Cognizant Technology Solutions Exec Insights: North America Growth Expectations, Wage Increases

On Monday, Cognizant Technology Solutions Corporation Class A (NASDAQ:CTSH) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

North America Growth Expectations

Tien-Tsin Huang – JPMorgan Chase: I just have one question. Maybe if you can just give us an idea on North America and the expectations for growth in the second quarter, maybe the same thing for Financial Services just to give us an idea of what the second quarter might look like and then just the balance of year? Then maybe just sort of follow-up, (can you give) an idea, I know you gave it usually in the Q, but just your growth in your top five and your top 10 clients.

Gordon Coburn – President: Sure, Tien-Tsin. Let me comment on our North America then Karen can talk about the top 5 and 10. In North America, we would expect in Q2 where we guided to about 4.6% overall growth, North America we would expect to drive that growth, so it will probably grow a little bit faster than company average, and we’re assuming Europe would grow a little bit slower than company average in the second quarter. That’s obviously based in all our assumptions about the slower than expected acceleration in Financial Services. Karen, do you want to talk about Top 5, Top 10?

A Closer Look: Cognizant Tech Earnings Cheat Sheet>>

Karen McLoughlin – CFO: Sure. So, Top 5 for the quarter was 14% of revenue and Top 10 was 25% of revenue.

Tien-Tsin Huang – JPMorgan Chase: May be if I can just sneak in one more, just your strategy for buying back stock. I’m curious, obviously stocks are getting weaker. I’m curious if its 10b5 driven, opportunistic, what’s the strategy?

Gordon Coburn – President: We have in place a 10b5 program from before increasing the authorization today. How we’ll use the additional authorization? I think it will be somewhat opportunistic, certainly depending on where exactly this stock price settles down. We’re in no huge rush to do it, but certainly depending on valuation we would look at doing on an accelerated basis.

Wage Increases

Edward Caso – Wells Fargo Securities: Can you talk a little bit about the wage increases that you may be giving this year? Karen mentioned sort of controlling expenses and the securities held back part of the equation worked into it.

Gordon Coburn – President: Sure, Ed. Let me be very clear on this. We’re still growing at a great pace. Yes, we’re certainly disappointed. We had (stake) our growth from 23% down to 20%, but that’s still tremendous growth. That change in full year expectations has no impact whatsoever on our plans for salary increments. We communicated earlier this year that salary increments for our junior and middle population go into effect this month and for our more senior people at the end of the quarter. Those plans are unchanged. The magnitude of the salary increases, I think are going to be very consistent with what we see at other top players in the industry. We’re expecting approximately 8% offshore that excludes promotions and low single-digits onsite. So no change in our plans.

Edward Caso – Wells Fargo Securities: Can you talk a little bit about these are challenges and how that’s causing you to change or not change your sort of workforce deployment?

Gordon Coburn – President: We’ve been evolving our workforce deployment for number of years now. As we have scaled, as we have creditability in the U.S. market we’re certainly doing more U.S. hiring both of lateral hires and the last two years at colleges we now recruit at 15 to 20 campuses, we hired several 100 U.S. college students this year. The challenge is there are not enough U.S. IT workers. It’s very simple math, we’re not graduating enough, so we can certainly continue to supplement what we can find locally with talent from around the world. We continue to have access to business in that actions to business has not caused us any revenue leakage. Clearly, there is a very significant cost to it, that’s based into our plans. We certainly the monitor the situation carefully, but it has not impacted the business.

Edward Caso – Wells Fargo Securities: Given the lower the still low attrition here and its lower forecast, so you’re going to pulling back your growth, you’re hiring expectations for this year?

Gordon Coburn – President: Absolutely, the way the business model works and is supposed to work is that we can flex up and down our lateral just in time hiring. Obviously, now that we’re expecting to grow at slower pace this year, we’ll still add a lot of people. But we will add not a fewer people than we would have otherwise. So, we’ll continue to do lateral hiring, but the pace of lateral hiring obviously will not be as fast as if we were growing at 23%. We’re obviously going to earn all of our offers from colleges for the people who’re joining this year. So there is no change in plans to that, but certainly the pace of hiring will not be as fast and it will be adjusted for the revised guidance. It’s exactly the way the model should work as the demand environment changes.