10-QPeriod: Q1 FY2015

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q1 Ended Mar 31, 2015

Filed May 4, 2015For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported strong revenue growth of 20.2% year-over-year to $2.91 billion for the first quarter ended March 31, 2015. This growth was significantly driven by the acquisition of TriZetto in late 2014, which contributed to a 42.7% surge in the Healthcare segment. Net income also saw a healthy increase of 9.7% to $382.9 million, with diluted EPS rising to $0.62. Despite robust top-line performance, operating margin slightly decreased to 17.2% from 19.0% in the prior year. This was attributed to increased compensation and benefits costs due to headcount growth, higher subcontractor expenses, and investments in business expansion, partially offset by reduced losses on cash flow hedges. The company maintains a strong liquidity position with $3.35 billion in cash, cash equivalents, and short-term investments.

Financial Highlights

48 data points
Beta

Revenue

$2.91B

Net Income

$383.00M

13.2% Net Margin

EPS (Diluted)

$0.62

Total Assets

$11.38B

Cash & Equivalents

$1.27B

Free Cash Flow

$131.30M

Financial Statements
Beta
Revenue$2.91B
SG&A Expenses$611.00M
Operating Income$500.00M
Interest Expense$5.00M
Net Income$383.00M
EPS (Basic)$0.63
EPS (Diluted)$0.62
Shares Outstanding (Basic)609.60M
Shares Outstanding (Diluted)613.90M

Key Highlights

  • 1Revenue increased by 20.2% to $2.91 billion, driven by strong performance across segments and the TriZetto acquisition.
  • 2Healthcare segment revenue grew by a significant 42.7%, largely due to the TriZetto acquisition.
  • 3Net income rose by 9.7% to $382.9 million, with diluted EPS increasing to $0.62.
  • 4Operating margin declined to 17.2% from 19.0% due to increased operating expenses related to headcount growth and business investments.
  • 5The company generated $189.3 million in cash from operating activities, an increase from the prior year.
  • 6Cognizant held $3.35 billion in cash, cash equivalents, and short-term investments as of March 31, 2015, indicating strong liquidity.
  • 7The company repurchased $25.0 million of its Class A common stock under its repurchase program during the quarter.

Frequently Asked Questions

The primary driver of revenue growth was the acquisition of TZ US Parent, Inc. (TriZetto) in the fourth quarter of 2014, which contributed approximately $169.0 million to revenue and was a significant factor in the 42.7% revenue growth of the Healthcare business segment.

The operating margin decreased from 19.0% to 17.2% primarily due to increases in compensation and benefit costs as headcount growth outpaced revenue growth, higher subcontractor expenses, and investments made to grow the business. These were partially offset by lower realized losses on cash flow hedges compared to the prior year period.

Cognizant uses foreign exchange forward contracts to manage foreign currency exchange rate risk, particularly for Indian rupee-denominated payments in India. These contracts are designated as cash flow hedges and are intended to offset the impact of exchange rate movements on future operating costs. The company also hedges certain balance sheet exposures with contracts not designated as hedges.

Cognizant maintains a strong liquidity position, with $3.35 billion in cash, cash equivalents, and short-term investments as of March 31, 2015. They also have an available capacity under their revolving credit facility. The company believes these resources are sufficient to fund operations and future investments.