Cognizant Reports Record Second Quarter 2010 Results

- Revenue up 15% sequentially and 42% year-over-year

- Guidance for FY 2010 revenue growth revised to at least 36%

News provided by

Cognizant Technology Solutions Corporation

Aug 03, 2010, 06:00 ET

TEANECK, N.J., Aug. 3 /PRNewswire-FirstCall/ -- Cognizant Technology Solutions Corporation (Nasdaq: CTSH), a leading provider of information technology, consulting and business process outsourcing services, today announced its second quarter 2010 financial results.

Highlights – Second Quarter 2010

Quarterly revenue rose to $1.105 billion, up 15% sequentially and 42% from the year-ago quarter.
Quarterly diluted EPS on a GAAP basis was $0.56, compared to $0.47 in the year-ago quarter.
Quarterly diluted EPS on a non-GAAP basis, which excludes stock-based compensation expense, was $0.59, compared to $0.50 in the year-ago quarter.
GAAP and non-GAAP diluted EPS includes the impact of $0.02 in net non-operating foreign currency exchange losses.

Revenue for the second quarter of 2010 rose to $1.105 billion, up 42% from $776.6 million in the second quarter of 2009. GAAP net income was $172.2 million, or $0.56 per diluted share, compared to $141.3 million, or $0.47 per diluted share, in the second quarter of 2009. Diluted earnings per share on a non-GAAP basis was $0.59. GAAP operating margin for the quarter was 18.6%. Excluding stock-based compensation expense of $14.0 million, non-GAAP operating margin was 19.9%, within the Company's targeted 19-20% range. Earnings for the quarter included $4.6 million, or $0.02 per share, of net non-operating foreign currency exchange losses. Reconciliations of non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this release.

"Second quarter results further substantiate the strength of the Cognizant model and the continued importance of investing in deep industry expertise, expanded geographic reach and emerging technologies," said Francisco D'Souza, President and CEO of Cognizant. "During the quarter, spending levels were very strong across clients in all our business segments and geographies. Our clients are investing again in discretionary programs to foster growth and innovation. We saw particular strength in our financial services segment, which had previously been hard hit by the global credit crisis."

2010 Outlook – Third Quarter and Full Year

The Company is providing the following guidance:

Third quarter 2010 revenue anticipated to be at least $1.175 billion.
Third quarter 2010 diluted EPS expected to be $0.59 on a GAAP basis and $0.63 on a non-GAAP basis, which excludes $0.04 of estimated stock-based compensation expense.
Fiscal 2010 revenue expected to be at least $4.46 billion, up at least 36% compared to 2009.
Fiscal 2010 diluted EPS expected to be at least $2.26 on a GAAP basis, and at least $2.42 on a non-GAAP basis, which excludes $0.16 of estimated stock-based compensation expense.
Due to continued volatility in the currency markets, EPS guidance excludes the impact of any future net non-operating foreign currency exchange gain or loss.

"We benefited from a surge in the initiation of discretionary projects over the past several months – in part due to pent-up demand created by the deferment of discretionary spending last year," said Gordon Coburn, Chief Financial and Operating Officer. "We remain focused on ensuring we have the infrastructure, people and processes necessary to support our strong growth while maintaining industry-leading quality and client satisfaction – and we believe we are succeeding in this goal."

Conference Call

Cognizant will host a conference call August 3, 2010 at 8:00 a.m. (ET) to discuss operating performance for the quarter. To participate in the conference call, domestic callers can dial (800) 374-0467 and international callers can dial (706) 679-3288 and provide the following conference ID number: 87305592.

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 15 minutes prior to the call to register and to download and install any necessary audio software.

For those who cannot access the live broadcast, a replay will be available by dialing (800) 642-1687 for domestic callers or (706) 645-9291 for international callers and entering 87305592 from a half hour after the end of the call until 11:59 p.m. (ET) on Wednesday, August 11, 2010. The replay will also be available at Cognizant's web site www.cognizant.com for 60 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 over 50 global delivery centers and approximately 88,700 employees as of June 30, 2010, we combine a unique global delivery model infused with 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 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, except as may be required under applicable securities law.

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 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 a targeted operating margin, excluding stock-based compensation costs and applicable stock-based Indian fringe benefit tax, 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 applicable stock-based Indian fringe benefit tax which was repealed during the third quarter of 2009 retroactive to April 1, 2009, 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 applicable stock-based Indian fringe benefit tax for financial and operational decision making, to evaluate period-to-period comparisons and for making comparisons of our operating results to those of our competitors. Moreover, because of varying available valuation methodologies permitted under U.S. GAAP and the variety of award types that companies can use, we believe that providing non-GAAP financial measures that exclude stock-based compensation expense 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 that is recurring and applicable stock-based Indian fringe benefit tax expense. Stock-based compensation 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.

