10-KPeriod: FY2021

COGNIZANT TECHNOLOGY SOLUTIONS CORP Annual Report, Year Ended Dec 31, 2021

Filed February 16, 2022For Securities:CTSH

Summary

Cognizant Technology Solutions Corp. (CTSH) reported solid revenue growth of 11.1% (10.0% in constant currency) for the year ended December 31, 2021, exceeding the prior year's performance which was impacted by COVID-19. The company's strategic focus on digital services, including IoT, digital engineering, data, and cloud, is driving growth across its key industry segments, particularly Healthcare, Products & Resources, and Communications, Media & Technology. Despite significant revenue growth, the company experienced elevated employee attrition rates in 2021, impacting operating margins and increasing recruitment and compensation costs. Management is actively investing in talent development and brand repositioning to address these challenges and further accelerate digital business growth. Cognizant is strategically positioning itself as a digital partner for its clients, evidenced by seven acquisitions in 2021 aimed at expanding digital capabilities and geographical reach. While facing pricing pressures on non-digital services and intense competition for skilled talent, the company's operational efficiency initiatives and a strong focus on digital transformation are expected to support future growth. The company also returned capital to shareholders through dividends and share repurchases, indicating confidence in its financial position and ongoing operational strategy.

Financial Highlights

51 data points
Beta

Revenue

$18.51B

Net Income

$2.14B

11.5% Net Margin

EPS (Diluted)

$4.05

Total Assets

$17.85B

Cash & Equivalents

$1.79B

Free Cash Flow

$2.22B

Financial Statements
Beta
Revenue$18.51B
SG&A Expenses$3.50B
Operating Income$2.83B
Interest Expense$9.00M
Net Income$2.14B
EPS (Basic)$4.06
EPS (Diluted)$4.05
Shares Outstanding (Basic)527.00M
Shares Outstanding (Diluted)528.00M

Key Highlights

  • 1Revenue increased by 11.1% to $18,507 million in 2021, with 10.0% growth in constant currency, indicating a strong rebound from the previous year.
  • 2Operating margin improved significantly to 15.3% (GAAP) and 15.4% (Adjusted) in 2021, up from 12.7% and 14.4% respectively in 2020, driven by cost optimization and reduced travel expenses.
  • 3The company completed seven strategic acquisitions in 2021 to enhance digital capabilities and expand into key areas and geographies.
  • 4Significant employee attrition was experienced in 2021 (30.8% for the year), a notable increase from 20.7% in 2020, which management notes is weighted towards more junior employees and has led to increased hiring and compensation costs.
  • 5Digital services are a key focus, with investments in IoT, digital engineering, data, and cloud, aligning with client demand for digital transformation.
  • 6The company repurchased $66 million of its Class A common stock in Q4 2021 and paid quarterly dividends, demonstrating a commitment to returning capital to shareholders.
  • 7Revenue growth was strong across most segments, with Products & Resources (15.7%) and Communications, Media & Technology (14.5%) showing particularly robust increases.

Frequently Asked Questions

Cognizant's primary strategy revolves around accelerating digital transformation for its clients by investing in digital services and solutions, including IoT, digital engineering, data, and cloud. The company aims to achieve this through both organic growth and strategic acquisitions, while also focusing on globalizing its operations, repositioning its brand as a digital partner, and increasing its relevance to clients' business needs.

Key risks include global economic and political instability affecting client spending, challenges in attracting and retaining skilled employees leading to elevated attrition and costs, intense competition and rapid technological changes requiring continuous adaptation, and cybersecurity threats impacting data protection. Additionally, regulatory changes, particularly around immigration and data privacy, and potential disruptions to global delivery capabilities pose significant risks.

Cognizant acknowledges significantly elevated attrition rates in 2021 and is focusing on enhancing its employee value proposition, investing in learning and development to reskill and upskill its workforce, particularly in digital areas, and improving engagement and retention efforts. They are also focused on high-performance culture, leadership development, and supporting employee well-being.

Cognizant has a stated capital allocation framework that aims to deploy approximately 50% of its free cash flow towards acquisitions, 25% towards share repurchases, and 25% towards dividend payments. The company paid quarterly cash dividends in 2021 and continued to repurchase shares under its stock repurchase program.