10-QPeriod: Q3 FY2013

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 6, 2013For Securities:CTSH

Summary

Cognizant Technology Solutions Corp. (CTSH) reported strong financial results for the third quarter and the first nine months of 2013. Revenue saw a significant increase year-over-year, driven by broad-based growth across all business segments and geographic regions, particularly in Healthcare and Manufacturing/Retail/Logistics. Net income also experienced substantial growth, with diluted earnings per share rising to $1.05 for the quarter and $2.97 for the nine months. The company highlighted increased customer spending on discretionary projects and the expansion of its service offerings, including consulting, IT infrastructure services, and Business Process Outsourcing (BPO). Cognizant also saw a notable increase in its active client base, reaching 1,133 clients. The company maintains a healthy liquidity position with substantial cash, cash equivalents, and short-term investments, and has no anticipated near-term liquidity issues. Management continues to focus on investing in its talent, expanding its global presence, and strategically pursuing acquisitions. Despite increasing compensation and benefit costs and managing foreign currency fluctuations, the company's operating margins remained robust, supported by revenue growth outpacing headcount growth and operational efficiencies.

Financial Highlights

45 data points
Beta

Revenue

$2.31B

Net Income

$319.63M

13.9% Net Margin

EPS (Diluted)

$0.53

Total Assets

$7.62B

Cash & Equivalents

$2.03B

Free Cash Flow

$447.04M

Financial Statements
Beta
Revenue$2.31B
SG&A Expenses$443.38M
Operating Income$437.36M
Net Income$319.63M
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)603.26M
Shares Outstanding (Diluted)608.55M

Key Highlights

  • 1Revenue increased by 21.9% to $2.31 billion for the three months ended September 30, 2013, compared to the prior year period.
  • 2Net income rose by 15.4% to $319.6 million for the three months ended September 30, 2013, compared to the prior year period.
  • 3Diluted earnings per share (EPS) increased to $1.05 for the three months ended September 30, 2013, up from $0.91 in the prior year period.
  • 4The company's active client base grew to 1,133, an increase from 821 in the prior year period.
  • 5Strong revenue growth was observed across all major segments, with Healthcare and Manufacturing/Retail/Logistics showing particular strength.
  • 6Geographically, Europe and Rest of World markets demonstrated significant revenue growth.
  • 7Cognizant's cash, cash equivalents, and short-term investments stood at $3.36 billion as of September 30, 2013, indicating a strong liquidity position.

Frequently Asked Questions

Revenue growth was driven by strong performance across all business segments, particularly Healthcare and Manufacturing/Retail/Logistics. Increased customer spending on discretionary projects, expansion of service offerings like IT IS and BPO, and continued penetration in European and Rest of World markets also contributed significantly. Growth in North America remained strong.

Despite an increase in compensation and benefit costs due to headcount growth, Cognizant's operating margin saw a slight increase to 19.0% for the quarter. This was achieved through revenue growth outpacing headcount growth, operational efficiencies, and the favorable impact of the Indian Rupee's depreciation against the U.S. dollar, partially offset by losses on cash flow hedges.

The company maintained a strong liquidity position with $3.36 billion in cash, cash equivalents, and short-term investments as of September 30, 2013. They reported working capital of $4.14 billion and no third-party debt, indicating no anticipated near-term liquidity issues.

While a significant portion of revenue comes from North America, costs in India are denominated in Indian Rupees, exposing the company to currency fluctuations. Cognizant uses foreign exchange forward contracts, designated as cash flow hedges, to offset the impact of exchange rate movements on future operating costs, particularly for Indian Rupee-denominated payments. They also use undesignated hedges to offset currency risk on certain monetary assets and liabilities.