-tables to follow-

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30,		Six Months Ended June 30,
	Three Months Ended June 30,		Six Months Ended June 30,
	2010	2009	2010	2009

Revenues	$ 1,105,154	$ 776,592	$ 2,064,874	$ 1,522,454

Operating expenses:
Cost of revenues (exclusive of depreciation and amortization expense shown separately below)	641,019	433,340	1,196,923	853,048
Selling, general and administrative expenses	234,547	170,003	429,540	336,875
Depreciation and amortization expense	23,673	21,579	49,479	42,731
Income from operations	205,915	151,670	388,932	289,800

Other income (expense), net:
Interest income	6,547	2,622	12,601	5,092
Other income / (expense), net	(4,454)	14,874	(14,773)	9,763
Total other income / (expense), net	2,093	17,496	(2,172)	14,855

Income before provision for income taxes	208,008	169,166	386,760	304,655

Provision for income taxes	35,833	27,911	63,085	50,268

Net income	$ 172,175	$ 141,255	$ 323,675	$ 254,387

Basic earnings per share	$ 0.57	$ 0.48	$ 1.08	$ 0.87

Diluted earnings per share	$ 0.56	$ 0.47	$ 1.05	$ 0.85

Weighted average number of common
shares outstanding	299,889	292,337	298,887	291,975

Weighted average number of common
and dilutive shares outstanding	308,487	299,272	307,576	298,633

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
(In thousands)



	June 30,	December 31,
	2010	2009

Assets

Current Assets

Cash and cash equivalents	$ 1,039,686	$ 1,100,930

Short-term investments	612,313	298,402

Trade accounts receivable, net of allowances of $21,845
and $16,465, respectively	814,239	626,288

Unbilled accounts receivable	119,452	82,952

Deferred income tax assets, net	59,162	73,791

Other current assets	160,072	125,205

Total current assets	2,804,924	2,307,568

Property and equipment, net	504,769	481,516

Long-term investments	-	151,131

Goodwill	214,814	192,372

Intangible assets, net	92,972	75,757

Deferred income tax assets, net	87,286	80,618

Other noncurrent assets	59,389	49,278

Total Assets	$ 3,764,154	$ 3,338,240

Liabilities and Stockholders' Equity

Current Liabilities

Accounts payable	$ 80,986	$ 54,640

Deferred revenue	56,821	51,605

Accrued expenses and other current liabilities	507,791	540,363

Total current liabilities	645,598	646,608

Deferred income tax liabilities, net	6,071	-

Other noncurrent liabilities	71,598	38,455

Total Liabilities	723,267	685,063

Stockholders' Equity	3,040,887	2,653,177

Total Liabilities and Stockholders' Equity	$ 3,764,154	$ 3,338,240

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures

(In thousands, except per share amounts)

Three Months Ended June 30,

2010

2009

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

Income from operations

$ 205,915

$ 13,990

(a)

$ 219,905

$ 151,670

$ 9,653

(c)

$ 161,323

Operating margin

18.6%

1.3%

(a)

19.9%

19.5%

1.3%

(c)

20.8%

Diluted earnings per share

$ 0.56

$ 0.03

(e)

$ 0.59

$ 0.47

$ 0.03

(e)

$ 0.50

Six Months Ended June 30,

2010

2009

GAAP

Adjustments

Non-GAAP

GAAP

Adjustments

Non-GAAP

Income from operations

$ 388,932

$ 27,935

(b)

$ 416,867

$ 289,800

$ 22,361

(d)

$ 312,161

Operating margin

18.8%

1.4%

(b)

20.2%

19.0%

1.5%

(d)

20.5%

Diluted earnings per share

$ 1.05

$ 0.07

(e)

$ 1.12

$ 0.85

$ 0.06

(e)

$ 0.91

Notes: ____

(a) Adjustment to exclude stock-based compensation of $13,990 from income from operations of which $3,372 was reported in cost of
revenues and $10,618 was reported in selling, general and administrative expenses in our unaudited condensed consolidated statements
of operations. During the quarter ended September 30, 2009, the repeal of the Indian fringe benefit tax, retroactive to April 1, 2009, was
enacted into law. Accordingly, stock-based Indian fringe benefit tax expense was not recorded in the quarter ended June 30, 2010.

(b) Adjustment to exclude stock-based compensation of $27,935 from income from operations of which $7,039 was reported in cost of
revenues and $20,896 was reported in selling, general and administrative expenses in our unaudited condensed consolidated statements
of operations. During the quarter ended September 30, 2009, the repeal of the Indian fringe benefit tax, retroactive to April 1, 2009, was
enacted into law. Accordingly, stock-based Indian fringe benefit tax expense was not recorded in the six month period ended June 30, 2010.

(c) Adjustment to exclude stock-based compensation of $8,386 and stock-based Indian fringe benefit tax expense of $1,267 from income
from operations of which $4,140 was reported in cost of revenues and $5,513 was reported in selling, general and administrative expenses
in our unaudited condensed consolidated statements of operations.

(d) Adjustment to exclude stock-based compensation of $20,149 and stock-based Indian fringe benefit tax of $2,212 from income from
operations of which $8,588 was reported in cost of revenues and $13,773 was reported in selling, general and administrative expenses in our
unaudited condensed consolidated statements of operations.

(e) 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, if any. The stock-based Indian fringe benefit tax expense is a nondeductible expense since the cost is recovered
from employees.