Cognizant Reports Record First Quarter 2008 Results
Revenue Up 40% Year-over-year and 7% Sequentially
Cognizant Technology Solutions Corporation (NASDAQ: CTSH), a leading provider of IT and business process outsourcing services, today announced its financial results for the first quarter ended March 31, 2008.
Highlights - First Quarter 2008
-- Quarterly revenue increased to $643.1 million, up 40% from the year-ago
quarter.
-- Quarterly diluted EPS on a GAAP basis was $0.34, compared to $0.25 in
the year-ago quarter.
-- Quarterly diluted EPS on a non-GAAP basis was $0.38, excluding $0.04 of
stock-based compensation and stock-based Indian fringe benefit tax
expenses, compared to $0.27, excluding stock-based compensation expense
of $0.02, in the year ago quarter.
Revenue for the first quarter increased to $643.1 million, up 7.2% from $600.0 million in the fourth quarter of 2007, and up 40% from $460.3 million in the first quarter of 2007. GAAP net income was $101.9 million, or $0.34 per diluted share, compared to $75.4 million, or $0.25 per diluted share, in the first quarter of 2007. GAAP operating margin for the quarter was 17.4%. Excluding stock based compensation expense of $13.0 million and stock-based Indian fringe benefit tax expense of $0.9 million, non-GAAP operating margin was 19.5%, in line with the Company's targeted 19 to 20% range. Reconciliations of these non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this release.
"We are pleased with this quarter, during which we have surpassed our growth targets. The quarter's results, achieved despite the increased economic uncertainty and challenges in the financial services industry, testify to the resilience of our business model which is diversified across business segments, service offerings and geographic regions," said Francisco D'Souza, President and CEO of Cognizant. "Our Healthcare, Retail/Manufacturing/Logistics and Other segments all demonstrated sequential growth of approximately 10% or greater and Europe continued to grow well in excess of company average, growing 12% sequentially during the quarter."
Mr. D'Souza continued, "We have adopted a more cautious view for the remainder of the year to reflect the heightened economic challenges over the past two months. However, we believe that the current environment also presents us with opportunities to help clients in industries such as financial services, healthcare and media adapt to the structural changes that are transforming their industries. In addition, our clients are also seeking cost rationalization solutions in order to compensate for the pressures on their businesses. The investments we've made in broadening our service offerings, building deep domain expertise and advanced consulting and analytics capabilities position us well to capitalize on these needs."
2008 Outlook - Second Quarter & Full Year
Based on current visibility, the Company is now providing the following guidance:
-- Second quarter 2008 revenue anticipated to be at least $680 million.
-- Second quarter 2008 diluted EPS expected to be $0.34 to $0.35 on a GAAP
basis, and $0.38 to $0.39 on a non-GAAP basis, which excludes $0.04 of
estimated stock-based compensation and stock-based Indian fringe
benefit tax expense.
-- Fiscal 2008 revenue is anticipated to be approximately $2.95 billion,
up approximately 38% compared to 2007.
-- Fiscal 2008 diluted EPS expected to be approximately $1.50 on a GAAP
basis, and $1.67 on a non-GAAP basis, which excludes $0.17 of estimated
stock-based compensation and stock-based Indian fringe benefit tax
expense.
"We continue to invest across our industries, service-areas and geographies in order to address client needs, enhance our market position, continue to grow and deliver value for shareholders," said Gordon Coburn, Chief Financial and Operating Officer. "While keeping these goals in mind, we plan to increase resource utilization throughout 2008 in order to optimize efficiency and quality and help us remain flexible within the current environment. As we look ahead, we remain confident that despite near-term challenges in the economy, our strategy and execution excellence will ensure that Cognizant's growth continues to outpace the industry."
