10-QPeriod: Q2 FY2022

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q2 Ended Jun 30, 2022

Filed July 28, 2022For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported solid financial results for the second quarter and first half of 2022, demonstrating resilience and growth in a dynamic market. Revenue for the quarter increased by 7.0% year-over-year (9.5% in constant currency), reaching $4.91 billion, driven by strong performance across most segments, particularly Communications, Media, and Technology, and Products and Resources. Net income for the quarter rose to $577 million, up from $512 million in the prior year period, resulting in diluted EPS of $1.11 compared to $0.97. The company continues to navigate industry shifts, including client optimization of legacy systems and a competitive labor market characterized by elevated attrition rates. Looking ahead, Cognizant remains focused on its strategic priorities: accelerating digital transformation for clients, globalizing its operations, increasing client relevance through industry-aligned capabilities, and repositioning its brand as a leading digital partner. While the company faces headwinds such as pricing pressure on non-digital services and challenges in talent acquisition and retention, its diversified segment performance and ongoing investment in digital services position it to capitalize on evolving market demands. The company's financial position remains strong, with robust operating cash flow and ample liquidity.

Financial Highlights

50 data points
Beta

Revenue

$4.91B

Net Income

$577.00M

11.8% Net Margin

EPS (Diluted)

$1.11

Total Assets

$17.26B

Cash & Equivalents

$1.77B

Free Cash Flow

$485.00M

Financial Statements
Beta
Revenue$4.91B
SG&A Expenses$883.00M
Operating Income$760.00M
Interest Expense$3.00M
Net Income$577.00M
EPS (Basic)$1.11
EPS (Diluted)$1.11
Shares Outstanding (Basic)520.00M
Shares Outstanding (Diluted)521.00M

Key Highlights

  • 1Revenue for Q2 2022 grew 7.0% year-over-year to $4.91 billion (9.5% in constant currency), exceeding prior year performance.
  • 2Net income increased to $577 million for Q2 2022, up from $512 million in Q2 2021, with diluted EPS rising to $1.11 from $0.97.
  • 3Strong revenue growth was observed in the Communications, Media, and Technology segment (+16.1%) and Products and Resources segment (+8.1%) for Q2 2022.
  • 4The company continues to experience pricing pressure on non-digital services as clients optimize legacy systems.
  • 5Annualized employee attrition reached 35.6% in Q2 2022, impacting delivery costs and revenue potential, though mitigation efforts are ongoing.
  • 6Cognizant is actively repurchasing shares, with $300 million repurchased in Q2 2022, underscoring its commitment to returning capital to shareholders.
  • 7Despite global economic uncertainties, the company maintains a strong liquidity position with $2.32 billion in cash, cash equivalents, and short-term investments as of June 30, 2022.

Frequently Asked Questions

Revenue growth in Q2 2022 was driven by the continued adoption of digital technologies by clients. Specifically, strong performance was seen in the Communications, Media, and Technology segment due to demand for digital content services, and in the Products and Resources segment, fueled by client interest in cloud-based, data-driven customer experiences and advancements in the automotive industry. The Health Sciences segment also benefited from increased digital service demand among pharmaceutical companies.

Cognizant is facing challenges including pricing pressure on its non-digital services as clients focus on cost optimization for legacy systems. Additionally, the company is experiencing elevated employee attrition rates (35.6% annualized in Q2 2022), which increases delivery costs and impacts its ability to meet client demand. Global economic and political uncertainties, such as the ongoing conflict in Ukraine, also pose potential risks.

Cognizant's capital allocation strategy includes strategic acquisitions, share repurchases, and dividend payments. In Q2 2022, the company repurchased $300 million of its Class A common stock, demonstrating its commitment to returning capital to shareholders. The company also maintained a strong liquidity position, with $2.32 billion in cash, cash equivalents, and short-term investments as of June 30, 2022, and had an available capacity of approximately $1.915 billion under its credit facilities.

Cognizant's four strategic priorities are: accelerating digital transformation for clients, globalizing its operations to expand in key international markets, increasing its relevance to clients through industry-aligned thought leadership and capabilities, and repositioning its brand to be recognized as a global digital partner for C-suite executives.