Excerpts from Cognizants Q2 Results:

Attrition - Employee attrition increased slightly to 17%, which is consistent with seasonal trends and attrition for the second quarter. This increase was due primarily to the seasonal tendency for certain employees to leave during the second quarter to pursue higher education. We continue to monitor employee attrition closely and take necessary short and long-term steps to manage it.

Utilization: We added a net of over 2,000 employees during the quarter, bringing our total employee base to approximately 45,500 worldwide. Employee additions during the quarter were low compared to historical levels given our goal of increasing utilization from Q1 levels.Onsite utilization increased slightly to over 85% for the quarter. Offshore utilization, excluding recent college graduates who were in our trainee program at the end of the quarter, was approximately 68%, as many of our full 2006 trainees graduated from our trainee program. Including trainees, offshore utilization was approximately 56% for the quarter. We had well over 4,300 unbilled people in our training program at the end of the quarter.

Clients: Revenue from our top five clients grew by 9% sequentially, and revenue from our top 10 clients grew by 11% from the first quarter. We expect these relationships will expand further as the needs of our customers evolve over the long-term and we continue to expand the range of solution offerings that help strengthen our customers businesses.

Revenue: steadfast execution of our long-term strategy has enabled us to surpass an annualized $2 billion revenue run rate during the quarter, just six quarters after surpassing the $1 billion annualized revenue run rate in the fourth quarter of 2005.24% of our revenue came from fixed-price contracts, down from 25.3% in the first quarter of this year, and down from 25.2% in the second quarter of 2006. When we look at the mix by solution type during the second quarter, 29% of our development revenue and 20% of our maintenance revenue came from fixed-price contracts during the quarter.

Pricing: Pricing is coming right where we had expected. For the full year we expected it to be about 2%, on an apples-to-apples basis compared to last year. Sequentially we had a very modest increase in pricing, year-over-year we were only about 2%.

Wage Hike: Yeah, the salary increases affected the beginning of the second quarter. We averaged about 16% in India and very low single-digits on onsite.

Consulting Business: Yes. We've taken the very deliberate approach of putting our consulting business, if you will, into the core businesses. We think that that's an effective way to drive the business. It's an effective way to grow consulting practice. But also that really creates tight integration between the consulting business and the rest of the business, if you will. So, I don't try to sort of look at consulting revenues as split about separately. What I will say is that we're seeing good traction and a lot of interest from clients, as I said during the earlier part of this call, engaging us upfront, understanding, helping us, inviting us to help understand and frame the business problem before, than engaging us on the downstream work as well.

Europe: I would point to a couple of things that we are doing in Europe. That I wouldn't say different but requires us to focus in a different way in Europe, because of particularly language issues and differences across continental Europe. We are having to build out local teams in each of the countries in Europe in which we are operating. And so that's probably the first, we can't rely obviously on English as the language of business in these countries even tough many of our multi-national clients operate in English, you still need to have a local language capability in each of the countries. So, that requires us to invest - that requires us to build local teams in each of these countries and really get the local team deeply integrated with the rest of Cognizant, in our global delivery models so on and so forth.The other thing that we are seeing to some extent in Europe, which is somewhat different than in perhaps other parts of the world, is that we tend to see interest in applications, development and system integration work, perhaps earlier than in other parts of the world where you might see a lead with application maintenance in the U.S., it tends to be a little bit more focused on application development than Europe. And that sometimes has to do with the labor laws and other regulations in Europe, which limit or prevent the displacement of existing workers in Europe.

Acquisitions: Our acquisition program is ongoing. We are always looking out there to see where there are strategic fits. We've said that we continue to look for acquisition that will extend our capabilities in really three areas. We are looking for acquisitions that are complimentary in terms of the industries that we serve. Looking to deepen our industry expertise I talked about, consulting as an increasing area of interest and so we're looking for acquisitions in the industries that we serve that can add that capability.The second axis that we're looking for in terms of acquisitions and continue to always keep our eyes open for our technology based acquisitions. Good example of that was the acquisition we did some years ago of Aces that got us into the CRM space. And the third is, the third screen we use is geographic screen. So, we're continuing to look at acquisitions in markets in Europe that would extend or deepen our presence in the markets that we want to serve in Europe.

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Tags: offshore - cts - india - it+Services

Prashanth Rai