COGNIZANT TECHNOLOGY 'A' TEANECK, N.J., Aug. 6, 2014 /PRNewswire/ -- Cognizant Technology Solutions Corporation (NASDAQ: CTSH), a leading provider of information technology, consulting, and business process outsourcing services, today announced its second quarter 2014 financial results.
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Highlights - Second Quarter 2014
-- Second quarter revenue of $2.52 billion was up 16.5% from the year-ago
period and up 3.9% sequentially.
-- GAAP diluted EPS was $0.61, up from $0.49 in the year-ago period.
-- Non-GAAP diluted EPS was $0.66, up from $0.58 in the year-ago period.
-- Net headcount addition for the quarter was approximately 8,800.
Revenue for the second quarter of 2014 rose to $2.52 billion, up 16.5% from $2.16 billion in the second quarter of 2013. GAAP net income was $371.9 million, or $0.61 per diluted share, compared to $300.4 million, or $0.49 per diluted share, in the second quarter of 2013. Non-GAAP diluted earnings per share was $0.66 compared to $0.58 in the second quarter of 2013. GAAP operating margin for the quarter was 19.4%. Non-GAAP operating margin was 21.0%, higher than the Company's target range of 19-20%. Reconciliations of non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this release.
"Due to weakness at certain clients and longer than anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year and revising our 2014 revenue guidance to growth of at least 14% over the prior year, while maintaining our full year non-GAAP EPS guidance of $2.54," said Francisco D'Souza, Chief Executive Officer of Cognizant. "We continue to believe that we have the right strategy and portfolio of services to deliver long-term industry leading growth and also meet the ever changing demands of the market."
"We are pleased to announce three transformational engagements for our clients totaling $3.5 billion in contract value, including a letter of intent with Health Net, Inc., a leading California-based managed care organization. The Health Net engagement is a seven year deal, and following contract finalization and applicable regulatory approval, is expected to represent approximately $2.7 billion in total contract value, the largest in our history," said Gordon Coburn, President. "We expect these three clients to generate at least $200 million in incremental revenue in 2015. These engagements are illustrative of the success of our strategy of re-investing in our business to meet our clients' dual mandate of 'running better' to drive operational efficiency and 'running different' to drive growth and innovation."
2014 Outlook - Third Quarter and Full Year
The Company is providing the following guidance:
-- Third quarter 2014 revenue expected to be between $2.55 billion and
$2.58 billion.
-- Third quarter 2014 non-GAAP diluted EPS expected to be at least $0.63.
-- Fiscal 2014 revenue expected to be up at least 14% compared to 2013.
-- Fiscal 2014 non-GAAP diluted EPS expected to be at least $2.54.
"We continued to generate healthy profitability during the first half of 2014, as our non-GAAP operating margins came in higher than our targeted range of 19 to 20%. We believe this positions us well to absorb our annual wage increases in the third quarter of 2014," said Karen McLoughlin, Chief Financial Officer. "During the second quarter, we repurchased over $100 million of shares under our stock repurchase program and have expanded the program to $2.0 billion, reflecting our ability to generate strong cash flows, confidence in our business, and our commitment to driving shareholder value."
Expansion of Stock Repurchase Program
Our Board of Directors approved an increase of the Company's stock repurchase program by $500 million, from $1.5 billion to $2.0 billion, and extended the term of the program to December 31, 2015. Since inception of the program, the Company has repurchased over $1.1 billion of its shares under this program.
The Company is authorized to repurchase shares under the program through open market purchases, including under a trading plan adopted pursuant to Rule 10b5-1, or through privately negotiated transactions, in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased will be determined by the Company's management, in its discretion, or pursuant to a Rule 10b5-1 trading plan, and will depend upon market conditions and other factors. The repurchases are expected to be funded using the Company's cash on hand and cash generated from operations. The program may be extended, suspended or discontinued at any time.
Conference Call
Cognizant will host a conference call on August 6, 2014 at 8:00 a.m. (Eastern) to discuss the Company's Second Quarter 2014 results. To listen to the conference call, please dial (877) 810-9510 (domestic) and (201) 493-6778 (international) and provide the following conference passcode: Cognizant Call.
The conference call will also be available live via the Internet by accessing the Cognizant website at www.cognizant.com. Please go to the website 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 (877) 660-6853 for domestic callers or (201) 612-7415 for international callers and entering 13586469 from two hours after the end of the call until 11:59 p.m. (Eastern) on Wednesday, August 20, 2014. The replay will also be available at Cognizant's website 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, dedicated to helping the world's leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 75 development and delivery centers worldwide and approximately 187,400 employees as of June 30, 2014, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.
