Press Releases

Cognizant Reports First Quarter 2017 Results
Q1 2017 revenue of $3.55 billion, up 10.7% over 2016
Declares initial quarterly cash dividend of $0.15 per share

TEANECK, N.J., May 5, 2017 /PRNewswire/ -- Cognizant Technology Solutions Corporation (NASDAQ: CTSH), one of the world's leading professional services companies, today announced its first quarter 2017 financial results.

Cognizant Logo. (PRNewsFoto/Cognizant)

Highlights – First Quarter 2017

  • Quarterly revenue rose to $3.55 billion, up 10.7% from the year-ago quarter and 2.4% sequentially.
  • Quarterly GAAP diluted EPS was $0.92, compared to $0.72 in the year-ago quarter.
  • Quarterly non-GAAP diluted EPS1 was $0.84, compared to $0.80 in the year-ago quarter.

Revenue for the first quarter of 2017 rose to $3.55 billion, up 10.7% from $3.20 billion in the first quarter of 2016. GAAP net income was $557 million, or $0.92 per diluted share, compared to $441 million, or $0.72 per diluted share, in the first quarter of 2016. Non-GAAP diluted EPS was $0.84, compared to $0.80 in the first quarter of 2016. GAAP operating margin was 16.1% and non-GAAP operating margin1 was 18.9% for the first quarter of 2017.

"We delivered solid results in the first quarter and continued to build our digital solutions portfolio, expand our skills, and enhance our engagements with clients," said Francisco D'Souza, Chief Executive Officer. "We're making good progress in accelerating Cognizant's shift to digital services and solutions to create value for clients and shareholders, positioning us well to achieve both our revenue and margin targets for this year."

1 Non-GAAP diluted EPS and non-GAAP operating margin exclude stock-based compensation costs and acquisition-related charges, realignment charges and, in the case of non-GAAP diluted EPS, net non-operating foreign currency exchange gains or losses and the effect of recognition of an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position. Reconciliations of non-GAAP diluted EPS and non-GAAP operating margin to the corresponding GAAP measures are included at the end of this release.

Second Quarter & Full Year 2017 Outlook

The Company is providing the following guidance:

  • Second quarter 2017 revenue expected to be in the range of $3.63 billion to $3.68 billion.
  • Second quarter 2017 non-GAAP diluted EPS2 expected to be at least $0.89.
  • Full year 2017 revenue expected to be in the range of $14.56 billion to $14.84 billion.
  • Full year 2017 non-GAAP diluted EPS expected to be at least $3.64.

"We are pleased to initiate our enhanced capital return program, as previously committed to our shareholders," said Karen McLoughlin, Chief Financial Officer. "Expanding our share repurchase program and initiating a quarterly dividend reflect our ability to generate strong cash flows and confidence in the long term strength of our business."

2 A reconciliation of non-GAAP diluted EPS guidance to GAAP diluted EPS guidance on a forward-looking basis cannot be provided without unreasonable efforts due to the high variability and low visibility with respect to net non-operating foreign currency exchange gains or losses which are excluded from the non-GAAP diluted EPS. Additionally, due to the nature of costs related to the realignment, including expected severance costs under a voluntary severance program, an estimate of such costs on a forward-looking basis cannot be provided without unreasonable efforts.

Return of Capital and Realignment Programs

Dividend

The Company has declared its initial quarterly cash dividend of $0.15 per share on Cognizant Class A Common Stock for shareholders of record at the close of business on May 22, 2017. This dividend will be payable on May 31, 2017.

Share Repurchase Program

In March 2017, the Company entered into accelerated share repurchase agreements, referred to collectively as the ASR, with certain financial institutions under our existing stock repurchase authorization. Under the terms of the ASR and in exchange for up-front payments of $1.5 billion, the financial institutions initially delivered 21.5 million shares, a portion of the Company's total expected shares to be repurchased under the ASR. The total number of shares ultimately delivered is determined at the end of the applicable purchase periods under the ASR based on the volume-weighted average price of the Company's common stock during such periods. The ASR purchase periods are scheduled to end during or prior to the third quarter of 2017.

