10-QPeriod: Q3 FY2019

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2019

Filed October 31, 2019For Securities:CTSH

Summary

Cognizant Technology Solutions Corp. (CTSH) reported its third quarter 2019 results, showing a 4.2% increase in revenue to $4.25 billion, reaching $12.50 billion year-to-date. While top-line growth was modest, the company experienced a decline in income from operations and operating margin compared to the previous year, largely due to increased personnel costs, integration costs from recent acquisitions, and a specific customer dispute in the Healthcare segment. The company also announced its '2020 Fit for Growth Plan,' which includes significant investments in digital capabilities and cost optimization measures, including workforce adjustments and exiting certain content-related work. This plan is expected to incur charges but aims for substantial annualized savings by 2021. Looking ahead, Cognizant faces a dynamic market influenced by customer demand for digital services, cost pressures, and evolving industry trends in Financial Services, Healthcare, and Technology. The company is strategically focusing on digital transformation and innovation while managing operational costs. Key ongoing considerations include foreign currency fluctuations and legal/regulatory matters, notably the dispute with the Indian Income Tax Department.

Financial Highlights

48 data points
Beta

Revenue

$4.25B

Net Income

$497.00M

11.7% Net Margin

EPS (Diluted)

$0.90

Total Assets

$15.84B

Cash & Equivalents

$2.34B

Free Cash Flow

$620.00M

Financial Statements
Beta
Revenue$4.25B
SG&A Expenses$706.00M
Operating Income$669.00M
Interest Expense$7.00M
Net Income$497.00M
EPS (Basic)$0.90
EPS (Diluted)$0.90
Shares Outstanding (Basic)551.00M
Shares Outstanding (Diluted)551.00M

Key Highlights

  • 1Revenues increased 4.2% year-over-year to $4.25 billion for Q3 2019, contributing to $12.50 billion year-to-date.
  • 2Income from operations decreased by 10.2% year-over-year to $669 million for Q3 2019, impacting operating margin.
  • 3The company announced the '2020 Fit for Growth Plan,' focused on digital investments and cost optimization, including significant workforce restructuring.
  • 4Realignment charges of $65 million were incurred in Q3 2019 related to executive transition, employee separation, and third-party costs.
  • 5The '2020 Fit for Growth Plan' anticipates $150 million to $200 million in charges and aims for $500 million to $550 million in annualized savings by 2021.
  • 6Cognizant is exiting certain content-related work within its Communications, Media and Technology segment, estimating an annualized revenue loss of $240 million to $270 million.
  • 7The company returned $330 million to stockholders in Q3 2019 through share repurchases ($219 million) and dividends ($111 million).

Frequently Asked Questions

Cognizant reported modest revenue growth of 4.2% for the quarter. However, profitability metrics like operating income and operating margin declined year-over-year due to increased costs and strategic initiatives. The company is investing in digital capabilities while implementing cost optimization measures under its '2020 Fit for Growth Plan' to drive future profitability.

Cognizant announced its '2020 Fit for Growth Plan,' which involves significant investments in digital transformation, technology, sales, marketing, and talent. This plan also includes cost optimization measures, such as workforce reductions and exiting certain non-strategic content-related work, aiming to improve efficiency and sharpen strategic positioning.

Yes, Cognizant is involved in several legal and regulatory matters. These include an ongoing dispute with the Indian Income Tax Department (ITD) regarding past share repurchase transactions, an accrual of $117 million related to the India Defined Contribution Obligation, and various securities class action and shareholder derivative lawsuits. The company has accrued $117 million for the India Defined Contribution Obligation, but the ultimate amount may differ. The ITD dispute is ongoing, and the company believes it has paid all applicable taxes.

Cognizant generated $1.56 billion in cash from operations in the first nine months of 2019. In Q3 2019, the company returned $330 million to shareholders through $219 million in share repurchases and $111 million in dividends. Year-to-date, total returns to shareholders through buybacks and dividends were $2.35 billion.