10-QPeriod: Q2 FY2015

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 6, 2015For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported solid financial results for the quarter and six months ended June 30, 2015. Revenue demonstrated strong growth, driven by the acquisition of TriZetto and robust performance across all business segments, particularly Healthcare and Financial Services. The company's global delivery model continues to resonate with clients, leading to increased customer spending on discretionary projects and expansion of service offerings. While North America remains the primary revenue driver, international markets also showed significant growth, albeit with some negative impact from a strong U.S. dollar. Profitability showed improvement in net income, though operating margins saw a slight decrease year-over-year due to increased compensation and benefit costs, higher subcontractor expenses, and investments in business growth, partly offset by favorable foreign currency impacts. The company maintained a healthy liquidity position with substantial cash, cash equivalents, and short-term investments, supporting ongoing investments in talent, service offerings, and strategic acquisitions. Cognizant remains focused on navigating market dynamics, including cost containment pressures and the demand for digital transformation, while continuing to invest in its workforce and expanding its market reach.

Financial Highlights

47 data points
Beta

Revenue

$3.08B

Net Income

$420.00M

13.6% Net Margin

EPS (Diluted)

$0.68

Total Assets

$11.80B

Cash & Equivalents

$1.09B

Free Cash Flow

$380.50M

Financial Statements
Beta
Revenue$3.08B
SG&A Expenses$612.00M
Operating Income$546.00M
Interest Expense$4.10M
Net Income$420.00M
EPS (Basic)$0.69
EPS (Diluted)$0.68
Shares Outstanding (Basic)609.90M
Shares Outstanding (Diluted)613.90M

Key Highlights

  • 1Total revenue for the six months ended June 30, 2015, increased by 21.4% to $5,996.5 million, compared to $4,939.4 million in the prior year period.
  • 2Net income for the six months ended June 30, 2015, rose to $803.0 million ($1.31 diluted EPS), an increase from $720.8 million ($1.18 diluted EPS) in the same period last year.
  • 3The Healthcare segment saw significant growth of 40.8% for the six months ended June 30, 2015, largely attributed to the acquisition of TriZetto.
  • 4North America continues to be the dominant market, accounting for 78.6% of total revenue for the six months ended June 30, 2015.
  • 5The company maintained a strong liquidity position with $3,566.5 million in cash, cash equivalents, and short-term investments as of June 30, 2015.
  • 6Operating margin decreased slightly to 17.4% for the six months ended June 30, 2015, compared to 19.2% for the same period in 2014, due to increased operating expenses.
  • 7Cognizant repurchased $152.9 million of its Class A common stock during the three months ended June 30, 2015, demonstrating a commitment to returning capital to shareholders.

Frequently Asked Questions

The acquisition of TriZetto in November 2014 significantly contributed to Cognizant's revenue growth, particularly in the Healthcare segment. For the six months ended June 30, 2015, TriZetto contributed approximately $340.1 million to revenue, accounting for 32.2% of the period-over-period revenue growth. This acquisition was a key driver for the 39.0% revenue growth in the Healthcare business segment for the three months ended June 30, 2015.

The strengthening of the U.S. dollar against currencies like the British pound and the Euro negatively impacted reported revenue from international markets. For the six months ended June 30, 2015, the strong U.S. dollar negatively impacted revenue by $139.1 million compared to the same period in 2014. While this had a diluting effect on reported revenue growth from international segments, the company also noted a favorable impact on operating margin from the depreciation of the Indian Rupee against the U.S. dollar.

Cognizant plans to continue investing in its talent, expanding its service offerings (especially in digital technologies), and growing its business in international regions like Europe, the Middle East, Asia Pacific, and Latin America. They aim to increase their share of existing customers' IT spend and opportunistically pursue acquisitions. To manage costs, the company focuses on operating discipline, optimizing its cost structure, and leveraging efficiencies. They also intend to continue investing profits above their targeted non-GAAP operating margin range back into the business to drive growth.

The company relies on cash generated from operations as its primary source of liquidity. As of June 30, 2015, Cognizant had substantial liquidity with $3,566.5 million in cash, cash equivalents, and short-term investments, and an available capacity of $650.0 million under its revolving credit facility. This liquidity is used for operational expansion, new service line development, acquisitions, joint ventures, stock repurchases, and general corporate purposes. They believe these resources are sufficient to meet operating requirements for the next twelve months.