Realignment Program

The Company is realigning the business to accelerate our shift to high value digital transformation work while continuing to reassess less profitable opportunities. Additionally, as part of this realignment we plan to improve utilization, optimize our pyramid structure and talent supply chain management to better align resourcing with client demand, simplify our business unit overhead structure, and leverage our corporate function spend more effectively. This realignment is part of our plan to improve our non-GAAP operating margin to 22% in calendar year 2019 while continuing to drive revenue growth.

During the three months ended March 31, 2017, the Company incurred severance costs related to the realignment and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs. These costs are excluded from non-GAAP operating margin and non-GAAP diluted earnings per share. The Company expects to incur the majority of the total costs related to the realignment program in 2017.

Conference Call

Cognizant will host a conference call on May 5, 2017 at 8:00 a.m. (Eastern) to discuss the Company's first quarter 2017 results. To listen to the conference call, please dial (877) 810-9510 (domestically) and (201) 493-6778 (internationally) and provide the following conference passcode: "Cognizant Call."

The conference call will also be available live via the Internet by accessing the Cognizant website at www.cognizant.com. Please go to the website at least 15 minutes prior to the call to register and to download and install any necessary audio software.

For those who cannot access the live broadcast, a replay will be available by dialing (877) 660-6853 for domestic callers or (201) 612-7415 for international callers and entering 13659909 from two hours after the end of the call until 11:59 p.m. (Eastern) on Friday, May 19, 2017. The replay will also be available at Cognizant's website www.cognizant.com for 60 days following the call.

About Cognizant

Cognizant (NASDAQ-100: CTSH) is one of the world's leading professional services companies, transforming clients' business, operating and technology models for the digital era. Our unique industry-based, consultative approach helps clients envision, build and run more innovative and efficient businesses. Headquartered in the U.S., Cognizant is ranked 230 on the Fortune 500 and is consistently listed among the most admired companies in the world. Learn how Cognizant helps clients lead with digital at www.cognizant.com or follow us @Cognizant.

Forward-Looking Statements

This press release includes statements which may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. These statements include, but are not limited to, express or implied forward-looking statements relating to our expectations regarding opportunities in the marketplace, our shift to digital solutions and services, our anticipated financial performance and our capital return and realignment programs. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions, changes in the regulatory environment, including with respect to immigration and taxes, and the other factors discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. Cognizant undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.

About Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP, this press release includes references to the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: non-GAAP operating margin and non-GAAP diluted earnings per share ("non-GAAP diluted EPS"). These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of Cognizant's GAAP financial measures to the corresponding non-GAAP measures should be carefully evaluated. 

We seek to manage the Company to a non-GAAP operating margin, which excludes stock-based compensation costs, acquisition-related charges and, in 2017, realignment charges. Acquisition-related charges include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our condensed consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs. Realignment charges include severance costs, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable. In addition to excluding stock-based compensation costs, acquisition-related charges and, in 2017, realignment charges, our non-GAAP diluted EPS also excludes net non-operating foreign currency exchange gains or losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, and, in the first quarter of 2017, the effect of recognition of an income tax benefit previously unrecognized in our consolidated financial statements. Our non-GAAP diluted EPS is additionally adjusted for the income tax impact of the above items, as applicable. The income tax impact of each item is calculated by applying the statutory rate and local tax regulations in the jurisdiction in which the item was incurred.

Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results of the Company. For our internal management reporting and budgeting purposes, we use non-GAAP financial measures for financial and operational decision making, to evaluate period-to-period comparisons, to determine portions of the compensation for our executive officers and for making comparisons of our operating results to those of our competitors. Therefore, it is our belief that the use of non-GAAP financial measures provides a meaningful supplemental measure for investors to evaluate our financial performance. Accordingly, we believe that the presentation of our non-GAAP measures, when read in conjunction with our reported GAAP results, can provide useful supplemental information to our management and investors regarding financial and business trends relating to our financial condition and results of operations.

A limitation of using non-GAAP measures versus financial measures calculated in accordance with GAAP is that non-GAAP measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and exclude costs that are recurring, namely stock-based compensation, acquisition-related charges, including amortization of purchased intangibles, and net non-operating foreign currency exchange gains or losses. In addition, other companies may calculate non-GAAP financial measures differently than us, thereby limiting the usefulness of these non-GAAP financial measures as a comparative tool. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating margin and non-GAAP diluted EPS to allow investors to evaluate such non-GAAP financial measures.

