10-QPeriod: Q3 FY2008

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 7, 2008For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported strong financial results for the nine months ended September 30, 2008, showcasing significant year-over-year growth in both revenue and net income. Revenue increased by 34.4% to $2.06 billion, while net income grew to $318.6 million, translating to diluted EPS of $1.06. This growth was driven by strong performance across all segments, particularly Financial Services and Healthcare, and an expansion into the European market. The company also highlighted its increased client base and a growing demand for complex outsourcing solutions. Despite a challenging economic environment, Cognizant demonstrated resilience with robust operating margins, aided by the depreciation of the Indian Rupee and operational efficiencies. The company continues to invest in infrastructure, particularly in India, and has a healthy liquidity position with $595.4 million in cash and short-term investments. However, investors should be aware of the significant exposure to auction rate securities and the ongoing impact of foreign currency fluctuations, as well as the inherent risks associated with the IT services industry and global operations.

Financial Highlights

25 data points
Beta

Revenue

$734.73M

Net Income

$112.83M

15.4% Net Margin

EPS (Diluted)

$0.19

Cash & Equivalents

$569.26M

Free Cash Flow

$78.65M

Financial Statements
Beta
Revenue$734.73M
SG&A Expenses$166.69M
Operating Income$142.63M
Net Income$112.83M
EPS (Basic)$0.20
EPS (Diluted)$0.19
Shares Outstanding (Basic)582.68M
Shares Outstanding (Diluted)599.61M

Key Highlights

  • 1Total revenues for the nine months ended September 30, 2008, increased by 34.4% to $2.06 billion compared to $1.54 billion in the prior year period.
  • 2Net income for the nine months ended September 30, 2008, rose to $318.6 million, a 25.5% increase from $253.9 million in the same period last year.
  • 3Diluted earnings per share for the nine months ended September 30, 2008, were $1.06, up from $0.83 in the prior year period.
  • 4The company experienced strong revenue growth across all its business segments, with Financial Services and Healthcare showing substantial increases.
  • 5Revenue from Europe continued to show strong growth, increasing by $170.5 million for the nine months ended September 30, 2008, compared to the prior year.
  • 6As of September 30, 2008, the company held $162.1 million in auction rate securities, which experienced auction failures and are classified as long-term investments.
  • 7Total headcount grew to approximately 59,500 by September 30, 2008, an increase of 10,600 over the previous year.

Frequently Asked Questions

For the nine months ended September 30, 2008, Cognizant reported a revenue increase of 34.4% to $2.06 billion and a net income increase of 25.5% to $318.6 million, compared to the same period in 2007.

As of September 30, 2008, Cognizant held $162.1 million in auction rate securities, which have experienced auction failures. While the company believes these are not other-than-temporary losses, the illiquidity of these assets means the funds may not be accessible for an extended period, and further declines in value could lead to impairment charges.

Cognizant operates a significant portion of its business in India, with costs denominated in Indian Rupees. The company experienced a favorable impact from the depreciation of the Indian Rupee against the U.S. Dollar during this period. However, currency fluctuations remain a risk, and the company monitors its exposure. Additionally, substantial investments are being made in expanding facilities in India.

Key growth drivers include the increasing acceptance of the on-site/offshore delivery model, strong demand for complex outsourcing solutions, expansion into the European market, and growth across all business segments, particularly Financial Services and Healthcare. The company also saw an increase in its active client base.