10-QPeriod: Q2 FY2021

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q2 Ended Jun 30, 2021

Filed July 29, 2021For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported a strong second quarter for 2021, demonstrating robust revenue growth and improved profitability. Total revenues for the quarter increased by 14.6% year-over-year to $4.585 billion, driven by strong demand for digital services, cloud, AI, and other digital transformation initiatives. This growth was also aided by contributions from recent acquisitions, which added 390 basis points to revenue growth. The company experienced significant growth across its segments, particularly in Products and Resources (21.7%) and Communications, Media and Technology (21.2%). Profitability also saw a marked improvement, with income from operations rising by 49.0% to $696 million, leading to an operating margin of 15.2%, up from 11.7% in the prior year period. This improvement was attributed to cost optimization initiatives and the benefit of lapping the prior year's pandemic-related impacts. Diluted earnings per share (EPS) also increased substantially to $0.97 from $0.67 in Q2 2020. Despite challenges like increased attrition and ongoing investments in brand repositioning and IT modernization, Cognizant's strategic focus on digital transformation and acquisitions positions it for continued growth.

Financial Highlights

50 data points
Beta

Revenue

$4.58B

Net Income

$512.00M

11.2% Net Margin

EPS (Diluted)

$0.97

Total Assets

$16.83B

Cash & Equivalents

$1.37B

Free Cash Flow

$466.00M

Financial Statements
Beta
Revenue$4.58B
SG&A Expenses$881.00M
Operating Income$696.00M
Interest Expense$2.00M
Net Income$512.00M
EPS (Basic)$0.97
EPS (Diluted)$0.97
Shares Outstanding (Basic)527.00M
Shares Outstanding (Diluted)528.00M

Key Highlights

  • 1Revenue increased 14.6% year-over-year to $4.585 billion in Q2 2021, with constant currency growth of 12.0%.
  • 2Acquisitions contributed 390 basis points to revenue growth in Q2 2021.
  • 3Income from operations surged 49.0% to $696 million, resulting in an operating margin of 15.2%, an improvement from 11.7% in Q2 2020.
  • 4Diluted EPS grew to $0.97 in Q2 2021, up from $0.67 in Q2 2020.
  • 5Strong revenue growth was observed in the Products and Resources (21.7%) and Communications, Media and Technology (21.2%) segments.
  • 6The company repurchased $296 million of its Class A common stock during the quarter.
  • 7Annualized attrition rate was 31.4% for the three months ended June 30, 2021, with voluntary attrition being significantly elevated.

Frequently Asked Questions

Cognizant reported strong revenue growth, with total revenues increasing by 14.6% year-over-year to $4.585 billion for the quarter ended June 30, 2021. On a constant currency basis, revenue growth was 12.0%. This growth was supported by client adoption of digital technologies, demand for cloud services, AI, and contributions from recent acquisitions.

Profitability significantly improved. Income from operations increased by 49.0% to $696 million, and the operating margin expanded to 15.2% from 11.7% in the prior year quarter. This improvement was driven by cost optimization initiatives and the lapping of pandemic-related impacts from the prior year.

Cognizant sees continued strong demand for its digital services, aligning with clients' focus on digital transformation. However, the company continues to experience pricing pressure on its non-digital services as clients optimize costs for legacy systems. The strategy emphasizes accelerating digital growth both organically and through acquisitions.

Key challenges include intense competition for skilled employees, leading to elevated attrition rates (31.4% annualized in Q2 2021), and the need for ongoing investments in brand repositioning and IT modernization. Macroeconomic factors, industry-specific changes, and the ongoing impact of the COVID-19 pandemic, particularly in regions like India, also pose risks. Legal and regulatory matters, including ongoing disputes, are also noted.