Cognizant Technology Solutions Corporation (NASDAQ: CTSH), a leading provider of IT and business process outsourcing services, today announced its financial results for the three and nine months ended September 30, 2007.
All share and per share amounts for the prior year periods presented have been adjusted to reflect the 2-for-1 stock split, effective October 16, 2007.
Highlights - Third Quarter 2007
- Quarterly revenue increased to $558.8 million, up 48% from the year-ago quarter.
- Quarterly diluted EPS on a GAAP basis was $0.32, compared to $0.20 in the year-ago quarter.
- Quarterly diluted EPS on a non-GAAP basis was $0.34, excluding stock-based compensation expense of $0.02, compared to $0.23 in the year-ago quarter.
Revenue for the third quarter of 2007 increased to $558.8 million, up 8% sequentially from $516.5 million in the second quarter of 2007, and up 48% from $377.5 million in the third quarter of 2006. GAAP net income was $96.2 million, or $0.32 per diluted share, compared to $61.0 million, or $0.20 per diluted share, in the third quarter of 2006. Diluted earnings per share on a non-GAAP basis was $0.34. GAAP operating margin for the quarter was 18.1%. Excluding stock based compensation expense of $9.2 million, non-GAAP operating margin was 19.7%, at the upper end of the Company's targeted 19-20% range. The results include a one-time tax benefit of $2.8 million and a pre-tax foreign exchange gain of $2.6 million. Reconciliations of these non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this release.
"We are very pleased with our third quarter financial performance, which was driven by strong organic revenue growth across our diverse platform of industries, service offerings and geographies," said Francisco D'Souza, President and CEO of Cognizant. "Our results continue to underscore the success of our focused investment strategy and our ability to capitalize on the most strategic opportunities for Cognizant's future growth. This is particularly evident in the growth of our European business, where revenue grew over 90% year-over year, and rose 24% sequentially to account for 17% of total revenue for the third quarter. Our performance during the quarter also further highlights our track record of operational excellence. We executed on our plan to offset the current macroeconomic headwinds and successfully delivered operating margins at the high end of our target range and EPS above our guidance."
Mr. D'Souza continued, "During our recently concluded North American user conference, the significant majority of customers responding to a survey indicated that they expect their 2008 IT budgets to stay unchanged or to increase. Furthermore, respondents indicated that an increasing portion of their overall IT budgets in 2008 will be directed to outsourcing. The results from this formal survey and other feedback from our clients give us optimism about our growth opportunities for 2008. As we move forward into next year, we are very confident in the long-term strength of our business model and the broad-based foundation we have in place to meet the sustained strong demand we anticipate from both new and existing customers."
Highlights - Nine Months Ended September 30, 2007
- Revenue increased to $1.54 billion, up 54% from the year-ago period.
- Diluted EPS on a GAAP basis was $0.83, compared to $0.54 in the year-ago period.
- Diluted EPS on a non-GAAP basis was $0.90, excluding stock-based compensation expense of $0.07, compared to $0.61 in the year-ago period.
Revenue for the nine months ended September 30, 2007 increased to $1.54 billion, up 54% from $999.8 million in the same period of 2006. GAAP net income was $253.9 million, or $0.83 per diluted share, compared to $163.3 million, or $0.54 per diluted share, in the same period of 2006. Diluted earnings per share on a non-GAAP basis was $0.90. GAAP operating margin was 17.9%. Excluding stock based compensation expense of $26.1 million, non-GAAP operating margin was 19.6%. Reconciliations of these non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this release.
2007 Outlook - Fourth Quarter & Full Year
Based on current visibility, the Company is now providing the following guidance:
- Fourth quarter 2007 revenue anticipated to be between $590 million and $595 million.
- Fourth quarter 2007 diluted EPS expected to be $0.31 on a GAAP basis, and $0.34 on a non-GAAP basis, which excludes a stock-based compensation expense of $0.03.
- Fiscal 2007 revenue expected to be between $2.125 billion and $2.13 billion, up over 49% compared to 2006.
Fiscal 2007 diluted EPS expected to be $1.14 on a GAAP basis, and $1.24 on a non-GAAP basis, which excludes the impact of stock-based compensation expense of approximately $0.10. - Total headcount by end of 2007 expected to be approximately 55,000, reflecting the Company's plan to increase utilization throughout the remainder of the year.
"Our third quarter results are a testament to our ability to utilize operating levers to manage the business effectively while continuing to invest in Cognizant's growth platform," said Gordon Coburn, Chief Financial and Operating Officer. "During the quarter, we continued to focus on optimizing our business model to meet changing market conditions and delivered sequential margin expansion. We also ended the quarter with more than $800 million in cash and short-term investments on our balance sheet, leaving us well positioned with the financial flexibility to make ahead of the curve investments in our people, capabilities and infrastructure to further differentiate Cognizant in the marketplace. Based on our visibility into next year and initial feedback from our clients on anticipated spending plans for 2008, we are very confident in our growth potential moving forward."