10-QPeriod: Q1 FY2019

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q1 Ended Mar 31, 2019

Filed May 3, 2019For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported first-quarter 2019 results showing revenue growth of 5.1% year-over-year to $4.11 billion. While revenue increased, net income declined by 15.2% to $441 million, largely impacted by a significant $117 million accrual related to an India Defined Contribution Obligation ruling and a prior year benefit from foreign currency exchange rates. The company highlighted strong growth in its Communications, Media and Technology, and Products and Resources segments, driven by increasing demand for digital services. The company's operating margin decreased to 13.1% from 17.7% in the prior year, impacted by rising costs for delivery personnel and strategic partners, as well as the aforementioned India accrual. Cognizant continued its capital return program, repurchasing $750 million of stock and paying $116 million in dividends during the quarter. The company also announced leadership changes with a new CEO taking over on April 1, 2019.

Financial Highlights

48 data points
Beta

Revenue

$4.11B

Net Income

$441.00M

10.7% Net Margin

EPS (Diluted)

$0.77

Total Assets

$16.10B

Cash & Equivalents

$950.00M

Free Cash Flow

$163.00M

Financial Statements
Beta
Revenue$4.11B
SG&A Expenses$871.00M
Operating Income$539.00M
Interest Expense$7.00M
Net Income$441.00M
EPS (Basic)$0.77
EPS (Diluted)$0.77
Shares Outstanding (Basic)573.00M
Shares Outstanding (Diluted)575.00M

Key Highlights

  • 1Revenue increased 5.1% to $4.11 billion, with constant currency growth at 6.8%.
  • 2Net income decreased 15.2% to $441 million, primarily due to a $117 million accrual for the India Defined Contribution Obligation.
  • 3Operating margin declined significantly to 13.1% from 17.7% in Q1 2018, driven by increased personnel and partner costs.
  • 4The Communications, Media and Technology segment showed the strongest revenue growth at 16.9% (19.6% constant currency).
  • 5Cognizant returned $866 million to shareholders through share repurchases ($750 million) and dividends ($116 million).
  • 6The company completed two acquisitions in Q1 2019: Meritsoft and Mustache.
  • 7A new CEO, Brian Humphries, assumed leadership on April 1, 2019.

Frequently Asked Questions

The decrease in net income and operating margin was primarily driven by a $117 million accrual related to an India Defined Contribution Obligation ruling. Additionally, increased costs for delivery personnel, strategic partners, and vendors, along with higher amortization expenses due to recent acquisitions, also contributed to the margin compression.

Cognizant plans to continue investing in digital capabilities and talent, focus on partnering with existing customers for increased spend, grow its business in international markets, pursue strategic acquisitions, and maintain operating discipline to manage its cost structure.

The dispute with the ITD regarding the 2016 India Cash Remittance is ongoing and pending before the Madras High Court. Cognizant has deposited INR 5 billion ($71 million) as part of an interim stay order, and a lien has been placed on other time deposits. The company believes it has paid all applicable taxes owed and has not recorded any reserves for these matters.

Cognizant uses foreign exchange forward contracts to manage currency exchange rate risk, particularly for Indian rupee denominated payments. These contracts are designated as cash flow hedges to offset the impact of exchange rate movements on future operating costs.