10-QPeriod: Q1 FY2003

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 14, 2003For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported robust revenue growth of 60.3% year-over-year for the first quarter ended March 31, 2003, reaching $74.5 million. This significant increase was primarily driven by demand for application management services and expansion in North America and Europe. While revenue grew strongly, the gross profit margin saw a slight decrease from 48.0% to 45.0%, attributed to an increase in on-site employees, lower offshore utilization, and currency appreciation. The company also incurred approximately $2.0 million in split-off costs related to its separation from IMS Health, which impacted net income. Despite these costs, net income rose to $10.2 million from $7.1 million in the prior year quarter. The company maintained a strong liquidity position with $126.6 million in cash and cash equivalents and no third-party debt, indicating a healthy financial standing and ability to fund future growth.

Key Highlights

  • 1Revenue increased by 60.3% to $74.5 million for the three months ended March 31, 2003, compared to $46.5 million in the prior year period.
  • 2Net income grew to $10.2 million ($0.15 per diluted share) from $7.1 million ($0.12 per diluted share) in the first quarter of 2002.
  • 3Gross profit margin decreased from 48.0% to 45.0% due to increased on-site personnel costs, lower offshore utilization, and currency fluctuations.
  • 4The company incurred $2.0 million in split-off costs related to its separation from IMS Health, impacting operating income and net income.
  • 5Cash and cash equivalents stood at $126.6 million as of March 31, 2003, with no outstanding third-party debt, indicating strong liquidity.
  • 6The company experienced significant growth in its North American segment, with revenues up 63.0%.
  • 7A 3-for-1 stock split, effective April 1, 2003, is reflected in the per-share data.

Frequently Asked Questions

Revenue increased by 60.3% to $74.5 million, primarily driven by strong demand for application management services and expansion of services in the North American and European markets. The company's on-site/offshore consulting model was well-received by clients looking to reduce IT costs.

While revenue grew substantially, the gross profit margin decreased from 48.0% to 45.0%. This was due to an increase in the cost of revenues, stemming from a rise in on-site employees who command higher salaries than offshore counterparts, coupled with lower utilization rates for offshore technical professionals and the appreciation of the Indian Rupee against the U.S. dollar. Additionally, the company incurred approximately $2.0 million in split-off costs related to its separation from IMS Health.

Cognizant demonstrates a strong financial position. As of March 31, 2003, the company held $126.6 million in cash and cash equivalents and had no third-party debt. Working capital was $145.0 million, indicating no near-term liquidity issues and sufficient resources to fund ongoing operations and planned growth initiatives.

The most significant event was the 'Split-Off' from IMS Health, which concluded on February 13, 2003, marking IMS Health's cessation as a related party. Additionally, all Class B common stock converted into Class A common stock on February 21, 2003. The company also declared a 3-for-1 stock split effected by a 200% stock dividend, which became effective on April 1, 2003.