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Cognizant Technology Solutions 8-K Report, Financial Results (Feb 6, 2024)

Reports
Earnings & Results·Regulation FD·Exhibits & Filings
Filing Date
Filed February 6, 2024
Period End
February 6, 2024
Security
CTSH
In the record · 2016–202610-K1110-Q338-K105

CTSH filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 105 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Jun ’18Jun ’18
  2. Leadership change8-K · Jul ’20Jul ’20
  3. Material agreement8-K · Oct ’22Oct ’22
  4. Material agreement8-K · Oct ’26Oct ’26

01—Abstract

Summary

Summary of the 8-K filed February 6, 2024. Cited figures are marked; the original filing is the authoritative source.

Cognizant (CTSH) closed 2023 with full-year revenue of $19.4 billiona, down 0.4% year-over-year (down 0.3% in constant currency), landing within its guidance range.

Profitability was mixed: GAAP operating margin fell to 13.9% from 15.3% in 2022, largely due to $229 millionb in NextGen restructuring charges, while Adjusted Operating Margin was 15.1%, flat with 2022 and 40 basis points above guidance. GAAP diluted EPS declined to $4.21 from $4.41, while Adjusted Diluted EPS rose slightly to $4.55 from $4.40. Free cash flow was $2.0 billion, equal to 95% of net income, though down from $2.2 billion in 2022.

Fourth-quarter revenue of $4.76 billionc declined 1.7% year-over-year (2.4% in constant currency), and Q4 bookings fell 6%, although trailing twelve-month bookings rose 9% to $26.3 billion with a book-to-bill of about 1.4x. Management guided 2024 revenue to $19.0-$19.8 billion, a range of -1.8% to +2.2% as reported (-2.0% to +2.0% in constant currency), including up to roughly 100 basis points of inorganic contribution. Adjusted Operating Margin is expected to expand 20 to 40 basis points to 15.3%-15.5%, and Adjusted Diluted EPS is guided to $4.50-$4.68.

The company also plans about $70 milliond of additional NextGen expenses in 2024, bringing total program charges to roughly $300 million. Capital return remained significant, with $1.7 billion returned to shareholders in 2023 through buybacks and dividends, a 3% quarterly dividend increase to $0.30 per share, and $1.8 billion remaining under the repurchase authorization. The quarter's key message for investors is a trade-off between margin discipline and top-line softness.

Cost actions under NextGen have lifted adjusted margins to 16.1% in Q4, but revenue is expected to decline modestly in 2024 and bookings momentum in Q4 weakened. Investors will likely focus on whether bookings conversion and the Financial Services segment's continued decline (down 5.8% in Q4) can stabilize revenue growth in 2024.

02—Key points

Key Highlights

  1. FY2023 revenue of $19.4B declined 0.4% YoY (−0.3% constant currency), within guidance; Q4 revenue of $4.76B fell 1.7% YoY.
  2. Adjusted Operating Margin was 15.1% for FY2023 (flat YoY) and 16.1% in Q4, while GAAP operating margin fell to 13.9% due to $229M of NextGen restructuring charges.
  3. GAAP diluted EPS declined to $4.21 from $4.41; Adjusted Diluted EPS rose to $4.55 from $4.40.
  4. Free cash flow of $2.0B equaled 95% of net income, though it declined from $2.2B in 2022 as operating cash flow fell to $2.3B.
  5. Trailing twelve-month bookings rose 9% to $26.3B (book-to-bill ~1.4x), but Q4 bookings declined 6% YoY.
  6. 2024 guidance: revenue of $19.0–$19.8B (−2.0% to +2.0% constant currency, including up to ~100 bps inorganic contribution), Adjusted Operating Margin of 15.3%–15.5%, and Adjusted EPS of $4.50–$4.68.
  7. Shareholder returns totaled $1.7B in 2023; quarterly dividend raised 3% to $0.30 per share, with $1.8B remaining on the buyback authorization.

03—Questions

Frequently Asked Questions

  1. How did Cognizant perform financially in Q4 and full-year 2023?

    Full-year 2023 revenue was $19.4B, down 0.4% YoY, and Q4 revenue was $4.76B, down 1.7% YoY (down 2.4% in constant currency). Adjusted Operating Margin was 15.1% for the year and 16.1% for Q4, while GAAP operating margin for the year was 13.9% after NextGen restructuring charges. Adjusted Diluted EPS was $4.55 for the year and $1.18 for Q4.

  2. What is the company guiding for 2024?

    Management guides 2024 revenue to $19.0–$19.8B, or −2.0% to +2.0% in constant currency, including up to about 100 bps from acquisitions. Adjusted Operating Margin is expected at 15.3%–15.5% (20–40 bps expansion) and Adjusted Diluted EPS at $4.50–$4.68. Q1 2024 revenue is guided to $4.68–$4.76B, a decline of 1.2% to 2.7% as reported.

  3. Why did GAAP earnings fall while adjusted earnings rose?

    GAAP results included $229M of NextGen restructuring charges in 2023, which reduced GAAP operating income and EPS. Adjusted metrics exclude these charges, and Adjusted Diluted EPS also excludes non-operating FX gains or losses and a 2022 tax benefit, which made the 2022 comparison base lower. Investors should weigh both measures, as NextGen costs are expected to total roughly $300M through 2024.

  4. Is bookings momentum a concern for investors?

    Trailing twelve-month bookings grew 9% to $26.3B, supported by new clients and large deals, which supports future revenue visibility. However, Q4 bookings declined 6% YoY, and revenue continues to decline, so investors may question the timing of conversion from bookings to revenue.

  5. How is Cognizant returning capital to shareholders?

    In 2023 the company returned $1.7B through share repurchases ($1.06B) and dividends ($591M). It declared a quarterly dividend of $0.30 per share, up 3% YoY, payable February 28, 2024, and had $1.8B remaining under its repurchase authorization at year-end. Management reiterated a balanced framework that also includes inorganic investments.

04—Continue

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