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 including, but not limited to, our expectations regarding engagements with Health Net and other clients, 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, the risk that we may not be able to negotiate a final contract with Health Net or obtain applicable regulatory approval, and the factors discussed in our most recent Annual Report on 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 our financial results 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 ("non-GAAP diluted EPS"). 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 should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of Cognizant's GAAP financial measures to the corresponding non-GAAP measures should be carefully evaluated. With respect to our expectations in the "2014 Outlook - Third Quarter and Full Year" section above, reconciliation of non-GAAP diluted EPS guidance to GAAP diluted EPS cannot be provided without unreasonable efforts on a forward-looking basis due to the high variability and low visibility with respect to net non-operating foreign currency exchange gains or losses which are excluded from the non-GAAP diluted EPS.
We seek to manage the company to a targeted operating margin, excluding stock-based compensation costs and acquisition-related charges, of 19% to 20% of revenues. Acquisition-related charges include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our condensed consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs. In addition to excluding stock-based compensation costs and acquisition-related charges, our non-GAAP diluted earnings per share also exclude net non-operating foreign currency exchange gains or losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes. Management believes providing investors with an operating view consistent with how it manages the company provides enhanced transparency into the operating results of the company. For our internal management reporting and budgeting purposes, we use non-GAAP financial measures 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. Therefore, it is our belief that the use of non-GAAP financial measures provides a meaningful measure for investors to evaluate our financial performance. 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 measures versus financial measures calculated in accordance with GAAP is that non-GAAP measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and exclude costs that are recurring, namely stock-based compensation, acquisition-related charges, including amortization of purchased intangibles, and net non-operating foreign currency exchange gains or losses. 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 to allow investors to evaluate 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 Six Months Ended
June 30, June 30,
-------- --------
2014 2013 2014 2013
---- ---- ---- ----
Revenues $2,517,094 $2,161,240 $4,939,442 $4,181,978
Operating expenses:
Cost of revenues (exclusive of depreciation and 1,499,462 1,272,013 2,931,906 2,471,978
amortization expense shown separately below)
Selling, general and administrative expenses 482,985 420,526 968,380 833,730
Depreciation and amortization expense 46,726 41,898 91,199 83,560
------ ------ ------ ------
Income from operations 487,921 426,803 947,957 792,710
------- ------- ------- -------
Other income (expense), net:
Interest income 14,132 13,080 27,637 26,327
Foreign currency exchange gains (losses), net (752) (19,074) (1,969) (22,825)
Other, net 537 (412) 1,401 1,368
Total other income (expense), net 13,917 (6,406) 27,069 4,870
------ ------ ------ -----
Income before provision for income taxes 501,838 420,397 975,026 797,580
Provision for income taxes 129,930 119,987 254,240 212,961
Net income $371,908 $300,410 $720,786 $584,619
======== ======== ======== ========
Basic earnings per share $0.61 $0.50 $1.19 $0.97
===== ===== ===== =====
Diluted earnings per share $0.61 $0.49 $1.18 $0.96
===== ===== ===== =====
Weighted average number of common
shares outstanding - Basic 607,880 603,340 607,805 603,524
======= ======= ======= =======
Weighted average number of common
shares outstanding - Diluted 612,162 608,892 612,530 609,622
======= ======= ======= =======
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
(In thousands)
June 30, December 31,
2014 2013
---- ----
Assets
Current Assets
Cash and cash equivalents $1,992,442 $2,213,006
Short-term investments 2,136,779 1,534,467
Trade accounts receivable,
net of allowances of
$32,804
and $26,824, respectively 1,822,636 1,648,785
Unbilled accounts
receivable 297,944 226,487
Deferred income tax assets,
net 233,841 256,230
Other current assets 257,048 268,907
Total Current Assets 6,740,690 6,147,882
Property and equipment, net 1,086,116 1,081,164
Goodwill 449,541 444,236
Intangible assets, net 120,952 131,274
Deferred income tax assets,
net 123,295 147,149
Other noncurrent assets 166,700 183,013
Total Assets $8,687,294 $8,134,718
========== ==========
Liabilities and
Stockholders' Equity
Current Liabilities
Accounts payable $119,145 $113,394
Deferred revenue 179,660 182,893
Accrued expenses and other
current liabilities 1,268,857 1,478,221
Total Current Liabilities 1,567,662 1,774,508
Deferred income tax
liabilities, net 19,862 21,170
Other noncurrent
liabilities 108,941 203,249
Total Liabilities 1,696,465 1,998,927
--------- ---------
Stockholders' Equity 6,990,829 6,135,791
--------- ---------
Total Liabilities and
Stockholders' Equity $8,687,294 $8,134,718
========== ==========
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
Reconciliations of Non-GAAP Financial Measures (Unaudited)
(In thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2014 2013 2014 2013
---- ---- ---- ----
GAAP income from operations $487,921 $426,803 $947,957 $792,710
Add: Stock-based compensation expense (a) 33,534 30,237 69,351 59,330
Add: Acquisition-related charges (b) 7,602 5,912 15,542 12,566
----- ----- ------ ------
Non-GAAP income from operations $529,057 $462,952 $1,032,850 $864,606
======== ======== ========== ========
GAAP operating margin 19.4% 19.7% 19.2% 19.0%
Effect of above adjustments to income from operations 1.6% 1.7% 1.7% 1.7%
--- --- --- ---
Non-GAAP operating margin 21.0% 21.4% 20.9% 20.7%
==== ==== ==== ====
GAAP diluted earnings per share $0.61 $0.49 $1.18 $0.96
Effect of above operating adjustments, net of tax 0.05 0.04 0.11 0.08
Effect on non-operating foreign currency exchange gains and losses adjustments, net of tax (c) - 0.04 (0.01) 0.05
--- ---- ----- ----
Non-GAAP diluted earnings per share(d) $0.66 $0.58 $1.28 $1.09
===== ===== ===== =====
Notes:
(a) For the three months ended
June 30, 2014, the $33,534
adjustment to exclude stock-based
compensation from income from
operations includes $6,485, which
was reported in cost of revenues
and $27,049, which was reported in
selling, general and
administrative expenses in our
unaudited condensed consolidated
statements of operations.
