10-QPeriod: Q3 FY2016

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 7, 2016For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation reported solid revenue growth of 8.4% year-over-year for the third quarter of 2016, reaching $3.45 billion, driven by increased demand for digital services, discretionary projects, and its global delivery model. The company saw strong performance in its 'Other' and 'Manufacturing/Retail/Logistics' segments. Net income also increased by 11.9% to $444.4 million. However, the report highlights a significant ongoing internal investigation into potential FCPA violations related to payments for facilities in India, which has led to the identification of a material weakness in internal controls. This investigation, along with related class-action lawsuits, introduces considerable uncertainty and potential risks to the company's financial condition and operations.

Financial Highlights

48 data points
Beta

Revenue

$3.45B

Net Income

$444.00M

12.9% Net Margin

EPS (Diluted)

$0.73

Total Assets

$13.72B

Cash & Equivalents

$1.55B

Free Cash Flow

$529.00M

Financial Statements
Beta
Revenue$3.45B
SG&A Expenses$701.00M
Operating Income$583.00M
Interest Expense$5.00M
Net Income$444.00M
EPS (Basic)$0.73
EPS (Diluted)$0.73
Shares Outstanding (Basic)606.00M
Shares Outstanding (Diluted)609.00M

Key Highlights

  • 1Revenues grew 8.4% to $3.45 billion in Q3 2016, with strong contributions from 'Other' and 'Manufacturing/Retail/Logistics' segments.
  • 2Net income increased 11.9% to $444.4 million, and diluted EPS rose to $0.73 from $0.65 year-over-year.
  • 3The company is undergoing an internal investigation concerning potential FCPA violations related to payments for facilities in India, which has led to the identification of a material weakness in internal controls.
  • 4New securities class action lawsuits have been filed, alleging false or misleading statements related to the FCPA investigation and internal controls.
  • 5The company repurchased $144.9 million of its Class A common stock during the third quarter and announced an expanded stock repurchase program authorization.
  • 6Despite revenue growth, concerns remain regarding the potential impact of Brexit on European revenues and client demand, particularly in the Financial Services sector.
  • 7Cash, cash equivalents, and short-term investments stood at $4.86 billion as of September 30, 2016, indicating strong liquidity.

Frequently Asked Questions

The primary financial performance indicator is revenue growth. Cognizant reported an 8.4% year-over-year increase in revenue for the third quarter of 2016, reaching $3.45 billion, demonstrating continued top-line expansion.

The most significant risk is the ongoing internal investigation into potential FCPA violations in India, which has resulted in a material weakness in internal controls. This, coupled with related class-action lawsuits and the potential impact of Brexit on European operations and currency, introduces substantial uncertainty.

Cognizant maintains strong liquidity with $4.86 billion in cash, cash equivalents, and short-term investments. The company also actively engages in share repurchases, repurchasing $144.9 million in the third quarter and having an expanded authorization of $3.0 billion remaining, indicating a commitment to returning capital to shareholders.

The India Cash Remittance transaction, which occurred in May 2016, resulted in an incremental income tax expense of $213.7 million for the first nine months of 2016. This significantly increased the effective tax rate and reduced net income compared to the prior year period.