Cognizant Technology Solutions Corporation (CTSH)

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Cognizant Technology Solutions (CTSH)

Q4 2010 Earnings Call

February 07, 2011 9:00 am ET


David Nelson - VP, IR

Francisco D'Souza - Chief Executive Officer, President and Director

Gordon Coburn - Chief Operating Officer, Chief Financial Officer, Principal Accounting Officer and Treasurer


Joseph Foresi - Janney Montgomery Scott LLC

James Friedman - Susquehanna Financial Group, LLLP

Adam Frisch - Morgan Stanley

George Price - BB&T Capital Markets

Julio Quinteros - Goldman Sachs Group Inc.

Tim Fox - Deutsche Bank AG

Bryan Keane - Crédit Suisse AG

Tien-Tsin Huang - JP Morgan Chase & Co

Mayank Tandon - Signal Hill Capital Group LLC

Rod Bourgeois - Bernstein Research

Joseph Vafi - Jefferies & Company, Inc.

Jason Kupferberg - UBS Investment Bank

Nabil Elsheshai - Pacific Crest Securities, Inc.

Glenn Greene - Oppenheimer & Co. Inc.



Ladies and gentlemen, welcome to the Cognizant Fourth Quarter and Full Year 2010 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to David Nelson, Vice President, Investor Relations and Treasury. Please go ahead, sir.

David Nelson

Thank you, and good morning, everyone. By now, you should have received a copy of the earnings release for the company's fourth quarter and full year 2010 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, President and Chief Executive Officer; and Gordon Coburn, Chief Financial and Operating Officer of Cognizant Technology Solutions.

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 risks 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, Frank.

Francisco D'Souza

Thank you, David, and good morning, everyone. Thank you for joining us today.

I'm pleased to report that 2010 was another strong year for Cognizant, capped by another quarter of industry-leading growth. In Q4, our revenue grew almost 8% sequentially and 45% over last year to over $1.3 billion, with increases spread broadly across sectors, services and geographies.

During 2010, we saw a surge in discretionary spending, resulting from the release of pent-up demand following two years during which our client underinvested in technology. As a result, we finished 2010 with 40% revenue growth year-over-year, considerably stronger than the 20% growth that we had anticipated at the start of the year.

Against this backdrop of sudden, strong demand, two things stand out about Cognizant's performance: the first is our solid execution; and the second is our unwavering focus on investing to remain relevant to our customers. Let me expand on these two observations.

First, on the topic of execution. Once again in 2010, we delivered industry-leading growth while sustaining non-GAAP operating margins within our target range. We deepened our penetration within key industries and geographic markets by adding 123 new clients and increasing the number of strategic clients by 22. As our demand picked up, our talent management teams around the world quickly responded. In 2010, we had a net increase of over 25,000 associates to our team around the world. Our global delivery network now spans over 50 centers across 22 cities across the globe.

We improved already-strong relationships with key Indian universities which are a primary source of talent for the company. In the U.S. and Europe, we began an undergraduate recruiting program to capture a strong pipeline of U.S. and European talent and also began hiring MBAs from key U.S. business school campuses for our business consulting practice.

And finally, during the year, we were successful in the efforts that we started early in 2010 to improve pricing. The results of these efforts are evidenced in our pricing improvements in Q4. Perhaps most significant though, is that internal and third-party surveys show that we achieved all of this in 2010 while maintaining the traditionally high levels of customer and employee satisfaction that have become the hallmarks of our culture.

The second thing that stands out about 2010 is how our reinvestment strategy continues to hold us in good stead. Even as immediate demands pulled on our time, we maintained our focus on the evolving market needs to ensure that we stayed on top of business and technology trends and remained relevant to our clients.

We strengthened our client-facing organization with enhanced consulting capabilities and robust program management skills to support transformational change. In Continental Europe, the model that we have honed over many years comprising of strong locally hired country teams, coupled tightly with our global delivery model and industry practices, continued to be a strong contributor to successful delivery and high levels of client satisfaction.

In emerging markets, those that we sometimes refer to as the rest of the world, strong local leadership and focused business development activities led to nearly 100% revenue growth, albeit on a small base. And U.S. service offerings such as Infrastructure Services, Business Process Outsourcing, Enterprise Analytics and Engineering and Manufacturing Solutions gave us entree to serve clients in new areas as the offshore share shift continued.

We continued our approach of adding to our capabilities through targeted tuck-in M&A transactions with our acquisitions of Galileo and PIPC, enhancing our testing services capability in France and our global program management capabilities, respectively.

I want to take a moment to thank the Cognizant associates around the world for their contributions to making 2010 another stellar year for the company. And as pleased as I am with our exceptional execution throughout the year, I'm equally grateful for the contributions of our associates to the communities in which we live and operate. Through our Go Green Cognizant foundation and Cognizant outreach programs and many other employee-sponsored programs and partnerships with organizations such as Junior Achievement and EmPower, thousands of associates have volunteered their time throughout the world to give back to their communities.

Read the rest of this transcript for free on seekingalpha.com