10-QPeriod: Q1 FY2017

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 5, 2017For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation reported solid revenue growth of 10.7% to $3.55 billion for the first quarter of 2017, compared to the same period in 2016. This growth was driven by strong performance across its business segments, particularly Communications, Media & Technology and Products & Resources, and continued demand for digital services. Net income increased by 26.3% to $557 million, leading to diluted earnings per share of $0.92. Despite the positive financial results, the company is navigating an internal investigation concerning potential FCPA violations in India and related class-action lawsuits. Management is implementing strategies to focus on digital services, scale these practices, and improve operational efficiency, aiming for a 22% non-GAAP operating margin by 2019.

Financial Highlights

49 data points
Beta

Revenue

$3.55B

Net Income

$557.00M

15.7% Net Margin

EPS (Diluted)

$0.92

Total Assets

$13.63B

Cash & Equivalents

$1.31B

Free Cash Flow

$211.00M

Financial Statements
Beta
Revenue$3.55B
SG&A Expenses$686.00M
Operating Income$570.00M
Interest Expense$6.00M
Net Income$557.00M
EPS (Basic)$0.92
EPS (Diluted)$0.92
Shares Outstanding (Basic)605.00M
Shares Outstanding (Diluted)607.00M

Key Highlights

  • 1Revenue increased by 10.7% year-over-year to $3,546 million in Q1 2017.
  • 2Net income rose by 26.3% to $557 million, with diluted EPS growing to $0.92 from $0.72.
  • 3The company returned $1.5 billion to shareholders through an accelerated share repurchase program in March 2017.
  • 4An internal investigation into potential FCPA violations in India is ongoing, with management cooperating with the DOJ and SEC.
  • 5The effective income tax rate decreased significantly to 14.2% from 25.1% due to recognition of previously unrecognized tax benefits.
  • 6The company reported a material weakness in its internal control over financial reporting related to the tone at the top and oversight of real estate and procurement in India.
  • 7Strategic customer base increased by 7, reaching 336.

Frequently Asked Questions

Revenue growth was driven by strong performance in the Communications, Media and Technology and Products and Resources segments, increased customer spending on digital services and discretionary projects, and the continued expansion of global delivery services. North America remained the largest market, contributing significantly to the revenue increase.

The company is cooperating with the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) regarding an internal investigation into whether certain payments related to company-owned facilities in India were made improperly and in possible violation of the FCPA and other laws. To date, approximately $6 million in payments made between 2010 and 2015 have been identified as potentially recorded improperly. This investigation has led to a material weakness in internal controls, and related legal proceedings are ongoing.

The effective income tax rate decreased substantially to 14.2% from 25.1% in the prior year's quarter. This reduction was primarily due to the recognition of $72 million in income tax benefits related to uncertain tax positions, reassessed by management after the lapse of a statute of limitations.

Cognizant is focusing on aligning its digital services into three practice areas (Digital Business, Digital Operations, and Digital Systems and Technology), investing to scale these areas through training and acquisitions, and continuing to develop its core business. The company aims to achieve a 22% non-GAAP operating margin by 2019 and has initiated a capital return plan including stock repurchases and dividends.