Stock Report

Cognizant Technology Reports Record Third Quarter Results, Raises outlook for full year 2006

Posted On : 2006-11-03 02:27:37( TIMEZONE : IST )

Exceeds Revenue and Earnings Expectations
Raises Outlook for Full Year 2006
Teaneck, NJ - November 2, 2006 - Cognizant Technology Solutions Corporation (NASDAQ: CTSH), a leading provider of IT services, today announced its financial results for the three and nine months ended September 30, 2006.

Highlights - Third Quarter 2006

Quarterly revenue increased to $377.5 million, up 60% from the year-ago quarter.
Quarterly diluted EPS on a GAAP basis was $0.40, compared to $0.28 in the year-ago quarter.
Quarterly diluted EPS on a non-GAAP basis was $0.45, excluding stock-based compensation expense of $0.05.

Revenue for the third quarter of 2006 increased to $377.5 million, up 12% sequentially from $336.8 million in the second quarter of 2006, and up 60% from $235.5 million in the third quarter of 2005. GAAP net income was $61.0 million, or $0.40 per diluted share, compared to $40.6 million, or $0.28 per diluted share, in the third quarter of 2005. Diluted earnings per share on a non-GAAP basis was $0.45. GAAP operating margin for the quarter was 18.2%. Excluding stock based compensation expense of $7.5 million, non-GAAP operating margin was 20.2%, at the high end of the Company’s targeted 19-20% range. Reconciliations of these non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this release.

Highlights - Nine Months Ended September 30, 2006

Revenue increased to $999.8 million, up 59% from the year-ago period.
Diluted EPS on a GAAP basis was $1.09, compared to $0.74 in the year-ago period.
Diluted EPS on a non-GAAP basis was $1.22, excluding stock-based compensation expense of $0.13.

Revenue for the nine months ended September 30, 2006 increased to $999.8 million, up 59% from $628.9 million in the same period of 2005. GAAP net income was $163.3 million, or $1.09 per diluted share, compared to $108.6 million, or $0.74 per diluted share, in the same period of 2005. Diluted earnings per share on a non-GAAP basis was $1.22. GAAP operating margin was 18.3%. Excluding stock based compensation expense of $21.8 million, non-GAAP operating margin was 20.4%. 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 strong financial performance in the third quarter, which further extends our track record of industry-leading growth," said Lakshmi Narayanan, President and CEO of Cognizant. "Our results were driven by our ability to leverage Cognizant’s leadership in our core vertical markets and key solution offerings to win new business from both new and existing customers. During the quarter, we experienced strong growth across our industry segments, including strengthening our industry leadership in healthcare, life sciences and financial services. Demand for our broad range of solutions was particularly evident in testing, ERP/CRM, complex systems development, high-end vertical BPO and IT infrastructure management, all areas where we have translated our deep technology and domain expertise into strong market positions over the last several quarters. We also maintained our focus on building the foundation to support the next phase of our growth by investing heavily in our capabilities, people and infrastructure on a global scale."

Narayanan continued, "As we move forward into 2007, we recognize that what distinguishes Cognizant in the market is our unparalleled commitment to partnering with our customers to strengthen their business while providing a tangible return on their IT investments. We are confident that our commitment to generating high levels of customer satisfaction will continue to fuel strong demand for our services and drive our industry-leading growth well into 2007."

2006 Outlook - Fourth Quarter & Full Year
Based on current visibility, the Company is now providing the following guidance:

Fourth quarter 2006 revenue anticipated to be at least $405 million, up over 57% compared to the fourth quarter of 2005.
Fourth quarter 2006 diluted EPS expected to be $0.42 on a GAAP basis, and $0.47 on a non-GAAP basis, which excludes a stock-based compensation expense of $0.05.
Fiscal 2006 revenue now anticipated to be at least $1.405 billion, up approximately 59% compared to 2005.
Fiscal 2006 diluted EPS expected to be $1.51 on a GAAP basis.
Fiscal 2006 diluted EPS expected to be $1.68 on a non-GAAP basis, which excludes a stock-based compensation expense of $0.17.
Total headcount by end of 2006 expected to be approximately 38,000.

"Cognizant’s outstanding growth during the quarter is a testament to the strength of our long-standing reinvestment strategy," said Gordon Coburn, Chief Financial Officer of Cognizant. "During the third quarter, we aggressively invested in building our employee base, with a net addition of approximately 4,700 employees around the world. We also continued to expand our European business, where growth exceeded the Company average for the second consecutive quarter. Furthermore, as we announced this morning, we continue to make significant investments in our global infrastructure and campuses across India to enhance our flexibility to grow the Company as demand for our services continues to escalate. As a result of our strong performance in the first nine months of the year, combined with the overall positive demand environment, we are raising guidance for Fiscal 2006."