Conference Call
Cognizant will host a conference call today, May 7, at 8:30 a.m. (ET) to discuss the Company's quarterly results. To participate in the conference call, domestic callers can dial (800) 374-0467 and international callers can dial (888) 652-6834. The conference call will also be available live via the Internet by accessing the Cognizant web site at www.cognizant.com. Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software. A replay will be available by dialing (800) 642-1687 for domestic callers and (706) 645-9291 for international callers and entering "43765301" from two hours after the end of the call until 11:59 p.m. (Eastern) on Wednesday, May 14. The replay will also be available at Cognizant's web site www.cognizant.com for thirty days following the call.
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting and business process outsourcing services. Cognizant's single- minded passion is to dedicate our global technology and innovation know-how, our industry expertise and worldwide resources to working together with clients to make their businesses stronger. With more than 40 global delivery centers and 58,000 employees as of March 31, 2008, we combine a unique onsite/offshore delivery model infused by a distinct culture of customer satisfaction. A member of the NASDAQ-100 Index and S&P 500 Index, Cognizant is a Forbes Global 2000 company and a member of the Fortune 1000 and is ranked among the top information technology companies in BusinessWeek's Info Tech 100, Hot Growth and Top 50 Performers listings. Visit us online at www.cognizant.com.
Forward-Looking Statements
This press release includes statements which may constitute forward- looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and the factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission. Cognizant undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
About Non-GAAP Financial Measures
To supplement the consolidated financial statements presented in accordance with GAAP, this press release includes the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: non-GAAP income from operations, non-GAAP operating margin and non- GAAP diluted earnings per share. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures, the financial statements prepared in accordance with GAAP and reconciliations of Cognizant's GAAP financial statements to such non-GAAP measures should be carefully evaluated.
We seek to manage the company to targeted operating margin, excluding stock-based compensation costs and stock-based Indian fringe benefit tax expense, of 19% to 20% of revenues. Accordingly, we believe that non-GAAP operating margin and non-GAAP diluted earnings per share, excluding stock- based compensation costs and stock-based Indian fringe benefit tax expense, are meaningful measures for investors to evaluate our financial performance. For our internal management reporting and budgeting purposes, we use financial statements that do not include stock-based compensation expense and stock- based Indian fringe benefit tax expense for financial and operational decision making, to evaluate period-to-period comparisons and for making comparisons of our operating results to that of our competitors. Moreover, because of varying available valuation methodologies and the variety of award types that companies can use under FAS 123R, we believe that providing non-GAAP financial measures that exclude stock-based compensation allows investors to make additional comparisons between our operating results to those of other companies. Accordingly, we believe that the presentation of non-GAAP operating margin and non-GAAP diluted earnings per share, when read in conjunction with our reported GAAP results, can provide useful supplemental information to our management and investors regarding financial and business trends relating to our financial condition and results of operations.
A limitation of using non-GAAP operating margin and non-GAAP diluted earnings per share versus operating margin and diluted earnings per share calculated in accordance with GAAP is that non-GAAP operating margin and non- GAAP diluted earnings per share exclude costs, namely, stock-based compensation and stock-based Indian fringe benefit tax expense, that are recurring. Stock-based compensation and the related stock-based Indian fringe benefit tax expense will continue to be for the foreseeable future a significant recurring expense in our business. In addition, other companies may calculate non-GAAP financial measures differently than us, thereby limiting the usefulness of these non-GAAP financial measures as a comparative tool. We compensate for this limitation by providing specific information regarding the GAAP amounts excluded from non-GAAP operating margin and non- GAAP diluted earnings per share and evaluating such non-GAAP financial measures with financial measures calculated in accordance with GAAP.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
