10-QPeriod: Q1 FY2004

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q1 Ended Mar 31, 2004

Filed May 7, 2004For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported strong financial performance for the first quarter ended March 31, 2004. Total revenues surged by 60.7% year-over-year to $119.7 million, driven by robust demand for both application development and integration services, and application management services. This significant top-line growth translated into a substantial increase in profitability, with net income nearly doubling to $19.8 million, or $0.28 per diluted share, compared to $10.2 million, or $0.15 per diluted share, in the prior year's quarter. The company's operational efficiency also improved, with gross profit margin expanding to 45.7% and operating margin holding steady at a healthy 19.8%. This quarter marked the successful acquisition of Ygyan Consulting Private Ltd., an India-based SAP services provider, which is expected to bolster Cognizant's SAP service capabilities. Looking ahead, Cognizant anticipates continued growth, with plans to expand its business in Northern Europe and leverage increased penetration of existing clients. The company maintains a strong liquidity position and expects its operating cash flows to be sufficient for its needs.

Key Highlights

  • 1Revenue increased by 60.7% to $119.7 million for the three months ended March 31, 2004, compared to $74.5 million in the prior year period.
  • 2Net income nearly doubled, rising by 94.4% to $19.8 million ($0.28 per diluted share) from $10.2 million ($0.15 per diluted share) year-over-year.
  • 3Gross profit margin improved to 45.7% from 45.0%, while operating margin remained strong at 19.8%.
  • 4Acquired Ygyan Consulting Private Ltd. on February 27, 2004, to enhance SAP service capabilities.
  • 5The company added 40 active clients, bringing the total to 193 as of March 31, 2004.
  • 6Cash and cash equivalents, including short-term bank deposits, totaled $198.9 million as of March 31, 2004.
  • 7Recognized one significant customer (JPMorgan Chase) accounting for over 10% of Q1 2004 revenues; no such customer in Q1 2003.

Frequently Asked Questions

The primary driver of Cognizant's revenue growth was the strong demand for its IT services, particularly in application management and application development and integration. This was further boosted by revenue from new clients, including those added through the acquisition of Ygyan, and increased penetration within existing client relationships.

The acquisition of Ygyan, completed on February 27, 2004, contributed to revenue growth by adding new clients and enhancing Cognizant's SAP service capabilities. The financial impact of Ygyan was noted as not material to the overall consolidated results of operations, cash flows, or financial condition for the quarter.

Cognizant anticipates continued revenue growth, expecting significant contributions from increased penetration of existing clients and expansion in Northern Europe. The company also plans to fund internal growth and potential acquisitions through its strong operating cash flows.

Cognizant's Indian subsidiary benefits from tax holidays on export profits, which are set to expire in stages, beginning in 2004. The expiration of a tax holiday for one development center in 2004 is reflected in the effective tax rate, which slightly increased. The company also noted that substantially all earnings of its Indian subsidiary are exempt from Indian income tax due to these holidays.