10-QPeriod: Q2 FY2007

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 8, 2007For Securities:CTSH

Summary

Cognizant Technology Solutions Corp. reported strong financial performance for the quarter and six months ended June 30, 2007. Revenue saw significant year-over-year growth, driven by robust demand across key segments like Financial Services and Healthcare, and an expanding client base, notably in Europe. Net income also showed substantial increases, reflecting effective revenue generation and management of operational costs. The company continues to invest in expanding its global delivery capabilities, particularly in India, with significant capital commitments for new IT development centers. Despite pressures from wage inflation and currency fluctuations (Indian Rupee appreciation), Cognizant maintained healthy operating margins, bolstered by cost-control measures and increasing client penetration. The company ended the period with a strong liquidity position, indicating no near-term financial concerns.

Key Highlights

  • 1Revenue increased by 53.3% to $516.5 million for the three months ended June 30, 2007, compared to $336.8 million in the prior year period.
  • 2Net income for the three months ended June 30, 2007, rose to $82.3 million ($0.54 per diluted share) from $55.1 million ($0.37 per diluted share) in the same period last year.
  • 3The company added 160 active clients in the quarter, bringing the total to approximately 430, up from 270 a year prior.
  • 4European revenue showed strong growth, increasing by approximately 79% year-over-year.
  • 5Investments in new IT development centers in India are substantial, with approximately $300 million planned through the end of 2009.
  • 6The company ended the quarter with $710.2 million in cash and short-term investments, indicating strong liquidity.
  • 7Operating margin, excluding stock-based compensation, was 19.4% for the quarter, within the company's target range of 19-20%.

Frequently Asked Questions

Revenue growth was driven by continued strength in the Financial Services and Healthcare segments, strong performance in the Other segment, expansion of service offerings enabling cross-selling, increased penetration at existing customers, and greater penetration in the European market.

The company is experiencing pressure on its cost structure due to the appreciation of the Indian Rupee against the U.S. Dollar and continuing wage inflation, primarily in India. These factors, along with new government provisions in India, are increasing operating costs.

Cognizant maintained a strong liquidity position with $710.2 million in cash and short-term investments and approximately $970.5 million in working capital at June 30, 2007. The company anticipates its available funds and expected operating cash flows will be sufficient to meet its needs for at least the next 12 months.

Cognizant is undertaking a significant expansion of its India real estate development program, with plans to construct over four and a half million square feet of new space. This involves an expenditure of approximately $300 million through the end of 2009 on land acquisition and facilities construction to build new IT development centers.