This summary is based on the third quarter fiscal 2008 earnings call conducted by Cognizant Technology Solutions Corp. (CTSH) on November 5, 2008.
Management:
VP, IR: David Nelson
President and CEO: Francisco D''Souza
COO and CFO: Gordon Coburn
Key Investors Issues
- EPS were 38 cents per share compared 32 cents per share last year.
- The company earned $112.8 million, up 17% from $96.2 million in the same period a year earlier.
- Revenue rose 32% to $734.7 million from $558.8 million.
Third Quarter Highlights
- Revenue increased to $734.7 million, up 7% sequentially from $685.4 million in the second quarter of 2008, and up 31% from $558.8 million in the third quarter of 2007.
- Including a pre-tax foreign exchange loss of $14.8 million, GAAP net income was $112.8 million, or 38 cents per share, compared to $96.2 million, or 32 cents per share, in the third quarter of 2007.
- GAAP operating margin was 19.4%. Excluding stock-based compensation expense of $9.5 million and stock-based Indian fringe benefit tax expense of $0.7 million, non-GAAP operating margin was 20.8%, above the company''s targeted 19 to 20% range.
Fourth Quarter 2008 Outlook
- Revenue is anticipated to be at least $746.7 million.
- EPS expected to be at least 38 cents on a GAAP basis, and at least 43 cents on a non-GAAP basis, which excludes 5 cents of estimated stock-based compensation and stock-based Indian fringe benefit tax expense.
- Due to current volatility in the currency markets, EPS guidance excludes any fourth quarter non-operating foreign exchange gain or loss.
Fiscal 2008 Outlook
- Revenue is anticipated to be at least $2.81 billion.
- EPS expected to be at least $1.45 on a GAAP basis, and $1.61 on a non-GAAP basis, which excludes 16 cents of estimated stock-based compensation and stock-based Indian fringe benefit tax expense.
Key questions from the third quarter earnings call conducted by Cognizant Technology Solutions Corp. on November 5, 2008.
Adam Frisch (UBS):
What are the spending trends of your top 20 customers?
Gordon Coburn: The top five represented 19% of revenue during the quarter, which translates into 2% sequential growth and that 2% includes a reduction in revenue at one of our healthcare payer clients that we talked about on our last call.
We saw growth at all of our other top five clients on a sequential basis. Our top 10 represented 29.7% of revenue, which was 4% sequential growth.
Adam Frisch (UBS):
Can you provide color on deal ramp ups from strategic customers signed in the past four to eight quarters and
Francisco D''Souza: We have not seen any changes to projected ramp ups of deals that we won over the last few quarters. Those continue on track. As we have said in the past few calls, given the current economic environment, the demand tends to be shifting more towards Application Maintenance, IT Infrastructure Services and BPO and that type of service offering, but we have not seen ramp ups get pushed out or delayed of clients that we have won over the last two or three quarters.
Adam Frisch (UBS): What areas do you expect to grow the most over the next several quarters assuming the economy is weakening and will stay weak for a while?
Francisco D''Souza: Application maintenance will continue to grow in excess of application development. BPO and IT Infrastructure Services will continue to show healthy growth, but you have to keep that in perspective that they will still represent relatively small percent of total company revenue and we are growing off a small base. Outside of the impact of the currencies that we talked about, there are still large parts of Europe, particularly continental Europe that are relatively underpenetrated from an off shoring standpoint.
Adam Frisch (UBS): You have been conservative On M&A doing small plug-ins assuming with the environment right now and the importance of a cash balance. Is there any reason to think that you would get any bigger with your M&A strategy?
Gordon Coburn: Our focus continues to be on acquisitions, actually one of three goals, either geographic expansion, domain expertise or industry expertise. We are going to be a bigger company. So what is the definition of small starts to change. Never say never on bigger things, but we remain focused on acquisitions that we believe we can successfully integrate.
