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Cognizant Technology Solutions (CTSH)
Q2 2014 Earnings Call
August 06, 2014 8:00 am ET
David Nelson - Vice President of Investor Relations and Treasurer
Francisco D'souza - Chief Executive Officer and Director
Gordon J. Coburn - President
Karen McLoughlin - Chief Financial Officer and Principal Accounting Officer
Tien-tsin Huang - JP Morgan Chase & Co, Research Division
Edward S. Caso - Wells Fargo Securities, LLC, Research Division
Bryan Keane - Deutsche Bank AG, Research Division
Darrin D. Peller - Barclays Capital, Research Division
Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division
Steven Milunovich - UBS Investment Bank, Research Division
Moshe Katri - Cowen and Company, LLC, Research Division
Glenn Greene - Oppenheimer & Co. Inc., Research Division
Charles Brennan - Crédit Suisse AG, Research Division
Brian L. Essex - Morgan Stanley, Research Division
Jason Kupferberg - Jefferies LLC, Research Division
Previous Statements by CTSH
» Cognizant's (CTSH) CEO Francisco D'Souza On Q1 2014 Results - Earnings Call Transcript
» Cognizant Technology Solutions Management Discusses Q4 2013 Results - Earnings Call Transcript
» Cognizant Technology Solutions' Management Presents at the 2013 Barclays Information and IT Services Conference (Transcript)
Thank you, and good morning, everyone. By now, you should have received a copy of the earnings release for the company's second quarter 2014 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 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.
Thank you, David, and good morning, everyone. Thanks for joining us today. I'll start the call today with the highlights of our second quarter results and our revised outlook for the rest of the year. I'll also take some time to put our results in the context of the broader industry trends that we're seeing, using as examples some significant transformational deals that have recently been awarded to us. I'll then pass the call on to Gordon to discuss our detailed operating results, and Karen will provide further details on our financial metrics and guidance.
For the second quarter, we delivered revenue of $2.52 billion, at the midpoint of our guidance range. Our non-GAAP operating margin, at 21%, was higher than our target range for the quarter and positions us well to absorb wage increases and promotions that take effect during the second half of the year. And in support of our continued confidence in the business, this morning, we announced an expansion of our existing share repurchase program to $2 billion. Karen will give you more details on this expansion shortly.
We delivered solid performance in the second quarter. But due to weaknesses in certain clients and longer-than-expected sale cycles for certain large integrated deals, we're adopting a more conservative stance for the remainder of the year and revising our revenue guidance to at least 14% for 2014 while maintaining our prior full year non-GAAP EPS of at least $2.54. More specifically, there are 2 main reasons for this revised guidance. First, as we've discussed with you in the past, we are seeing a trend in the market towards larger integrated deals. While these deals represent a strong source of revenue for Cognizant, certain deals took longer than expected to close, leading to delays in revenue ramp-up. And second, we continue to experience weakness in certain clients in North America and the U.K. that recently underwent leadership changes, a situation that we described to you last quarter. While we believe that our client relationships remain sound, we will not generate as much revenue in 2014 from some of these clients as we had previously expected. While I'm disappointed that our full year revenue growth will be below our prior expectations, we remain optimistic about the evolving market opportunity ahead of us.
I'd like to spend a few moments putting our results and outlook in the context of what we're seeing in the market, using some specific large important client situations as illustrations. We've spoken to you in past quarters about our clients' dual mandate to run better and run different. On one side of the dual mandate, our clients are under constant pressure to become more efficient in their current operations or to run better, and they continue to look to us to provide ever-greater levels of productivity in their core operations and legacy technology environments by combining multiple service areas, applying advanced automation and implementing best-in-class operations and Lean Six Sigma methodologies. Gordon will speak to you shortly about the details of 3 large deals of this nature that together represent approximately $3.5 billion in total contract value. The largest of these deals is with Health Net, a top 10 managed care organization in the U.S. We've signed a letter of intent with Health Net and expect to finalize the contract before the end of Q3. The Health Net deal alone represents around $2.7 billion in total contract value and is the single largest PCB deal in the history of Cognizant. This engagement builds on our long-standing relationship with Health Net for close to 10 years. Judging by our pipeline, we are seeing increased opportunity in these types of engagements and anticipate this to be a long-term trend. Winning and delivering these deals requires a broad range of integrated capabilities, in which we have been investing over many years: a strong consulting front end, solid client raising skills, deep domain knowledge and at-scale capabilities in technology and operations. And behind deals like these lies a deep sense of trust that our clients place in us, trust that comes from multiyear client relationships and deep levels of engagement within our clients' organizations.