10-QPeriod: Q3 FY2021

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2021

Filed October 28, 2021For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported strong performance for the third quarter of 2021, demonstrating significant revenue growth and improved profitability. Total revenues increased by 11.8% year-over-year, reaching $4.74 billion, with constant currency growth of 11.0%. This growth was primarily driven by the company's focus on digital technologies like cloud, AI, and experience-driven software engineering, as well as contributions from recent acquisitions. The company also saw an increase in its operating margin to 15.4%, up from 14.2% in the prior year's quarter, reflecting cost optimization initiatives and strong revenue performance across its key segments, particularly in Products & Resources and Communications, Media & Technology. Despite facing challenges such as elevated attrition rates and increased compensation costs, Cognizant maintained a solid financial position. The company successfully navigated increased demand for digital services while facing pricing pressures on non-digital offerings. Investors will likely find the company's strategic investments in digital transformation, brand repositioning, and global expansion encouraging, as these align with evolving client needs. The settlement of the class action lawsuit for $95 million also removes a significant overhang, allowing the company to focus on future growth.

Financial Highlights

50 data points
Beta

Revenue

$4.74B

Net Income

$544.00M

11.5% Net Margin

EPS (Diluted)

$1.03

Total Assets

$17.23B

Cash & Equivalents

$1.66B

Free Cash Flow

$897.00M

Financial Statements
Beta
Revenue$4.74B
SG&A Expenses$924.00M
Operating Income$729.00M
Interest Expense$3.00M
Net Income$544.00M
EPS (Basic)$1.04
EPS (Diluted)$1.03
Shares Outstanding (Basic)525.00M
Shares Outstanding (Diluted)526.00M

Key Highlights

  • 1Total revenues for Q3 2021 increased by 11.8% to $4.74 billion, with constant currency growth of 11.0%.
  • 2Operating margin improved to 15.4% from 14.2% in Q3 2020, driven by cost efficiencies and revenue growth.
  • 3Acquisitions contributed 300 basis points to revenue growth, underscoring the company's inorganic growth strategy.
  • 4Strong revenue growth was observed across key segments, including Products and Resources (+19.4%) and Communications, Media and Technology (+20.0%).
  • 5The company settled a class action lawsuit for $95 million, with a $20 million loss recorded in SG&A expenses for the quarter.
  • 6Annualized attrition rate was 37.0% in Q3 2021, a notable increase driven primarily by voluntary attrition.
  • 7Cash and cash equivalents stood at $1.66 billion as of September 30, 2021, with strong operating cash flow generation.

Frequently Asked Questions

Cognizant reported a substantial increase in revenue for the third quarter of 2021. Total revenues grew by 11.8% to $4.74 billion, compared to $4.24 billion in the same period of 2020. On a constant currency basis, revenue growth was 11.0%. This growth was driven by strong demand for digital services and contributions from recent acquisitions.

Profitability showed improvement. The operating margin increased to 15.4% in Q3 2021, up from 14.2% in Q3 2020. This improvement was attributed to savings from cost optimization initiatives, strong revenue growth, and favorable business mix, partially offset by investments in growth and increased compensation costs due to higher attrition.

Recent acquisitions played a significant role in Cognizant's Q3 2021 performance. They contributed 300 basis points to the overall revenue growth and approximately 500-750 basis points in specific segments like Products and Resources and Communications, Media and Technology. The company continues to pursue strategic acquisitions to expand its capabilities in digital areas.

Cognizant faced challenges including significantly elevated attrition rates, with an annualized rate of 37.0% primarily driven by voluntary attrition. This led to increased compensation and subcontractor costs. The company also experienced pricing pressure on its non-digital services as clients focused on optimizing legacy system costs.

Cognizant entered into a settlement agreement to resolve the consolidated putative securities class action for $95 million. The company recorded a $20 million loss in Selling, General & Administrative expenses for the quarter related to this settlement. The settlement received preliminary approval from the court, with final approval pending.