- tables to follow -

 

 

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in millions, except per share data)



Three Months Ended March 31,


2017


2016

Revenues

$

3,546



$

3,202


Operating expenses:




Cost of revenues (exclusive of depreciation and amortization expense shown separately below)

2,194



1,915


  Selling, general and administrative expenses

686



646


  Depreciation and amortization expense

96



87


Income from operations

570



554


Other income (expense), net:




Interest income

32



31


Interest expense

(6)



(5)


Foreign currency exchange gains (losses), net

52



9


Other, net

1




Total other income (expense), net

79



35


Income before provision for income taxes

649



589


Provision for income taxes

(92)



(148)


Income from equity method investment




Net income

$

557



$

441


Basic earnings per share

$

0.92



$

0.73


Diluted earnings per share

$

0.92



$

0.72


Weighted average number of common shares outstanding - Basic

605



608


Dilutive effect of shares issuable under stock-based compensation plans

2



4


Weighted average number of common shares outstanding - Diluted

607



612


 

 

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

(in millions, except par values)



March 31,
2017


December 31, 2016

Assets




Current assets:




Cash and cash equivalents

$

1,308



$

2,034


Short-term investments

2,966



3,135


Trade accounts receivable, net

2,644



2,556


Unbilled accounts receivable

395



349


Other current assets

529



526


Total current assets

7,842



8,600


Property and equipment, net

1,306



1,311


Goodwill

2,563



2,554


Intangible assets, net

923



951


Deferred income tax assets, net

458



425


Long-term investments

110



62


Other noncurrent assets

427



359


Total assets

$

13,629



$

14,262


Liabilities and Stockholders' Equity




Current liabilities:




Accounts payable

$

189



$

175


Deferred revenue

397



306


Short-term debt

437



81


Accrued expenses and other current liabilities

1,562



1,856


Total current liabilities

2,585



2,418


Deferred revenue, noncurrent

128



151


Deferred income tax liabilities, net

6



6


Long-term debt

772



797


Other noncurrent liabilities

155



162


Total liabilities

3,646



3,534


Stockholders' equity:




Preferred stock, $0.10 par value, 15.0 shares authorized, none issued




Class A common stock, $0.01 par value, 1,000 shares authorized, 589 and 608 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively

6



6


Additional paid-in capital

59



358


Retained earnings

9,935



10,478


Accumulated other comprehensive income (loss)

(17)



(114)


Total stockholders' equity

9,983



10,728


Total liabilities and stockholders' equity

$

13,629



$

14,262


 

 

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

Reconciliations of Non-GAAP Financial Measures

(Unaudited)

(dollars in millions, except per share amounts)



Three Months Ended March 31,


2017


2016

GAAP income from operations

$

570



$

554


Add: Stock-based compensation expense (a)

54



54


Add: Acquisition-related charges (b)

34



29


Add: Realignment charges (c)

11




Non-GAAP income from operations

$

669



$

637






GAAP operating margin

16.1

%


17.3

%

Effect of above adjustments to income from operations

2.8

%


2.6

%

Non-GAAP operating margin

18.9

%


19.9

%





GAAP diluted earnings per share

$

0.92



$

0.72


Effect of above operating adjustments, net of tax(d)

0.10



0.10


Effect of non-operating foreign currency exchange gains, net of tax (e)

(0.09)



(0.02)


Effect of recognition of income tax benefit related to an uncertain tax position (f)

(0.09)




Non-GAAP diluted earnings per share

$

0.84



$

0.80


 

Notes:

(a)

For the three months ended March 31, 2017, the $54 million adjustment to exclude stock-based compensation from income from operations includes $15 million, which was reported in cost of revenues and $39 million, which was reported in selling, general and administrative expenses in our unaudited consolidated statements of operations. 




For the three months ended March 31, 2016, the $54 million adjustment to exclude stock-based compensation from income from operations includes $13 million, which was reported in cost of revenues and $41 million, which was reported in selling, general and administrative expenses in our unaudited consolidated statements of operations.



(b)

Acquisition-related charges include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.



(c)

Realignment charges include severance costs, lease termination costs, and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, as applicable.



(d)

For the three months ended March 31, 2017 and 2016, the non-GAAP income tax benefits related to stock-based compensation expense were $21 million and $12 million, respectively.


