10-QPeriod: Q3 FY2017

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2017

Filed November 1, 2017For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported solid revenue growth of 9.1% to $3.77 billion for the third quarter of 2017, driven by strong performance in its Communications, Media and Technology and Products and Resources segments, and continued demand for digital services. Net income rose 11.5% to $495 million, or $0.84 per diluted share. The company's strategic shift towards digital transformation services appears to be gaining traction, with increased customer spending in this area contributing to overall growth. Despite robust top-line and bottom-line figures, the company is navigating an ongoing internal investigation related to potential FCPA violations in India, which has led to a material weakness in internal controls and is incurring related legal expenses. The company continues to execute its capital return plan, repurchasing shares and initiating dividend payments. While the core business remains strong, the company is actively investing in digital capabilities and strategic acquisitions to align with evolving market demands. Investors should monitor the resolution of the FCPA investigation and its potential financial and reputational impact, alongside the company's progress in its digital transformation strategy.

Financial Highlights

49 data points
Beta

Revenue

$3.77B

Net Income

$495.00M

13.1% Net Margin

EPS (Diluted)

$0.84

Total Assets

$14.58B

Cash & Equivalents

$1.58B

Free Cash Flow

$695.00M

Financial Statements
Beta
Revenue$3.77B
SG&A Expenses$674.00M
Operating Income$648.00M
Interest Expense$6.00M
Net Income$495.00M
EPS (Basic)$0.84
EPS (Diluted)$0.84
Shares Outstanding (Basic)590.00M
Shares Outstanding (Diluted)592.00M

Key Highlights

  • 1Revenue increased by 9.1% year-over-year to $3.77 billion for Q3 2017.
  • 2Net income grew by 11.5% year-over-year to $495 million ($0.84 diluted EPS).
  • 3Strong growth in Communications, Media and Technology (18.2%) and Products and Resources (14.0%) segments.
  • 4Continued investment in digital services and strategic acquisitions to drive future growth.
  • 5Company is undergoing an internal investigation for potential FCPA violations in India, resulting in a material weakness in internal controls.
  • 6Active capital return program, including share repurchases ($1.5 billion in ASR) and quarterly dividends ($0.15 per share).
  • 7Operating margin improved to 17.2% (GAAP) and 20.0% (Non-GAAP).

Frequently Asked Questions

For the third quarter of 2017, Cognizant Technology Solutions reported a 9.1% increase in revenue to $3.77 billion and a 11.5% increase in net income to $495 million, or $0.84 per diluted share. The company also saw an improvement in its operating margin to 17.2% (GAAP).

Key growth drivers include strong performance in its Communications, Media and Technology and Products and Resources segments, increased customer spending on digital transformation services, and expansion in geographic markets like Europe and Rest of World. The company is also investing in strategic acquisitions to enhance its capabilities.

A significant concern is the ongoing internal investigation into potential Foreign Corrupt Practices Act (FCPA) violations in India, which has resulted in a material weakness in internal controls. The company is incurring legal expenses related to this investigation and ongoing litigation. Additionally, potential impacts from regulatory changes, currency fluctuations, and economic uncertainties are noted.

Cognizant is executing a capital return plan that includes significant share repurchases, such as the $1.5 billion accelerated share repurchase (ASR) program initiated in March 2017, and has commenced a quarterly cash dividend of $0.15 per share.