2008 2007
Revenues $643,106 $460,270
Operating Expenses:
Cost of revenues (exclusive of depreciation
and amortization expense shown separately
below) 366,265 254,909
Selling, general and administrative
expenses 148,853 109,499
Depreciation and amortization expense 16,293 12,260
Income from operations 111,695 83,602
Other income (expense), net:
Interest income 6,220 6,671
Other income / (expense) 3,954 (17)
Total other income / (expense), net 10,174 6,654
Income before provision for income taxes 121,869 90,256
Provision for income taxes 19,996 14,810
Net income $101,873 $75,446
Basic earnings per share $0.35 $0.26
Diluted earnings per share $0.34 $0.25
Weighted average number of common
shares outstanding 288,171 285,804
Weighted average number of common
and dilutive shares outstanding 299,052 303,516
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
(In thousands)
March 31, December 31,
2008 2007
Assets
Current Assets
Cash and cash equivalents $449,739 $339,845
Short-term investments 25,208 330,580
Trade accounts receivable, net of
allowances of $7,698 and $6,339,
respectively 452,657 382,960
Unbilled accounts receivable 66,739 53,496
Deferred income tax assets 67,443 75,470
Other current assets 54,635 59,828
Total Current Assets 1,116,421 1,242,179
Property and equipment, net 393,251 356,047
Long-term investments 170,421 -
Goodwill 151,380 148,789
Other Intangible assets, net 44,580 45,565
Deferred income tax assets, net 30,500 11,949
Other assets 35,104 33,777
Total Assets $1,941,657 $1,838,306
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $47,450 $36,176
Deferred revenue 26,372 29,020
Accrued expenses and other liabilities 238,838 275,488
Total Current Liabilities 312,660 340,684
Deferred income tax liabilities, net 12,502 15,145
Other noncurrent liabilities 15,469 14,267
Total Liabilities 340,631 370,096
Stockholders' Equity 1,601,026 1,468,210
Total Liabilities and Stockholders' Equity $1,941,657 $1,838,306
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures
(In thousands, except per share data)
Three Months Ended March 31,
2008 2008 2008
GAAP Adjustments Non-GAAP
Income from operations $111,695 $13,901 (a) $125,596
Operating margin 17.4% 2.1% (a) 19.5%
Diluted earnings per share $0.34 $0.04 (b) $0.38
Three Months Ended March 31,
2007 2007 2007
GAAP Adjustments Non-GAAP
Income from operations $83,602 $7,438 (c) $91,040
Operating margin 18.2% 1.6% (c) 19.8%
Diluted earnings per share $0.25 $0.02 (d) $0.27
Notes:
(a) Adjustment to exclude stock-based compensation of $12,984 and stock-
based Indian fringe benefit tax expense of $917 from income from
operations of which $5,946 was reported in cost of revenues and $7,955
was reported in selling, general and administrative expenses in our
unaudited condensed consolidated statements of operations.
(b) Adjustment to exclude the per share effect of stock-based compensation
expense net of the related tax benefit and stock-based Indian fringe
benefit tax expense. The stock-based Indian fringe benefit tax expense
is a nondeductible expense since the cost is recovered from employees.
(c) Adjustment to exclude stock-based compensation of $7,438 from income
from operations of which $3,268 was reported in cost of revenues and
$4,170 was reported in selling, general and administrative expenses in
our unaudited condensed consolidated statements of operations.
(d) Adjustment to exclude the per share effect of stock-based compensation
expense net of the related tax benefit.
CONTACT: Gordon Coburn
Chief Financial Officer & Operating Officer
201-678-2712
Investors: Gordon McCoun/Hannah Sloane
Press: Brian Maddox
Financial Dynamics
212-850-5600
hannah.sloane@fd.com
First Call Analyst:
FCMN Contact: Hannah.Sloane@fd.com
SOURCE: Cognizant Technology Solutions Corporation
CONTACT: Gordon Coburn, Chief Financial Officer & Operating Officer,
Cognizant, +1-201-678-2712; Investors: Gordon McCoun, Hannah Sloane,
hannah.sloane@fd.com, or Press: Brian Maddox, all of Financial Dynamics,
+1-212-850-5600, for Cognizant
Web site: http://www.cognizant.com/
Financial