10-QPeriod: Q1 FY2021

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q1 Ended Mar 31, 2021

Filed May 6, 2021For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported solid financial results for the first quarter of 2021, demonstrating resilience and growth in a dynamic market. Revenue increased by 4.2% year-over-year to $4.4 billion, driven by strong demand for digital technologies and acquisitions, partially offset by pricing pressures in non-digital services and the exit from certain content-related services. Net income saw a substantial increase of 37.6% to $505 million, translating to a diluted EPS of $0.95, up from $0.67 in the prior year. This growth was supported by improved operating margins, which benefited from reduced travel expenses and cost optimization initiatives, despite ongoing investments in brand repositioning and digital capabilities. The company continued its focus on strategic priorities including accelerating digital transformation and global expansion, while actively returning capital to shareholders through share repurchases and dividends.

Financial Highlights

50 data points
Beta

Revenue

$4.40B

Net Income

$505.00M

11.5% Net Margin

EPS (Diluted)

$0.95

Total Assets

$16.66B

Cash & Equivalents

$1.97B

Free Cash Flow

$93.00M

Financial Statements
Beta
Revenue$4.40B
SG&A Expenses$827.00M
Operating Income$669.00M
Interest Expense$2.00M
Net Income$505.00M
EPS (Basic)$0.95
EPS (Diluted)$0.95
Shares Outstanding (Basic)530.00M
Shares Outstanding (Diluted)531.00M

Key Highlights

  • 1Revenue increased by 4.2% to $4.4 billion in Q1 2021 compared to Q1 2020, boosted by acquisitions and digital demand.
  • 2Net income surged by 37.6% to $505 million, with diluted EPS rising to $0.95 from $0.67.
  • 3Operating margin improved to 15.2% from 13.7% in the prior year, benefiting from cost efficiencies and reduced travel expenses.
  • 4The company completed two strategic acquisitions, Linium and Magenic, to enhance its digital and cloud transformation capabilities.
  • 5Shareholder returns included $234 million in share repurchases and $128 million in dividend payments during the quarter.
  • 6Annualized attrition rate stood at 21.0%, with the company noting intense competition for skilled employees.
  • 7The company reached an agreement with the IRS settling tax years 2012-2016, resulting in a discrete tax benefit.

Frequently Asked Questions

Cognizant reported a 4.2% increase in revenue for the first quarter of 2021, reaching $4.4 billion, up from $4.2 billion in the same period last year. This growth was driven by the ongoing adoption of digital technologies by clients, the impact of recent acquisitions, and increased demand for cloud, automation, and AI services. However, the company noted pricing pressures on its non-digital services and a slight negative impact from exiting certain content-related services.

Profitability saw significant improvement. Net income increased by 37.6% to $505 million, and diluted earnings per share rose to $0.95 from $0.67 in the prior year. The operating margin improved to 15.2% from 13.7% in Q1 2020. This was attributed to benefits from reduced travel and entertainment expenses due to the pandemic, cost optimization initiatives, and lower immigration costs, partially offset by investments in brand repositioning and cybersecurity.

Cognizant's strategic priorities are focused on repositioning its brand to be recognized as a global digital partner, accelerating digital growth both organically and through acquisitions, globalizing its operations to expand in key international markets, and increasing relevance to clients by leading with thought leadership and addressing their business needs. The company also continues to emphasize its four key digital investment areas: IoT, AI, experience-driven software engineering, and cloud.

The company is involved in several legal proceedings, including a significant ongoing dispute with the Indian tax authorities (ITD) related to past share repurchase transactions. While the company believes it has paid all applicable taxes, the ITD is asserting a substantial additional tax demand. Additionally, there are ongoing securities class action and shareholder derivative lawsuits. Cognizant has not recorded any reserves for these matters, believing it has no further obligation, but acknowledges the inherent uncertainties and potential impact on future results if the outcomes are unfavorable.