Cognizant Q2 net income surges

Highlights - Second Quarter 2007

• Quarterly revenue increased to $516.5 million, up 53% from the year-ago quarter.
• Quarterly diluted EPS on a GAAP basis was $0.54, compared to $0.37 in the year-ago quarter.
• Quarterly diluted EPS on a non-GAAP basis was $0.59, excluding stock- based compensation expense of $0.05, compared to $0.41 in the year-ago quarter.

Revenue for the second quarter increased to $516.5 million, up 12% from $460.3 million in the first quarter of 2007, and up 53% from $336.8 million in the second quarter of 2006. GAAP net income was $82.3 million, or $0.54 per diluted share, compared to $55.1 million, or $0.37 per diluted share, in the second quarter of 2006. GAAP operating margin for the quarter was 17.6%. Excluding stock based compensation expense of $9.5 million, non-GAAP operating margin was 19.4%, in-line with the Company's targeted 19 to 20% range. Reconciliations of these non-GAAP financial measures to GAAP operating results and diluted EPS are included at the end of this release.

"We are very pleased with our strong second quarter financial results, which further extend our track record of industry-leading growth," said Francisco D'Souza, President and CEO of Cognizant. "During the quarter, we surpassed the $2 billion annual revenue run rate, achieving this milestone just six quarters after surpassing a $1 billion annual revenue rate in the fourth quarter of 2005. Our rapid achievement of this milestone is a clear testament to the success of our long-term strategy of reinvesting in our business to meet the unique needs of our clients and drive value for our shareholders. Our operating margin for the quarter was within our target range and reflects our ability to effectively manage our business to offset macroeconomic headwinds, such as the recent appreciation of the Indian Rupee, while continuing to expand our proven growth platform around the world."

D'Souza continued, "Cognizant's second quarter performance was driven by growth across all dimensions of our business: vertical industry segments, service-areas and geographies. We increased our strategic customers by five, including two in Europe, where revenue grew 79% year-over-year and continues to outpace the Company average. Revenue from our Financial Services business segment, which includes banking, financial services and insurance customers, grew over 13% sequentially, and we experienced strong growth during the quarter from our telecommunications and healthcare customers. Demand across our broad range of solutions continued to rise, especially in ERP, Data Warehousing and Business Intelligence, Testing, and Infrastructure Management. Moving forward, we believe that the steadfast execution of our strategy and our commitment to expanding our global platform will continue to translate into strong financial and operating results."

2007 Outlook - Third Quarter & Full Year

Based on current visibility, the Company is now providing the following guidance:

• Third quarter 2007 revenue anticipated to be at least $550 million.
• Third quarter 2007 diluted EPS expected to be $0.56 on a GAAP basis, and $0.62 on a non-GAAP basis, which excludes the impact of stock-based compensation expense of $0.06.
• Fiscal 2007 revenue now anticipated to grow more than 48% to at least $2.11 billion.
• Fiscal 2007 diluted EPS expected to be at least $2.20 on a GAAP basis, and at least $2.40 on a non-GAAP basis, which excludes the impact of stock-based compensation expense of approximately $0.20.
• Total headcount by end of 2007 expected to be approximately 55,000, reflecting the Company's plan to increase utilization throughout the remainder of the year.

"Our second quarter results clearly reflect our ability to effectively maintain our operating targets while continuing to reinvest in the growth of the business," said Gordon Coburn, Chief Financial and Operating Officer. "In order to support our future growth, Cognizant's Board of Directors has approved plans to make an additional $100 million investment in our previously announced infrastructure expansion program across India. The expanded construction plan at our new Chennai campus, located in a Special Economic Zone ("SEZ"), has now doubled in size with over two million square feet of capacity currently under construction. We have also increased the size of the first phase of planned construction of our SEZ facility in Coimbatore to over 725,000 square feet, and are acquiring additional property in Hyderabad and Chennai. We expect this investment to enhance our flexibility to meet the escalating demand for our services from both new and existing customers around the world. As a result of the strong demand environment, we are raising our guidance for full year 2007."

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