10-QPeriod: Q3 FY2024

COGNIZANT TECHNOLOGY SOLUTIONS CORP Quarterly Report for Q3 Ended Sep 30, 2024

Filed October 31, 2024For Securities:CTSH

Summary

Cognizant Technology Solutions Corporation (CTSH) reported its third quarter and year-to-date results for the period ending September 30, 2024. For the third quarter, revenues increased by 3.0% year-over-year to $5.044 billion, with a 2.7% increase on a constant currency basis. This growth was notably boosted by recent acquisitions, which contributed approximately 200 basis points. The Health Sciences segment showed strong performance, while Communications, Media, and Technology (CMT) and Products and Resources segments experienced some weakness, excluding acquisition impacts. Net income for the quarter rose by 10.9% to $582 million, resulting in diluted Earnings Per Share (EPS) of $1.17, a 12.5% increase from the prior year. The company is actively managing its cost structure through its NextGen program, which aims to simplify operations and optimize expenses, with significant savings realized. Despite increased compensation costs and the dilutive impact of recent acquisitions, the company's GAAP operating margin improved to 14.6%. Cognizant also reported a decrease in voluntary attrition, indicating improved employee retention.

Financial Highlights

50 data points
Beta

Revenue

$5.04B

Net Income

$582.00M

11.5% Net Margin

EPS (Diluted)

$1.17

Total Assets

$20.16B

Cash & Equivalents

$2.01B

Free Cash Flow

$791.00M

Financial Statements
Beta
Revenue$5.04B
SG&A Expenses$833.00M
Operating Income$738.00M
Interest Expense$14.00M
Net Income$582.00M
EPS (Basic)$1.17
EPS (Diluted)$1.17
Shares Outstanding (Basic)496.00M
Shares Outstanding (Diluted)496.00M

Key Highlights

  • 1Revenue for Q3 2024 grew 3.0% to $5.044 billion, or 2.7% in constant currency, aided by recent acquisitions contributing 200 basis points.
  • 2Net income increased by 10.9% to $582 million, with diluted EPS growing 12.5% to $1.17.
  • 3GAAP operating margin improved to 14.6% in Q3 2024 from 14.0% in Q3 2023, driven by cost savings from the NextGen program and favorable foreign currency movements.
  • 4The company acquired Thirdera (ServiceNow partner) in January 2024 and Belcan (Engineering R&D services) in August 2024, with Belcan acquisition contributing to revenue growth.
  • 5Voluntary Attrition - Tech Services decreased to 14.6% for the trailing twelve months ended September 30, 2024, compared to 16.2% in the prior year.
  • 6Cash generated from operating activities was $1.204 billion for the nine months ended September 30, 2024, a decrease from $1.593 billion in the prior year, largely due to a significant payment related to an ITD dispute.
  • 7The company continues to invest in AI capabilities, recognizing the evolving market and potential for automation to impact certain services.

Frequently Asked Questions

Cognizant reported a 3.0% increase in revenue for the third quarter of 2024, reaching $5.044 billion. This growth was 2.7% on a constant currency basis and was significantly supported by recent acquisitions. For the first nine months of 2024, revenue grew 0.4% to $14.654 billion. The company noted that while overall demand for discretionary work has decreased, specific segments like Health Sciences are performing well, while others like Communications, Media, and Technology are experiencing some weakness.

Cognizant is implementing its 'NextGen' program, which aims to simplify its operating model and optimize corporate functions. In the third quarter of 2024, the company incurred $33 million in restructuring charges related to this program. For the first nine months, total restructuring charges were $85 million. The company expects these efforts to generate cost savings that will help fund investments in talent and growth opportunities.

Cognizant completed two significant acquisitions in 2024: Thirdera in January and Belcan in August. These acquisitions contributed approximately 200 basis points to Q3 2024 revenue growth and approximately 100 basis points to the nine-month revenue growth. While contributing to revenue, the company notes a modest near-term dilutive impact on operating margin due to transaction and integration expenses, as well as amortization of acquired intangibles.

Cognizant is involved in several legal proceedings, including a significant ongoing dispute with the ITD in India related to past share repurchase transactions, for which a substantial deposit was made. Another notable proceeding is a class action lawsuit concerning alleged discrimination in terminations, which resulted in a jury verdict in favor of plaintiffs in October 2024, leading to a second phase to determine individual liability and damages. The company also mentions a past lawsuit with Syntel, which has resulted in a new trial for compensatory damages. Cognizant states it continues to defend itself vigorously and believes it has paid all applicable taxes owed in the ITD dispute.