CTSH

Cognizant Technology Solutions Corporation (CTSH)

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Exchange: NASDAQ
Industry: Technology
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Cognizant Technology Solutions (CTSH)

Q2 2011 Earnings Call

August 02, 2011 8:00 am ET

Executives

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

Analysts

Joseph Foresi - Janney Montgomery Scott LLC

James Friedman - Susquehanna Financial Group, LLLP

Christopher Hickey - Atlantic Equities LLP

George Price - BB&T Capital Markets

Julio Quinteros - Goldman Sachs Group Inc.

Tien-Tsin Huang - JP Morgan Chase & Co

Moshe Katri - Cowen and Company, LLC

Edward Caso - Wells Fargo Securities, LLC

Rod Bourgeois - Sanford C. Bernstein & Co., Inc.

Darrin Peller - Barclays Capital

Ashwin Shirvaikar - Citigroup Inc

Nabil Elsheshai - Pacific Crest Securities, Inc.

Glenn Greene - Oppenheimer & Co. Inc.

Devina Mehra - First Global Stockbroking (P) Ltd.

Presentation

Operator

Ladies and gentlemen, welcome to the Cognizant Technology Solutions Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to David Nelson, Vice President, Investor Relations and Treasury at Cognizant. Please go ahead, sir.

David Nelson

Thank you, Wes, and good morning everyone. By now, you should have received a copy of the earnings release for the company's second quarter 2011 results. If you have not, a copy is available on our website, cognizant.com. The speakers we have on today's call, 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. I'm pleased to report another strong quarter of industry-leading growth for Cognizant. Second quarter revenue was nearly $1.5 billion, representing 8% sequential growth and a 34% increase over the year-ago quarter. Growth was once again balanced across our target services, verticals and geographies.

I'm particularly pleased with this growth when considered against the backdrop of increased uncertainty in the global economy, as evidenced by headlines about sovereign debt and persistent unemployment. As we've said since 2008, this economic turmoil goes beyond the typical recession. When combined with dynamic industry and technology changes, economic uncertainty puts enormous pressure on our clients and creates significant opportunity for us.

As we've said for several quarters, in this environment, client need a trusted partner that will work closely with them to reduce costs and also drive innovation opportunity that are enabled by the forces of the Future of Work.

Our solid results this quarter, coupled with the fact that we continue to see healthy demand and normal sales cycles are validation that our model provides the architecture for strong growth in any environment. This will go in focus on core industries, services and geographies, and consistent reinvestment of excess operating margins have given us unparalleled domain knowledge, intimate relationships and a comprehensive services portfolio to help clients be more efficient as they invest in transforming their businesses.

So while uncertainty have certainly increased in the macro environment, clients recognize that, that volatility as the new normal. They continue to act on these dual mandate, and as a result, we see a pipeline that is quite robust and absent the traditional summer low. We also see this trend reflected in the fact that Q2 represented the sixth consecutive quarter in which our application and development revenues grew sequentially faster than application maintenance revenues.

I'd like to spend the bulk of my time this morning talking to you about the color of demand that we are seeing in the market. I'll then comment briefly on our outlook for the remainder of the year before turning it over to Gordon, who as always, will take you through the details of our Q2 results and 2011 outlook.

Looking specifically at where demand is coming from, we see 3 horizons of growth opportunity. Horizon 1 is our core business, application development and application maintenance, which presents significant growth potential through deeper perpetuation of the offshore model and expansion into emerging geographies. Horizon 2 is the tranche of new services around areas like consulting, BPO and Infrastructure Services or ITIS, which are helping clients redefine and focus on their core business. And horizon three is the class of emerging capabilities such as mobile, cloud and social computing that address changes brought on by the Future of Work. Together, these 3 horizons illustrate the complexion of market demand and highlight the benefits of our diversified business mix and our strategy of reinvestment.

Success in the market today requires that we make the investments, build the capabilities and execute successfully across all 3 horizons simultaneously. I'll now address each of these horizons in more detail.

Looking first at horizon 3, we see a marked increase in the number of engagements around the Future of Work as clients tackle the secular changes facing their businesses. The new distributed and virtualized business models, cloud and mobile technologies and a generation of born digital workers and consumers that comprises future, present enormous challenges in scale, scope and complexity. From a technology standpoint, this shift tend to begin of the user interface, the client/server movement was driven by the PC and the Internet by the web browser. Today, the interface is mobile, and clients increasingly look to us to turn the explosion of smart mobile devices into meaningful business tools for their customers and employees. We've completed more than 50 mobile projects for clients already this year, and have more than 50 additional ones in progress.

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