10-QPeriod: Q2 FY2018

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 2, 2018For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported its financial results for the second quarter and first half of fiscal year 2018. For the quarter ended June 30, 2018, the company generated $4,006 million in revenue, a 9.2% increase year-over-year. Net income for the quarter was $456 million, a slight decrease of 3.0% from the prior year, resulting in diluted earnings per share of $0.78. The first half of 2018 saw revenues of $7,918 million, up 9.7% compared to the same period in 2017. Net income for the first half was $976 million, a 5.0% decrease year-over-year, with diluted earnings per share of $1.66. The company adopted ASC Topic 606, "Revenue from Contracts with Customers," effective January 1, 2018, which had a positive impact on reported revenues and earnings. Cognizant continues to focus on digital services and solutions, with strong growth observed in the Healthcare and Communications, Media and Technology segments.

Financial Highlights

49 data points
Beta

Revenue

$4.01B

Net Income

$456.00M

11.4% Net Margin

EPS (Diluted)

$0.78

Total Assets

$14.81B

Cash & Equivalents

$901.00M

Free Cash Flow

$549.00M

Financial Statements
Beta
Revenue$4.01B
SG&A Expenses$805.00M
Operating Income$670.00M
Interest Expense$7.00M
Net Income$456.00M
EPS (Basic)$0.78
EPS (Diluted)$0.78
Shares Outstanding (Basic)585.00M
Shares Outstanding (Diluted)586.00M

Key Highlights

  • 1Revenue grew by 9.2% year-over-year to $4,006 million for the three months ended June 30, 2018.
  • 2Net income for the quarter decreased by 3.0% to $456 million, resulting in diluted EPS of $0.78.
  • 3The company adopted new revenue recognition standards (ASC Topic 606) effective January 1, 2018, which positively impacted revenue and earnings.
  • 4The Healthcare and Communications, Media and Technology segments showed strong revenue growth of 10.1% and 15.8% respectively.
  • 5Cognizant generated $1,028 million in cash flow from operating activities for the six months ended June 30, 2018.
  • 6The company repurchased $600 million of stock under an Accelerated Stock Repurchase (ASR) program in June 2018.
  • 7A significant ongoing dispute with the Indian Income Tax Department regarding previously disclosed cash remittances was noted, with approximately $482 million in additional taxes being claimed.

Frequently Asked Questions

Cognizant adopted ASC Topic 606, 'Revenue from Contracts with Customers,' effective January 1, 2018, using a modified retrospective approach. For the three months ended June 30, 2018, this adoption had a positive impact of $31 million on revenue, $38 million on income from operations, and $0.05 per share on diluted earnings per share. For the six months ended June 30, 2018, the impact was $52 million on revenue, $67 million on income from operations, and $0.09 per share on diluted earnings per share.

Cognizant continued its capital return program, including paying a quarterly dividend of $0.20 per share. The company also repurchased shares, notably entering into an Accelerated Stock Repurchase (ASR) agreement in June 2018 for $600 million. The company generated substantial cash flow from operations ($1,028 million for the first six months) and had cash and cash equivalents and short-term investments totaling $4,247 million at the end of the period.

Yes, Cognizant is involved in a significant dispute with the Indian Income Tax Department (ITD) concerning its 2016 India Cash Remittance. The ITD is asserting an additional tax liability of approximately $482 million. Cognizant believes it has paid all applicable taxes for this transaction. As a result of this dispute, certain time deposits in India totaling $419 million have been restricted. The company also continues to cooperate with the DOJ and SEC regarding an internal investigation into certain payments made in India.

The Healthcare segment grew revenues by 10.1% for the quarter and 10.9% for the first half. The Communications, Media and Technology segment demonstrated even stronger growth, with revenues up 15.8% for the quarter and 17.1% for the first half. The Products and Resources segment also showed robust growth of 12.4% for the quarter and 11.9% for the first half.