For the three months ended March 31, 2017 and 2016, the non-GAAP income tax benefits related to acquisition-related charges were $12 million and $11 million, respectively.


For the three months ended March 31, 2017, the non-GAAP income tax benefits related to realignment charges were $4 million.



(e)

Non-operating foreign currency exchange gains are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes. For the three months ended March 31, 2017 and 2016, the non-GAAP pre-tax non-operating foreign currency exchange gains were $52 million and $9 million, respectively, with related incremental non-GAAP income tax benefits of $5 million and $1 million, respectively. The effective tax rate related to the reported non-operating foreign currency exchange gains and losses varies depending on the jurisdictions in which such gains and losses are generated and the statutory rates applicable in those jurisdictions.



(f)

During the three months ended March 31, 2017, we recognized an income tax benefit previously unrecognized in our consolidated financial statements related to a specific uncertain tax position of $55 million. The recognition of the benefit in the first quarter of 2017 was based on management's reassessment regarding whether this unrecognized tax benefit met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefit.

The above tables serve to reconcile the Non-GAAP financial measures to comparable GAAP measures. Please refer to the "About Non-GAAP Financial Measures" section of our press release for further information on the use of these Non-GAAP measures.

 

 

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

Schedule of Supplemental Information

(Unaudited)

(dollars in millions)



Three Months Ended March 31, 2017






 % Change


$


 % of total


 Sequential


 Year over Year

Revenues by Segment:








Financial Services

$

1,376



38.8

%


1.6

%


7.0

%

Healthcare

1,003



28.3

%


(0.2)

%


9.7

%

Products and Resources (a)

737



20.8

%


7.1

%


16.4

%

Communications, Media and Technology (b)

430



12.1

%


3.6

%


16.5

%

Total Revenues

$

3,546





2.4

%


10.7

%









Revenues by Geography:








North America

$

2,761



77.9

%


1.7

%


10.6

%

United Kingdom

274



7.7

%


0.4

%


(8.4)

%

Rest of Europe

285



8.0

%


8.8

%


26.1

%

Europe - Total

559



15.8

%


4.5

%


6.5

%

Rest of World

226



6.4

%


6.6

%


25.6

%

Total Revenues

$

3,546





2.4

%


10.7

%

 

Employee Metrics:


March 31, 2017


December 31, 2016


March 31, 2016

Number of employees


261,200



260,200



233,000


 

Notes:

(a)

Previously referred to as Manufacturing/Retail/Logistics.



(b)

Previously referred to as Other.

 

 

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)



Three Months Ended March 31,


2017


2016

Cash flows from operating activities:




Net income

$

557



$

441


Adjustments for non-cash income and expenses

121



214


Changes in assets and liabilities

(401)



(583)


Net cash provided by operating activities(a)

277



72


Cash flows from investing activities:




Purchases of property and equipment

(66)



(64)


Net sales (purchases) of investments

163



(94)


Payments for business combinations, net of cash acquired

(6)



(70)


Net cash provided by (used in) investing activities

91



(228)


Cash flows from financing activities:




Repurchases of common stock

(1,514)



(257)


Net change in borrowings and capital lease obligations

329



(263)


Issuance of common stock under stock-based compensation plans

61



49


Net cash (used in) financing activities(a)

(1,124)



(471)


Effect of exchange rate changes on cash and cash equivalents

30



26


(Decrease) in cash and cash equivalents

(726)



(601)


Cash and cash equivalents, beginning of year

2,034



2,125


Cash and cash equivalents, end of period

$

1,308



$

1,524


 

Notes:

(a) 

In March 2016, the FASB issued an update to the standard on stock compensation, which among other things, changed the classification of the excess tax benefits and deficiencies in the statement of cash flows to cash flows from operating activities. We adopted this standard on January 1, 2017 and conformed prior year presentation. This resulted in a $3 million reduction in net cash used in financing activities and a $3 million increase in the net cash provided by operating activities for the three months ended March 31, 2016.

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

(in millions)




Three Months Ended

Stock Repurchases under Board of Directors' authorized stock

  repurchase program:


March 31, 2017


December 31, 2016


March 31, 2016

Shares repurchased


21.5





4.3









Remaining authorized balance


$

2,000






 

 

SOURCE Cognizant

For further information: David Nelson, VP, Investor Relations & Treasurer, 201-498-8840, david.nelson@cognizant.com
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