10-QPeriod: Q3 FY2022

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2022

Filed November 3, 2022For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported solid financial performance for the third quarter and the first nine months of fiscal year 2022. Revenue saw a healthy increase, driven by strong demand for digital services across key segments like Communications, Media & Technology and Products & Resources. While facing challenges in attracting and retaining personnel, which impacted delivery costs, the company demonstrated an improvement in operating margin due to efficiencies, pricing strategies, and favorable foreign currency movements. The company also maintained a strong balance sheet with ample cash and cash equivalents, and refinanced its credit facilities, providing flexibility for future growth. Investors should note the ongoing strategic focus on digital transformation, including investments in IoT, digital engineering, data, and cloud services. Despite macroeconomic uncertainties and competitive labor market pressures, Cognizant remains committed to its strategic priorities and capital allocation framework, including share repurchases and dividends, indicating a continued focus on shareholder returns.

Financial Highlights

50 data points
Beta

Revenue

$4.86B

Net Income

$629.00M

13.0% Net Margin

EPS (Diluted)

$1.22

Total Assets

$17.35B

Cash & Equivalents

$2.04B

Free Cash Flow

$953.00M

Financial Statements
Beta
Revenue$4.86B
SG&A Expenses$838.00M
Operating Income$798.00M
Interest Expense$6.00M
Net Income$629.00M
EPS (Basic)$1.22
EPS (Diluted)$1.22
Shares Outstanding (Basic)516.00M
Shares Outstanding (Diluted)517.00M

Key Highlights

  • 1Total revenue increased by 2.4% year-over-year to $4.9 billion for Q3 2022, or 5.6% on a constant currency basis.
  • 2Income from operations increased by 9.5% to $798 million, with an operating margin of 16.4%, up from 15.4% in Q3 2021.
  • 3Diluted Earnings Per Share (EPS) increased by 18.4% to $1.22 in Q3 2022.
  • 4The Communications, Media, and Technology segment showed robust growth, with revenues up 6.0% year-over-year (10.4% in constant currency).
  • 5The company reported $2.04 billion in cash and cash equivalents as of September 30, 2022, indicating a strong liquidity position.
  • 6Cognizant completed a debt refinancing in October 2022, securing a new $650 million term loan and an $1,850 million revolving credit facility maturing in October 2027.
  • 7Annualized attrition rate was 34.9% for Q3 2022, a slight improvement from 37.0% in Q3 2021, though still a significant challenge.

Frequently Asked Questions

In the third quarter of 2022, Cognizant's revenue increased by 2.4% to $4.9 billion compared to the same period in 2021. On a constant currency basis, the growth was 5.6%. Revenue growth was driven by digital technologies and pricing improvements, but was partially offset by challenges in attracting and retaining personnel.

Cognizant's operating margin improved to 16.4% in Q3 2022, up from 15.4% in Q3 2021, benefiting from scale, delivery efficiencies, pricing, and favorable foreign currency movements. However, increased compensation costs due to intense competition for talent and elevated attrition rates are impacting delivery costs and are expected to continue.

The company ended the quarter with $2.04 billion in cash and cash equivalents, indicating strong liquidity. They also recently refinanced their credit facilities to a new agreement maturing in 2027, providing enhanced financial flexibility. Cognizant continues to return capital to shareholders through share repurchases and dividends.

The Communications, Media, and Technology segment and the Products and Resources segment showed the strongest revenue growth in Q3 2022. The company's strategic focus on digital services and solutions across all segments, particularly in areas like IoT, digital engineering, data, and cloud, is a key driver.