2021 to a net expense of $5.0 million in the three months ended December 31, 2022. The increase in interest and other expense, net, was primarily attributable to changes of
minority equity investments measured at fair value in the three months ended December 31, 2022, partially offset by an increase in interest income primarily due to higher interest rates.
Gain from sale of a business. There was no gain from sale of a business, in the three months ended
December 31, 2022, while there was $10.0 million of such gain in the three months ended December 31, 2021. Please see Note 3 to our consolidated financial statements.
Income Taxes. Income taxes for the three months ended December 31, 2022 were $15.2 million on pre-tax income of $145.1 million, resulting in an effective tax rate of 10.5%, compared to 20.3% in the three months ended December 31, 2021. The decrease is primarily attributable to internal structural
changes in certain jurisdictions in which we operate. 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 attributable to Amdocs Limited. Net income slightly decreased by $3.9 million, or 2.9%, to $129.7 million
in the three months ended December 31, 2022, from $133.6 million in the three months ended December 31, 2021. The slight decrease in net income is attributable to restructuring charges, gain from sale of a business recorded in the
three months ended December 31, 2021, partially offset by decrease in income taxes.
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