Cognizant Reports Record Second Quarter 2008 Results

Revenue Up 33% Year-over-year and 6.6% Sequentially

TEANECK, N.J., July 31 /PRNewswire-FirstCall/ -- Cognizant Technology
Solutions Corporation (Nasdaq: CTSH), a leading provider of IT and business
process outsourcing services, today announced its financial results for the
quarter ended June 30, 2008.
Highlights -- Second Quarter 2008
-- Quarterly revenue increased to $685.4 million, up 33% from the year-ago
quarter.
-- Quarterly diluted EPS on a GAAP basis was $0.35, compared to $0.27 in
the year-ago quarter.
-- Quarterly diluted EPS on a non-GAAP basis was $0.39, excluding $0.04 of
stock-based compensation and stock-based Indian fringe benefit tax expenses,
compared to $0.30, excluding stock-based compensation expense of $0.03, in the
year-ago quarter.
Revenue for the quarter increased to $685.4 million, up 6.6% sequentially
from $643.1 million in the first quarter of 2008, and up 33% from $516.5
million in the second quarter of 2007. GAAP net income was $103.9 million, or
$0.35 per diluted share, compared to $82.3 million, or $0.27 per diluted
share, in the second quarter of 2007. GAAP operating margin for the quarter
was 17.5%. Excluding stock-based compensation expense of $10.5 million and
stock-based Indian fringe benefit tax expense of $5.9 million, non-GAAP
operating margin was 19.8%, in line with the Company's targeted 19 to 20%
range. Reconciliations of these non-GAAP financial measures to GAAP operating
results and diluted EPS are included at the end of this release.
"Despite continued uncertainty in the marketplace, we exceeded our
quarterly revenue guidance and our sequential growth once again outpaced our
peer group in the second quarter," said Francisco D'Souza, President and CEO
of Cognizant. "Several of our business segments, including Financial
Services, performed well during the quarter. Furthermore, we generated
continued strong performance across Europe and healthy growth from our
Business/Knowledge Process Outsourcing and IT Infrastructure Services
practices as a result of clients' focusing on cost efficiencies."
"Due to the continued deterioration in the macroeconomic environment and
sagging consumer and business confidence, we are adopting a more conservative
stance for the remainder of the year. However, we remain optimistic about our
long-term growth prospects given that our pipeline of large deals remains
healthy, our market position remains strong and the trend towards increasing
offshore spending continues, driven by secular changes in industry dynamics,
pressures to find cost efficiencies or, in some cases, both."
2008 Outlook - Third Quarter & Full Year
Based on current visibility, the Company is now providing the following
guidance:
-- Third quarter 2008 revenue anticipated to be at least $723 million.
-- Third quarter 2008 diluted EPS expected to be $0.37 on a GAAP basis,
and $0.41 on a non-GAAP basis, which excludes $0.04 of estimated stock-based
compensation and stock-based Indian fringe benefit tax expense.
-- Fiscal 2008 revenue is anticipated to be at least $2.81 billion.
-- Fiscal 2008 diluted EPS expected to be at least $1.44 on a GAAP basis,
and $1.61 on a non-GAAP basis, which excludes $0.17 of estimated stock-based
compensation and stock-based Indian fringe benefit tax expense.
"Although we are disappointed with the necessity of reducing our outlook
for the second half of the year due to the weakening economy, we are pleased
to continue our expectation of industry leading growth and a healthy long-term
outlook for the business," said Gordon Coburn, Chief Financial and Operating
Officer. "We continue to invest across the markets we serve, deepening our
consulting and domain capabilities and expanding our services offerings in
areas such as Business/Knowledge Process Outsourcing and IT Infrastructure
Services in order to extend our leading competitive position. At the same
time, we are focused on managing our expenses and increasing utilization in
order to optimize our operating performance while we invest for the long term
success of the business."
Conference Call
Cognizant management will host a conference call today, July 31, 2008, at
5:00 p.m. (Eastern) to discuss operating performance for the quarter. To
