10-QPeriod: Q3 FY2011

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 4, 2011For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported a strong performance for the nine months ended September 30, 2011, with revenues increasing by 35.8% year-over-year to $4.46 billion. Net income also saw a significant rise of 22.0% to $643.5 million, translating to diluted earnings per share of $2.07. This growth was driven by strong demand across all business segments, particularly Financial Services and Healthcare, and continued penetration in key markets like North America and Europe. The company demonstrated robust operational efficiency, with income from operations growing 34.2% to $828.3 million. While the effective tax rate increased due to the expiration of Indian tax holidays, management maintained a strong focus on investing in talent and service offerings to sustain long-term growth. Cognizant also maintained a healthy liquidity position with $2.29 billion in cash and short-term investments, supporting ongoing business expansion and a $600 million share repurchase program.

Financial Highlights

45 data points
Beta

Revenue

$1.60B

Net Income

$227.12M

14.2% Net Margin

EPS (Diluted)

$0.36

Total Assets

$5.10B

Cash & Equivalents

$1.18B

Free Cash Flow

$255.23M

Financial Statements
Beta
Revenue$1.60B
SG&A Expenses$353.16M
Operating Income$293.00M
Net Income$227.12M
EPS (Basic)$0.38
EPS (Diluted)$0.36
Shares Outstanding (Basic)605.45M
Shares Outstanding (Diluted)618.59M

Key Highlights

  • 1Revenue grew 35.8% year-over-year for the nine months ended September 30, 2011, reaching $4.46 billion.
  • 2Net income increased by 22.0% to $643.5 million, with diluted EPS at $2.07.
  • 3Income from operations saw a significant increase of 34.2% to $828.3 million.
  • 4Strong revenue growth was observed across all segments, with Healthcare up 39.1% and Manufacturing/Retail/Logistics up 44.9%.
  • 5The effective tax rate increased to 23.9% for the nine-month period due to the expiration of Indian tax holidays.
  • 6The company maintained a strong liquidity position with $2.29 billion in cash and short-term investments.
  • 7Cognizant repurchased $163.1 million of its common stock during the third quarter of 2011.

Frequently Asked Questions

The primary drivers of Cognizant's revenue growth are the increasing acceptance and demand for its global delivery model, which helps clients reduce IT and operations costs, and increased customer spending on discretionary development projects. The company also benefited from expanding service offerings and increased penetration with existing customers.

The effective tax rate increased primarily due to the expiration of Indian Software Technology Parks (STP) tax holiday benefits in the first quarter of 2011. Income from these activities is now subject to corporate income tax, leading to a higher overall effective tax rate.

Cognizant manages foreign currency exposure through hedging strategies, primarily using foreign exchange forward contracts. These contracts are used to hedge certain salary payments in India (cash flow hedges) and to offset foreign currency exchange rate gains or losses on Indian Rupee denominated net monetary assets (undesignated hedges). This helps to mitigate the impact of currency fluctuations on operating costs and balance sheet items.

Cognizant expects to continue investing in talent and new service offerings, deepen relationships with existing customers, focus on growth in Europe, the Middle East, and Asia Pacific, and expand its strategic customer base. They are also opportunistically looking for acquisitions and maintaining operational discipline. Key factors influencing their outlook include stabilization of global economic conditions, normalization of IT budgets, and continued cost-containment focus by customers.