Cognizant Technology Solutions Management Discusses Q2 2012 Results - Earnings Call Transcript

Cognizant Technology Solutions (CTSH)

Q2 2012 Earnings Call

August 06, 2012 8:00 am ET

Executives

David Nelson

Francisco D'Souza - Chief Executive Officer and Director

Gordon J. Coburn - President

Karen McLoughlin - Chief Financial Officer and Principal Accounting Officer

Karen McLoughlin

Analysts

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

Darrin D. Peller - Barclays Capital, Research Division

Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Ashwin Shirvaikar - Citigroup Inc, Research Division

Edward S. Caso - Wells Fargo Securities, LLC, Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Moshe Katri - Cowen and Company, LLC, Research Division

George A. Price - BB&T Capital Markets, Research Division

Presentation

Operator

Ladies and gentlemen, welcome to the Cognizant Technology Solutions Second Quarter 2012 Earnings Conference Call. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session [Operator Instructions]. Thank you. I would now like to turn the conference over to David Nelson, Vice President, Investor Relations and Treasurer at Cognizant. Please go ahead, sir.

David Nelson

Thank you, Brandy, and good morning, everyone. By now you should have received a copy of the earnings release for the company's second quarter 2012 results. If you have not, a copy is available on our website, cognizant.com.

The speakers we have on today's call are Francisco D'Souza, Chief Executive Officer; Gordon Coburn, President; and Karen McLoughlin, Chief Financial Officer.

Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risk and uncertainties as described in the company's earnings release and other filings with the SEC.

I would now like to turn the call over to Francisco D'Souza. Please go ahead.

Francisco D'Souza

Thank you, David, and good morning, everyone. Thank you for joining us. This morning, Cognizant released second quarter results, and I am once again very pleased with our performance. Revenue grew to $1.795 billion, a 5% sequential increase and a 21% increase over the same quarter last year. Our non-GAAP operating margin remained at the top of our guided range at 20%. We achieved these results in spite of headwinds from the unexpected and significant depreciation in European currencies that has occurred since we last spoke with you.

Our performance is also particularly notable against the backdrop of a tenuous global recovery that has shown further signs of weakness over the last 3 months. European volatility persists. GDP forecasts have been cut across developed and developing economies, and a looming fiscal cliff in the United States prompts a cautious investment environment.

Yet amidst this turmoil, demand for our services remains strong. We continue to capture market share as reflected by another quarter of industry-leading revenue growth. Clients continue to turn to us not only for the operational improvements in efficiency and effectiveness that they have always known us to deliver but increasingly, to help them reinvent their business models in the face of secular industry changes, changing demographics and a new stack of social, mobile, analytics and cloud technologies.

This quarter, we closed a number of significant transformational engagements, including ING U.S. and Phillips. In both examples, clients embraced our unique value proposition that combines domain expert consultants, intimate on-the-ground client engagement teams, proven large-scale program governance expertise and a robust global delivery network. Gordon will speak to these engagements in more detail shortly.

Turning to the future. Our pipeline remains robust across industries and services. Our approach of reinvesting in the business has given us the deep client relationships and leading-edge service offerings to help clients embrace the changing Future of Work. As a result, we are comfortable with our ability to deliver revenue of at least $1.875 billion for the third quarter and at least $7.34 billion for the year.

It's important to note that we have maintained our guidance for the full year despite the currency headwind which, based on current exchange rates, has resulted in a negative impact of over $20 million for quarters 2 through 4 compared to rates when we last provided guidance in early May. In addition to this strong revenue outlook, we are pleased to increase our full year EPS guidance by $0.02.

Let me now hand it over to Gordon, who will discuss our operating results in our core business. I'll then come back and provide some commentary on our emerging service offerings before handing the call over to Karen to cover our financial metrics. And as always, we'll leave time at the end of the call for questions. Gordon?

Gordon J. Coburn

Thank you, Francisco. We had a solid quarter. Despite the uncertainty and volatility in the markets, clients continue to act under dual mandate of cost savings and operational efficiencies combined with innovation and transformation. Demand patterns within our industries played out as anticipated, and we continue to see opportunities across all areas of our business, including our core IT services, which we call Horizon 1 as well as our Horizon 2 services, which include BPO, infrastructure management, which we refer to as ITIS and consulting. And we are also seeing increased interest around our next generation of offerings, which we refer to as Horizon 3.

This market downturn, as with those before, is serving as a catalyst for clients to embrace a broader range of Cognizant services. As part of this trend, large, complex and transformational multiservice line deals are becoming more common. Clients see us as a credible transformation partner, and we are well positioned to execute on these opportunities.

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