participate in the conference call, domestic callers can dial (800) 374-0467
and international callers can dial (706) 679-3288 and enter the Conference ID
number: #56611874. The conference call will also be available live via the
Internet by accessing the Cognizant web site at www.cognizant.com. Please go
to the web site at least fifteen minutes prior to the call to register,
download and install any necessary audio software.
For those who cannot access the live broadcast, a replay will be available
by dialing (800) 642-1687 for domestic callers and (706) 645-9291 for
international callers and entering "56611874" from two hours after the end of
the call until 11:59 p.m. (Eastern) on Thursday, August 7, 2008. The replay
will also be available at Cognizant's web site www.cognizant.com for thirty
days following the call.
About Cognizant
Cognizant (Nasdaq: CTSH) is a leading provider of information technology,
consulting and business process outsourcing services. Cognizant's
single-minded passion is to dedicate our global technology and innovation
know-how, our industry expertise and worldwide resources to working together
with clients to make their businesses stronger. With more than 40 global
delivery centers and over 59,000 employees as of June 30, 2008, we combine a
unique onsite/offshore delivery model infused by a distinct culture of
customer satisfaction. A member of the NASDAQ-100 Index and S&P 500 Index,
Cognizant is a Forbes Global 2000 company and a member of the Fortune 1000 and
is ranked among the top information technology companies in BusinessWeek's
Info Tech 100, Hot Growth and Top 50 Performers listings. Visit us online at
www.cognizant.com.
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, 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 and the factors discussed in our most recent 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.
About Non-GAAP Financial Measures
To supplement the consolidated financial statements 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 income from operations, non-GAAP operating margin and non-
GAAP diluted earnings per share. 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, the financial
statements prepared in accordance with GAAP and reconciliations of Cognizant's
GAAP financial statements to such non-GAAP measures should be carefully
evaluated.
We seek to manage the company to targeted operating margin, excluding
stock-based compensation costs and stock-based Indian fringe benefit tax
expense, of 19% to 20% of revenues. Accordingly, we believe that non-GAAP
operating margin and non-GAAP diluted earnings per share, excluding stock-
based compensation costs and stock-based Indian fringe benefit tax expense,
are meaningful measures for investors to evaluate our financial performance.
For our internal management reporting and budgeting purposes, we use financial
statements that do not include stock-based compensation expense and stock-
based Indian fringe benefit tax expense for financial and operational decision
making, to evaluate period-to-period comparisons and for making comparisons of
our operating results to that of our competitors. Moreover, because of varying
available valuation methodologies and the variety of award types that
companies can use under FAS 123R, we believe that providing non-GAAP financial
measures that exclude stock-based compensation allows investors to make
additional comparisons between our operating results to those of other
companies. 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 operating margin and non-GAAP diluted
earnings per share versus operating margin and diluted earnings per share
calculated in accordance with GAAP is that non-GAAP operating margin and non-
GAAP diluted earnings per share exclude costs, namely, stock-based
compensation and stock-based Indian fringe benefit tax expense, that are
recurring. Stock-based compensation and the related stock-based Indian fringe
benefit tax expense will continue to be for the foreseeable future a
significant recurring expense in our business. 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 and evaluating 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,
2008 2007 2008 2007

