10-QPeriod: Q2 FY2010

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 6, 2010For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported strong financial performance for the second quarter and first half of 2010, demonstrating significant year-over-year growth in revenues and net income. The company saw substantial revenue increases across all business segments, driven by strong customer demand for IT solutions and business process outsourcing, particularly in the European market. Profitability remained robust, although operating margins saw a slight decrease year-over-year due to increased compensation costs, investments in business growth, and currency fluctuations, which the company strategically manages. Cognizant highlighted expanding customer relationships, an increased client base, and a growing demand for complex outsourcing solutions. The company maintains a strong liquidity position with substantial cash and short-term investments, indicating no near-term liquidity concerns. Strategic investments in talent, service offerings, and geographic expansion, particularly in Europe and Asia Pacific, are key priorities. The company also noted the ongoing importance of global delivery models and expects continued demand for cost-containment and efficiency-driven IT services.

Financial Highlights

45 data points
Beta

Revenue

$1.11B

Net Income

$172.18M

15.6% Net Margin

EPS (Diluted)

$0.28

Total Assets

$3.76B

Cash & Equivalents

$1.04B

Free Cash Flow

$93.35M

Financial Statements
Beta
Revenue$1.11B
SG&A Expenses$234.55M
Operating Income$205.91M
Net Income$172.18M
EPS (Basic)$0.28
EPS (Diluted)$0.28
Shares Outstanding (Basic)599.78M
Shares Outstanding (Diluted)616.97M

Key Highlights

  • 1Revenue increased by 42.3% to $1.105 billion for the three months ended June 30, 2010, compared to $776.6 million in the prior year period.
  • 2Net income rose by 21.9% to $172.2 million ($0.56 per diluted share) for the three months ended June 30, 2010, compared to $141.3 million ($0.47 per diluted share) in the prior year period.
  • 3All business segments showed strong revenue growth, with Manufacturing/Retail/Logistics up 53.4% and Healthcare up 38.1% year-over-year for the quarter.
  • 4European revenue grew by 44.3% to $200.2 million for the quarter, with significant growth observed in the UK.
  • 5The company ended the quarter with 662 active clients, an increase from 569 in the prior year period.
  • 6Operating margin slightly decreased to 18.6% from 19.5% year-over-year, attributed to compensation costs, growth investments, and currency impacts.
  • 7Cash and cash equivalents plus short-term investments stood at $1.65 billion as of June 30, 2010, indicating a strong liquidity position.

Frequently Asked Questions

Cognizant's revenue growth was primarily driven by strong demand for its IT solutions and business process outsourcing services, increased customer spending on post-acquisition integration and discretionary projects, and continued penetration in the European market. Growth was observed across all business segments.

Net income increased by 21.9% year-over-year to $172.2 million. However, the operating margin slightly decreased to 18.6% from 19.5% due to increased compensation and benefit costs, strategic investments in business growth, and the impact of foreign currency exchange rates, particularly the appreciation of the Indian Rupee against the U.S. Dollar.

Cognizant plans to continue investing in its talent, expanding its service offerings, and growing its business in Europe and the Asia Pacific region. The company expects continued demand for cost-containment and efficiency-driven IT services and business process outsourcing and will focus on increasing its strategic customer base and opportunistically pursuing acquisitions.

Cognizant is exposed to foreign currency risk primarily through its Indian Rupee denominated costs. The company uses foreign exchange forward contracts, designated as cash flow hedges, to partially offset the impact of exchange rate fluctuations on operating costs, particularly salary payments in India. They also use undesignated contracts to hedge balance sheet exposure to Indian Rupee denominated net monetary assets.