10-QPeriod: Q3 FY2014

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 6, 2014For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported strong financial performance for the nine months ended September 30, 2014, demonstrating robust revenue and net income growth. Revenues increased by 15.9% to $7.52 billion compared to the same period in 2013. Net income saw a significant rise of 19.0% to $1.08 billion, with diluted earnings per share growing to $1.76 from $1.48. The company's growth was driven by strong performance across all its business segments, particularly Financial Services and Healthcare, and continued penetration in key geographic markets like North America and Europe. The company also highlighted its strategic client growth and increasing demand for its broader service offerings, including consulting, IT Infrastructure services, and Business Process Services. The acquisition of TriZetto for $2.7 billion was announced in September 2014, expected to close in Q4 2014, indicating a strategic move to bolster its healthcare IT capabilities. Despite overall positive results, operating margins saw a slight decrease, attributed to increased compensation and benefit costs and investments in business growth, partially offset by favorable currency movements and lower hedging losses. The company continues to focus on investing in talent, expanding service offerings, and opportunistic acquisitions to maintain its competitive edge in the dynamic IT services market.

Financial Highlights

46 data points
Beta

Revenue

$2.58B

Net Income

$355.60M

13.8% Net Margin

EPS (Diluted)

$0.58

Total Assets

$9.23B

Cash & Equivalents

$2.62B

Free Cash Flow

$527.70M

Financial Statements
Beta
Revenue$2.58B
SG&A Expenses$506.00M
Operating Income$457.50M
Interest Expense$300K
Net Income$355.60M
EPS (Basic)$0.58
EPS (Diluted)$0.58
Shares Outstanding (Basic)608.10M
Shares Outstanding (Diluted)612.10M

Key Highlights

  • 1Revenue for the nine months ended September 30, 2014, increased by 15.9% to $7.52 billion compared to the prior year period.
  • 2Net income for the same period rose by 19.0% to $1.08 billion, with diluted EPS increasing to $1.76.
  • 3The company announced a definitive agreement to acquire TZ US Parent, Inc. (TriZetto) for $2.7 billion, a significant strategic move expected to close in Q4 2014.
  • 4Strong revenue growth was observed across all reportable segments, with Financial Services and Healthcare showing notable increases.
  • 5North America remains the largest market, contributing 76.4% of revenue for the nine months ended September 30, 2014, with significant growth also seen in Europe.
  • 6Operating margin slightly decreased year-over-year due to increased compensation costs and strategic investments, despite revenue growth.
  • 7The company maintained a strong liquidity position with $4.62 billion in cash, cash equivalents, and short-term investments as of September 30, 2014.

Frequently Asked Questions

Cognizant's revenue growth was driven by the increased acceptance of its global delivery model across various industries, customer interest in cost reduction through this model, increased spending on discretionary projects, and continued penetration in geographic markets. Growth was also supported by expanding service offerings and increased demand for complex outsourcing solutions.

The announcement of the TriZetto acquisition for $2.7 billion signifies a major strategic move, particularly into the U.S. healthcare information technology sector. While expected to close in Q4 2014, the company secured $1 billion in committed financing and planned to use cash on hand and debt for the transaction. This acquisition is expected to bolster Cognizant's offerings in the healthcare market.

Operating margins saw a slight decrease compared to the prior year. This was attributed to increased compensation and benefit costs, investments in business growth, and the impact of currency fluctuations (appreciation of the Indian Rupee). These factors were partially offset by favorable currency movements and lower hedging losses. Management indicated a focus on investing profitability above the target non-GAAP operating margin range back into the business.

Cognizant is exposed to foreign currency risks, primarily from expenses denominated in Indian Rupees. The company manages this risk by limiting its net monetary asset exposure to certain currencies and utilizes foreign exchange forward contracts designated as cash flow hedges for certain Indian Rupee denominated payments. These hedging strategies aim to mitigate the impact of exchange rate fluctuations on operating costs.