Revenues $685,427 $516,514 $1,328,533 $976,784

Operating Expenses:
Cost of revenues (exclusive
of depreciation and
amortization expense shown
separately below) 380,867 292,326 747,132 547,235
Selling, general and
administrative expenses 167,105 120,464 315,958 229,963
Depreciation and
amortization expense 17,777 13,053 34,070 25,313
Income from operations 119,678 90,671 231,373 174,273

Other income (expense), net:
Interest income 4,864 6,450 11,084 13,121
Other income / (expense), net (485) 529 3,469 512
Total other income /
(expense), net 4,379 6,979 14,553 13,633

Income before provision for
income taxes 124,057 97,650 245,926 187,906

Provision for income taxes 20,201 15,373 40,197 30,183

Net income $103,856 $82,277 $205,729 $157,723

Basic earnings per share $0.36 $0.29 $0.71 $0.55

Diluted earnings per share $0.35 $0.27 $0.69 $0.52

Weighted average number of
common shares outstanding 289,709 288,105 288,940 286,954

Weighted average number of
common and dilutive shares
outstanding 299,332 304,097 299,192 303,806

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
(In thousands)

June 30, December 31,
2008 2007
Assets

Current Assets

Cash and cash equivalents $521,193 $339,845

Short-term investments 29,979 330,580

Trade accounts receivable, net of
allowances of $10,299 and $6,339,
respectively 525,398 382,960

Unbilled accounts receivable 57,734 53,496

Deferred income tax assets 65,363 75,470

Other current assets 68,953 59,828

Total Current Assets 1,268,620 1,242,179

Property and equipment, net 409,810 356,047

Long-term investments 162,117 -

Goodwill 157,737 148,789

Other Intangible assets, net 47,165 45,565

Deferred income tax assets, net 28,118 11,949

Other assets 36,214 33,777

Total Assets $2,109,781 $1,838,306

Liabilities and Stockholders' Equity

Current Liabilities

Accounts payable $50,809 $36,176

Deferred revenue 24,249 29,020

Accrued expenses and other liabilities 253,389 275,488

Total Current Liabilities 328,447 340,684

Deferred income tax liabilities, net 10,453 15,145

Other noncurrent liabilities 16,507 14,267

Total Liabilities 355,407 370,096

Stockholders' Equity 1,754,374 1,468,210

Total Liabilities and Stockholders' Equity $2,109,781 $1,838,306

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
Reconciliation of Non-GAAP Financial Measures to Comparable GAAP Measures
(In thousands, except per share data)

Three Months Ended June 30, Three Months Ended June 30,
2008 2008 2008 2007 2007 2007
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP

Income from
operations $119,678 $16,379 (a) $136,057 $90,671 $9,512 (c) $100,183

Operating
margin 17.5% 2.3% (a) 19.8% 17.6% 1.8% (c) 19.4%

Diluted
earnings
per share $0.35 $0.04 (e) $0.39 $0.27 $0.03 (f) $0.30

Six Months Ended June 30, Six Months Ended June 30,
2008 2008 2008 2007 2007 2007
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP

Income from
operations $231,373 $30,280 (b) $261,653 $174,273 $16,950 (d) $191,223

Operating
margin 17.4% 2.3% (b) 19.7% 17.8% 1.8% (d) 19.6%

Diluted
earnings
per share $0.69 $0.08 (e) $0.77 $0.52 $0.04 (f) $0.56

Notes:
(a) Adjustment to exclude stock-based compensation of $10,464 and stock-
based Indian fringe benefit tax expense of $5,915 from income from operations
of which $6,817 was reported in cost of revenues and $9,562 was reported in
selling, general and administrative expenses in our unaudited condensed
consolidated statements of operations.
(b) Adjustment to exclude stock-based compensation of $23,448 and stock-
based Indian fringe benefit tax expense of $6,832 from income from operations
of which $12,763 was reported in cost of revenues and $17,517 was reported in
selling, general and administrative expenses in our unaudited condensed
consolidated statements of operations.
(c) Adjustment to exclude stock-based compensation of $9,512 from income
from operations of which $4,828 was reported in cost of revenues and $4,684
was reported in selling, general and administrative expenses in our unaudited
condensed consolidated statements of operations.
(d) Adjustment to exclude stock-based compensation of $16,950 from income
from operations of which $8,096 was reported in cost of revenues and $8,854
was reported in selling, general and administrative expenses in our unaudited
condensed consolidated statements of operations.
(e) Adjustment to exclude the per share effect of stock-based compensation
expense net of the related tax benefit and stock-based Indian fringe benefit
tax expense. The stock-based Indian fringe benefit tax expense is a
nondeductible expense since the cost is recovered from employees.
(f) Adjustment to exclude the per share effect of stock-based compensation
expense net of the related tax benefit.
SOURCE Cognizant Technology Solutions Corporation

Gordon Coburn, Chief Financial Officer & Operating Officer, Cognizant,
+1-201-678-2712; or Investors, Gordon McCoun, Hannah Sloane,
hannah.sloane@fd.com, or Press, Brian Maddox, all of Financial Dynamics,
+1-212-850-5600, for Cognizant