For the three months ended June 30,
2013, the $30,237 adjustment to
exclude stock-based compensation
from income from operations
includes $4,568, which was
reported in cost of revenues and
$25,669, which was reported in
selling, general and
administrative expenses in our
unaudited condensed consolidated
statements of operations.
For the six months ended June 30,
2014, the $69,351 adjustment to
exclude stock-based compensation
from income from operations
includes $12,822, which was
reported in cost of revenues and
$56,529, which was reported in
selling, general and
administrative expenses in our
unaudited condensed consolidated
statements of operations.
For the six months ended June 30,
2013, the $59,330 adjustment to
exclude stock-based compensation
from income from operations
includes $9,115, which was
reported in cost of revenues and
$50,215, which was reported in
selling, general and
administrative expenses in our
unaudited condensed consolidated
statements of operations.
(b) Acquisition-related charges
include the following when
applicable: amortization of
acquired intangible assets,
external deal costs, acqusition-
related retention payments,
changes in the fair value of
contingent consideration
liabilities, integration costs and
other acquisition-related costs.
(c) Non-operating foreign currency
exchange gains and losses are
inclusive of gains and losses on
related foreign exchange forward
contracts not designated as
hedging instruments for accounting
purposes.
(d) The sum of the components of
non-GAAP diluted earnings per
share may not equal the actual
non-GAAP diluted earnings per
share due to rounding.
The above tables serve to reconcile
the Non-GAAP financial measures
to comparable GAAP measures.
Please refer to the "About Non-
GAAP Financial Measures" section
of our press release for further
information on the use of these
Non-GAAP measures.
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
Schedule of Supplemental Information (Unaudited)
(In thousands)
Three Months Ended June 30, 2014
--------------------------------
% Change
--------
$ % of total Sequential Year over Year
--- ---------- ---------- --------------
Revenue by Segment:
Financial Services $1,058,518 42.1% 3.4% 16.2%
Healthcare 645,439 25.6% 4.8% 19.2%
Manufacturing/Retail/Logistics 514,309 20.4% 0.5% 11.4%
Other 298,828 11.9% 10.4% 20.8%
Total Revenue $2,517,094 3.9% 16.5%
Revenue by Geography:
North America $1,928,552 76.6% 5.0% 15.0%
United Kingdom 266,009 10.6% -4.1% 13.8%
Rest of Europe 200,240 8.0% 4.0% 30.5%
Europe - Total 466,249 18.5% -0.8% 20.4%
Rest of World 122,293 4.9% 5.5% 26.6%
Total Revenue $2,517,094 3.9% 16.5%
Six Months Ended June 30, 2014
------------------------------
% Change
--------
$ % of total Year over Year
--- ---------- --------------
Revenue by Segment:
Financial Services $2,082,222 42.2% 17.9%
Healthcare 1,261,355 25.5% 19.9%
Manufacturing/Retail/Logistics 1,026,240 20.8% 15.6%
Other 569,625 11.5% 19.4%
Total Revenue $4,939,442 18.1%
Revenue by Geography:
North America $3,764,783 76.2% 15.5%
United Kingdom 543,535 11.0% 20.7%
Rest of Europe 392,859 8.0% 37.7%
Europe - Total 936,394 19.0% 27.3%
Rest of World 238,265 4.8% 27.5%
Total Revenue $4,939,442 18.1%
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SOURCE Cognizant Technology Solutions Corporation
