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Cognizant Q2 Net up 19%; raises full-year revenue guidance

IT services firm Cognizant Tuesday posted a better-than-expected 19 percent increase in its net profit at USD 300.4 million in the second quarter this year helped by broad-based growth across geographies and segments.

New Delhi: IT services firm Cognizant Tuesday posted a better-than-expected 19 percent increase in its net profit at USD 300.4 million in the second quarter this year helped by broad-based growth across geographies and segments.

The US-based firm had reported a net profit of USD 251.9 million in the year-ago period, it said in a release.

Buoyed by its performance, Cognizant raised its revenue guidance for 2013 to USD 8.74 billion, up at least 19 percent compared to 2012. It follows January-December as fiscal year.

Its revenues for the April-June quarter of 2013 rose by 20 percent to USD 2.16 billion in second quarter of 2013 against USD 1.79 billion is the same quarter of 2012 beating its own estimate.

For the second quarter of 2013, Cognizant had said earlier it expects revenues to be "at least USD 2.13 billion".

"Continued healthy demand in the second quarter resulted in broad-based growth across our industries, geographies and services, thereby driving significant revenue and EPS outperformance," Cognizant CFO Karen McLoughlin said.

Excluding the USD 0.07 of non-operating foreign exchange loss, which was not included in the guidance, the firm is pleased that it exceeded the non-GAAP EPS guidance for the quarter by USD 0.08, McLoughlin added.

Analysts said Cognizant earnings beat expectations.

"Cognizant beat revenue and EPS expectations and it guided expectations higher than before - specifically, full year revenue guide is now almost at our much higher than consensus estimate and still includes use of 'at least' to form a lower bound on this estimate,"Citigroup said in a note.

"In addition, strong cash flows during the quarter allowed us to increase our cash and short-term investment balances to approximately USD 2.9 billion," McLoughlin said.

On the revenue outlook, the firm reviewed its guidance upwards for the full 2013 fiscal.

"Fiscal 2013 revenue expected to be at least USD 8.74 billion, up at least 19 percent compared to 2012," it added.

While presenting the first quarter results, Cognizant had said its expects revenues to grow at 17 percent to "at least USD 8.6 billion" against 20 percent growth achieved in 2012.

Earlier, rivals TCS, Infosys, Wipro and HCL technologies reported better-than-expected results signalling a pick-up in demand for Indian IT outsourcing services providers.

"Our 15 year record of revenue and earnings growth is a testament to our long-term strategy of reinvesting in our business to stay relevant to our clients' changing needs and to provide increasing value as we grow each of those trusted relationships," Cognizant CEO Francisco D'Souza said.

This reinvestment strategy continues to enable Cognizant to excel in its core services while simultaneously investing in multiple horizons of growth, thereby continuing to position it well for the future, he added.

The company added 1,600 employees (net) during the quarter taking its total headcount to about 164,300 employees as of June 30, 2013.

Economic pressures and long-term secular industry shifts have driven changes in client demands, Cognizant President Gordon Coburn said adding: "As a result of Cognizant's ability to address this dual mandate from one integrated platform, we are seeing strong market demand for our services, which is allowing us to increase our revenue guidance for full year".

The financial services segment was the top revenue earner followed by healthcare, manufacturing, retail & logistics.

In terms of geographies, North America was the top revenue generator followed by the UK, rest of Europe and rest of the World.

Service-wise, consulting and technology (formerly known as Application Development) represented 50.5 percent of the revenues, while, outsourcing services (formerly known as Application Management) was 49.5 percent for the quarter, Cognizant CFO Karen McLoughlin said.

Cognizant's active clients stood at 1,100 as of June 2013.

"We closed the quarter with 1,100 active customers and the number of accounts we consider to be strategic increased by 8. This brings our total number of strategic clients to 229," she said.

The company considers that accounts to be strategic, which have the potential to ramp up to at least USD 5 million to more than USD 50 million in annual revenue.

"We continue to see a trend towards our newer strategic customers embracing a wider range of Cognizant?s services at an earlier stage in the relationship," McLoughlin added.

On capex, she said: "We spent approximately USD 50.3 million for capital expenditures during the quarter. During 2013, we continue to expect our capital expenditures to total approximately USD 400 million."

Mcloughlin said the raised revenue guidance for 2013 fiscal includes USD 10 million from its latest acquisition of SourceNet Solutions.

Cognizant continues to expand and strengthen its US delivery and operations capabilities to support the BPO services, she added.

"As part of this effort, we recently completed a tuck under acquisition of SourceNet Solutions, an accounts payable service provider located in College Station, Texas (US), which was owned by our long-time global financial services client, BNY Mellon.

This acquisition brings SourceNet's processing platform to Cognizant. Our revised revenue guidance of at least USD 8.74 billion for fiscal 2013 includes USD 10 million of expected revenue from the acquisition of SourceNet Solutions," she said.

On outlook, Mcloughlin said: "We continue to see more deals integrating applications and infrastructure, and delivering significant value to clients from their synergies.

During the quarter, we won several large deals - some of them being end-to-end, multi-year, IT Infrastructure deals that included data centre migration, provisioning and support leveraging our recently added data centres."