10-KPeriod: FY2017

COGNIZANT TECHNOLOGY SOLUTIONS CORP Annual Report, Year Ended Dec 31, 2017

Filed February 27, 2018For Securities:CTSH

Summary

Cognizant Technology Solutions Corp. (CTSH) reported solid revenue growth of 9.8% to $14.81 billion for the year ended December 31, 2017, driven by increased demand for digital services and continued penetration in key markets, particularly North America and Europe. The company is strategically aligning its services into three digital practice areas: Digital Business, Digital Operations, and Digital Systems & Technology, to capitalize on the growing market for digital transformation. While revenue increased, net income saw a slight decrease of 3.2% to $1.50 billion, largely impacted by a significant one-time provisional income tax expense of $617 million related to the U.S. Tax Cuts and Jobs Act of 2017. The company is also actively returning capital to shareholders through dividends and stock repurchases, signaling confidence in its financial position and future prospects. Despite the revenue growth and strategic digital focus, investors should note potential headwinds. Cognizant is actively investigating potential Foreign Corrupt Practices Act (FCPA) violations in India, which has led to ongoing legal proceedings and associated costs. Additionally, while the company is remediating a previously disclosed material weakness in internal controls, the competitive landscape remains intense, and the company faces risks related to cybersecurity, data protection, and evolving regulatory environments in key sectors like financial services and healthcare.

Financial Highlights

49 data points
Beta

Revenue

$14.81B

Net Income

$1.50B

10.2% Net Margin

EPS (Diluted)

$2.53

Total Assets

$15.22B

Cash & Equivalents

$1.93B

Free Cash Flow

$2.12B

Financial Statements
Beta
Revenue$14.81B
SG&A Expenses$2.70B
Operating Income$2.48B
Interest Expense$23.00M
Net Income$1.50B
EPS (Basic)$2.54
EPS (Diluted)$2.53
Shares Outstanding (Basic)593.00M
Shares Outstanding (Diluted)595.00M

Key Highlights

  • 1Revenue grew by 9.8% to $14.81 billion in 2017, driven by digital transformation initiatives and strong performance in the Communications, Media & Technology, and Products & Resources segments.
  • 2The company is strategically focused on three digital practice areas: Digital Business, Digital Operations, and Digital Systems & Technology, to address evolving client needs.
  • 3Net income decreased by 3.2% to $1.50 billion, primarily due to a significant one-time provisional income tax expense of $617 million related to the U.S. Tax Cuts and Jobs Act of 2017.
  • 4Cognizant is actively returning capital to shareholders, announcing a plan to return $3.4 billion by the end of 2018 through stock repurchases and dividends, with an increased quarterly dividend declared in February 2018.
  • 5The company is undertaking an internal investigation into potential FCPA violations in India, incurring $36 million in related costs in 2017, and faces ongoing legal proceedings and associated risks.
  • 6A material weakness in internal control over financial reporting related to the FCPA investigation was reported as remediated as of December 31, 2017.
  • 7Diversified revenue streams across four key industry segments (Financial Services, Healthcare, Products & Resources, Communications, Media & Technology) and geographic regions (North America, Europe, Rest of World) mitigate single-segment risk.

Frequently Asked Questions

Cognizant's strategy is to help customers adapt, compete, and grow by partnering with them to apply technology for enterprise-wide digital transformation. They focus on aligning digital services and solutions into three practice areas: Digital Business, Digital Operations, and Digital Systems & Technology. They are also investing to scale these digital practices through internal training and acquisitions, while continuing to develop their core business and leverage their global delivery model and domain expertise.

Key risks include intense competition in the technology services market, potential declines in operating margins due to cost pressures and pricing, legal and reputational risks from cybersecurity breaches and data protection failures, the possibility of significant quarterly fluctuations in revenue and results, and the challenge of keeping pace with rapid technological advancements, especially in digital technologies. Additionally, the company is undergoing an internal investigation into potential FCPA violations in India, which poses significant legal and financial risks.

Cognizant announced a plan to return $3.4 billion to stockholders by the end of 2018 through stock repurchases and cash dividends. In 2017, they spent $1.8 billion on stock repurchases via accelerated stock repurchase agreements and paid $265 million in dividends. In February 2018, they increased their quarterly dividend and indicated ongoing review of the capital return plan.

The Tax Cuts and Jobs Act led to a one-time provisional net income tax expense of $617 million in 2017. This includes a transition tax on accumulated undistributed foreign earnings and a revaluation of U.S. deferred tax liabilities to the new lower corporate tax rate. The company now projects its effective income tax rate to be in the range of 24% to 26% for 2018-2020, excluding discrete items.