Cognizant Technology Solutions Corp.’s CTSH first-quarter 2015 non-GAAP earnings per share came in at 71 cents, an improvement of 45% on a year-over-year basis. Adjusted earnings (excluding stock-based compensation but including other one-time expenses) came in at 64 cents, beating the Zacks Consensus Estimate of 63 cents.
Revenues of $2.91 billion surpassed the Zacks Consensus Estimate of $2.89 billion and grew 20.2% year over year. The strong year-over-year growth was primarily backed by increased spending in the health care and financial services industry.
Revenue Segment Details
The Financial services segment (39.9% of revenues) that includes insurance, banking and transaction processing grew 13.4% year over year to $1,161.1 million. Health care (30.2% of revenues) revenues grew 42.7% year over year and came in at $879.1 million. Retail/manufacturing/logistics (18.9% of revenues) continued its growth momentum and jumped 7.2% year over year to $548.9 million. Other revenues, which include sales from service-oriented industries like communications, media and high tech, were $322.3 million, up 19% from the year-ago quarter.
Region-wise, revenues from North America increased 24.8% year over year and represented 78.7% of revenues. Europe contributed 16.3% to revenues, which increased 1.2% year over year. The remaining 4.9% came from the Rest of the World as sales jumped 23.7%.
Margin
Selling, general & amortization (SG&A) expense, as a percentage of revenues, increased 100 basis points (bps) from the year-ago quarter to 21%. Depreciation & amortization grew 70 bps to 2.5% of revenues.
Non-GAAP operating margin of the company decreased 100 basis points year over year to 19.8% due to higher operating expense.
Balance Sheet
Cognizant exited the quarter with cash and cash equivalents of $1,271.4 million, significantly down from $2,010.1 million as of Dec 31, 2014.
Guidance
For the second quarter of 2015, the company expects revenues of approximately $3.01 billion.Non-GAAP earnings per share are expected to be more than 72 cents.
For 2015, the company expects revenues to be nearly $12.24 billion (up from $12.21 billion provided earlier), representing 19.3% growth over 2014.Non-GAAP earnings are expected to be around $2.93 per share (earlier projection was $2.91).
Our Take
Cognizant is expected to benefit from strong demand for high quality, lower cost technology services. Based on its global delivery model and expanding capacity in low-cost areas in India, China, Philippines and Latin America, the company remains well-positioned in the outsourcing market. We believe that growing demand for offshoring services beyond the traditional IT outsourcing; namely, BPO (Business Process Outsourcing), KPO (Knowledge Process Outsourcing) and IT infrastructure services bode well for the company over the long term.
Furthermore, strength in the company’s health care and financial services business in regions like North America is encouraging.
In addition, we believe that Cognizant, which competes with the likes of Accenture ACN, Infosys INFY and Wipro Ltd. WIT, remains well diversified in key verticals and emerging markets of social, mobile, analytics and cloud, which will continue to boost its top line.
Currently, Cognizant sports a Zacks Rank #1 (Strong Buy).
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