01—Abstract
Summary
Summary of the 10-K filed February 12, 2025. Cited figures are marked; the original filing is the authoritative source.
Cognizant (CTSH) closed 2024 with revenue of $19.74 billiona, up 2.0% year over year (1.9% in constant currency), with roughly 200 basis points of that growth contributed by acquisitions, mainly Belcan and Thirdera.
Growth was led by Health Sciences (+4.5%) and offset by softness in Financial Services (-1.0%) and, in pockets, Products and Resources and CMT. GAAP operating margin rose 80 basis points to 14.7% and Adjusted operating margin rose 20 basis points to 15.3%, helped by NextGen restructuring savings and favorable FX, partly offset by merit-driven compensation costs and acquisition dilution. GAAP diluted EPS was $4.51b (+7.1%) and Adjusted diluted EPS was $4.75 (+4.4%).
Cash generation weakened: operating cash flow fell to $2.12 billionc from $2.33 billion, largely because of a $360 million payment tied to the India tax (ITD) dispute, and free cash flow declined to $1.83 billion from $2.01 billion. The company spent $1.6 billion on acquisitions, funded in part by a $600 million revolver draw (with $300 million repaid by year-end), and returned capital through $600 million in dividends and $605 million in buybacks. Cognizant ended the year with $2.24 billion in cash and short-term investments, $1.55 billion in revolver availability, and a stated capital allocation target of about 50% of free cash flow to acquisitions and 50% to shareholder returns.
Key risks flagged include discretionary spending softness among clients, AI-driven substitution of some traditional services (and the pricing pressure that comes with it), visa and immigration restrictions affecting a large share of US staff, the India tax disputes (roughly $386 milliond for the 2016 transaction plus the 2013 matter), the Syntel trade-secret appeal and the retrial of the Cognizant bench-termination discrimination class action, and the potential retroactive application of the India Defined Contribution Obligation. Management has completed the NextGen program at a cumulative cost of $363 million and expects the Belcan deal to modestly dilute 2025 operating margin.
02—Key points
Key Highlights
- Revenue of $19.74B, up 2.0% (1.9% constant currency); acquisitions contributed about 200 bps, while Health Sciences grew 4.5% and Financial Services declined 1.0%.
- GAAP operating margin expanded 80 bps to 14.7%; Adjusted operating margin rose 20 bps to 15.3%, supported by NextGen savings and favorable FX.
- GAAP diluted EPS of $4.51 (+7.1%); Adjusted diluted EPS of $4.75 (+4.4%).
- Operating cash flow fell 9% to $2.12B, and free cash flow dropped to $1.83B from $2.01B, mainly due to a $360M India tax (ITD) payment.
- Acquisitions totaled about $1.6B in cash in 2024, led by Belcan (~$1.2B net cash paid), which is expected to modestly dilute 2025 operating margin.
- Returned capital through $600M in dividends and $605M in buybacks; quarterly dividend raised to $0.31 for Q1 2025, and $1.24B remained on the buyback authorization at year-end.
- Voluntary attrition in Tech Services rose to 15.9% from 13.8%, and headcount fell to ~336,800 from ~347,700, reflecting the NextGen restructuring.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2024filed February 12, 2025Financial Statements
FY2024 against FY2023
| Line item | FY2024FY2023 | Change |
|---|---|---|
| Revenue | $19.74B$19.35B | +2.0% |
| SG&A Expenses | $3.22B$3.25B | −0.9% |
| Operating Income | $2.89B$2.69B | +7.5% |
| Net Income | $2.24B$2.13B | +5.4% |
| EPS (Basic) | $4.52$4.21 | +7.4% |
| EPS (Diluted) | $4.51$4.21 | +7.1% |
| Shares Outstanding (Basic) | 496.00M505.00M | −1.8% |
| Shares Outstanding (Diluted) | 497.00M505.00M | −1.6% |
05—Questions
Frequently Asked Questions
How did Cognizant's profitability change in 2024?
GAAP operating margin rose to 14.7% from 13.9%, and Adjusted operating margin rose to 15.3% from 15.1%. The gains came mainly from NextGen cost savings and favorable currency movements, offset by higher compensation costs from a merit cycle and dilution from acquisitions. Income from operations grew 7.5% to $2.89B.
Why did free cash flow decline in 2024?
Free cash flow fell to $1.83B from $2.01B. The main driver was a $360M payment in January 2024 related to the India tax (ITD) dispute over the 2016 CTS India share repurchase. Higher acquisition-related payments also affected investing cash flow, though they are not part of free cash flow as defined by the company.
What are the largest legal and tax exposures?
The most material items are the ongoing ITD dispute (the 2016 assessment is about 33 billion rupees, or roughly $386M, with a 30 billion rupee deposit made, and a separate 2013 matter with no specific demand), the retrial of the Cognizant bench-termination discrimination class action (no accrual recorded), the remaining Syntel trade-secret damages retrial scheduled for June 2025, and a possible retroactive India Defined Contribution Obligation liability (accrued $117M in 2019, with an undetermined final amount).
How is Cognizant's growth outlook shaped by AI and client spending?
Management expects clients to keep prioritizing AI-ready transformation and cost-saving productivity services, and plans significant AI investment. However, it also acknowledges that AI and automation may reduce demand for some existing services and weaken pricing power. Discretionary spending remained weak in 2024, particularly in Financial Services, Products and Resources, and CMT.
What is the company's capital allocation policy and balance sheet position?
Cognizant targets roughly 50% of free cash flow for acquisitions and 50% for dividends and buybacks. At year-end it had $2.24B in cash and short-term investments, $300M drawn on a $1.85B revolver with about $1.55B of available capacity, and $650M originally borrowed under a term loan, with maturities in October 2027. The Belcan acquisition was partly funded with the revolver.
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