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Cognizant Q3 20 Infographic
Cognizant Q3 20 Infographic
Revenue of
GAAP operating margin was 14.2% vs. 15.7% in the prior year period while GAAP diluted EPS was
Adjusted Operating Margin1 was 15.9% vs.17.3% in the prior year period while Adjusted Diluted EPS1 was
Year-to-date bookings1 increased 15%
Year-to-date cash flow from operations of
Since the beginning of Q3 through
FY2020 revenue expected to be at the high end of the previously guided range at approximately
'Against a challenging demand environment, we continued to strengthen our portfolio, execute our digital strategy and increase our competitiveness,' said
Third Quarter 2020 Performance by Business Segment
Financial Services (34.6% of revenues) revenue decreased 1.5% year-over-year, or 2.2% in constant currency, driven by declines in both banking and insurance. Growth in regional banks and capital markets in
Healthcare (29.0% of revenues) revenue grew 4.8% year-over-year, or 4.2% in constant currency, driven by life sciences. Growth in bio pharmaceutical clients and revenue from our acquisition of Zenith Technologies offset weakness in medical device clients. Within healthcare, performance among payer clients improved.
Products and Resources (21.9% of revenues) revenue decreased 4.0% year-over-year, or 4.6% in constant currency. The decline was driven by retail, consumer goods, travel and hospitality clients that were particularly adversely affected by the pandemic, partially offset by double-digit constant currency growth in manufacturing, logistics, energy and utilities.
Communications, Media and Technology (14.5% of revenues) revenue increased 0.2% year-over-year, or a decline of 0.2% in constant currency. Growth within our communications and media clients was more than offset by a negative 920 basis point impact from our 2019 strategic decision to exit certain content-related services. Excluding that impact, Communications, Media and Technology grew approximately 9% in constant currency.
'Our cost discipline and strong year-to-date cash flow enabled continued investments in growth initiatives. We took further actions to increase our financial flexibility in support of our strategic priorities,' said
Full Year 2020 Outlook
The Company is providing the following guidance:
Full year 2020 revenue expected to be approximately
Full year 2020 Adjusted Operating Margin4 expected to be approximately 15%
Full year 2020 Adjusted Diluted EPS expected to be in the range of
Declaration of Quarterly Cash Dividend
The Company has declared a quarterly cash dividend of
Conference Call
Cognizant will host a conference call on
The conference call will also be available live on the Investor Relations section of the Cognizant website at http://investors.cognizant.com. An earnings supplement will also be available on the Cognizant website at the time of the conference call.
For those who cannot access the live broadcast, a replay will be available. To listen to the replay, please dial (877) 660-6853 (domestically) or (201) 612-7415 (internationally) and enter 13711475 from two hours after the end of the call until
1 Constant currency revenue growth, Adjusted Operating Margin, Adjusted Diluted Earnings Per Share ('Adjusted Diluted EPS') and free cash flow are not measures of financial performance prepared in accordance with GAAP. Bookings is a performance metric utilized by management. See 'About Non-GAAP Financial Measures and Performance Metrics' for more information and, where applicable, reconciliations to the most directly comparable GAAP financial measures at the end of this release.
2 During the third quarter of 2020 we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded
3A full reconciliation of Adjusted Diluted EPS guidance to the corresponding GAAP measure on a forward-looking basis cannot be provided without unreasonable efforts, as we are unable to provide reconciling information with respect to unusual items, net non-operating foreign currency exchange gains or losses and the tax effects of these adjustments. See 'About Non-GAAP Financial Measures and Performance Metrics' for more information and a partial reconciliation to the most directly comparable GAAP financial measure at the end of this release.
4A full reconciliation of Adjusted Operating Margin guidance to the corresponding GAAP measure on a forward-looking basis cannot be provided without unreasonable efforts, as we are unable to provide reconciling information with respect to unusual items. See 'About Non-GAAP Financial Measures and Performance Metrics' for more information and a partial reconciliation to the most directly comparable GAAP financial measure at the end of this release.
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
Forward-Looking Statements
This press release includes statements that 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 the impact of the COVID-19 pandemic on our business, opportunities in the marketplace, our cost structure, investment in and growth of our business, our realignment plans, the timing, cost and impact of the 2020 Fit for Growth Plan, our and our clients' shift to digital solutions and services and our anticipated financial performance. 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, legal, reputational and financial risks resulting from cyberattacks, including the recent ransomware attack, the impact of and effectiveness of business continuity plans during the COVID-19 pandemic, 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, as updated by our most recent Quarterly Report on Form 10-Q, and other filings with the
About Non-GAAP Financial Measures and Performance Metrics
To supplement our financial results presented in accordance with GAAP, this press release includes references to the following measures defined by the
Our non-GAAP financial measures, Adjusted Operating Margin, Adjusted Income From Operations and Adjusted Diluted EPS exclude unusual items. Additionally, Adjusted Diluted EPS excludes net non-operating foreign currency exchange gains or losses and the tax impact of all the applicable adjustments. 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. Free cash flow is defined as cash flows from operating activities net of purchases of property and equipment. Net cash is defined as cash and cash equivalents and short-term investments less short-term and long-term debt. Constant currency revenue growth is defined as revenues for a given period restated at the comparative period's foreign currency exchange rates measured against the comparative period's reported revenues.
Management believes providing investors with an operating view consistent with how we manage the Company provides enhanced transparency into our operating results. For our internal management reporting and budgeting purposes, we use various GAAP and 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 excluding certain costs 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 financial measures versus financial measures calculated in accordance with GAAP is that non-GAAP financial measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and may exclude costs that are recurring such as our 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 our non-GAAP financial measures to allow investors to evaluate such non-GAAP financial measures.
Bookings are defined as total contract value (or TCV) of new contracts, including new contract sales as well as renewals and expansions of existing contracts. Bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large contracts. Measuring bookings involves the use of estimates and judgments and there are no third-party standards or requirements governing the calculation of bookings. The extent and timing of conversion of bookings to revenues may be impacted by, among other factors, the types of services and solutions sold, contract duration, the pace of client spending, actual volumes of services delivered as compared to the volumes anticipated at the time of sale, and contract modifications, including terminations, over the lifetime of a contract. The majority of our contracts are terminable by the client on short notice often without penalty, and some without notice. We do not update our bookings for material subsequent terminations or reductions related to bookings originally recorded in prior year periods or foreign currency exchange rate fluctuations. Information regarding our bookings is not comparable to, nor should it be substituted for, an analysis of our reported revenues. However, management believes that it is a key indicator of potential future revenues and provides a useful indicator of the volume of our business over time.
tables to follow -
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share data)
Three Months Ended
Nine Months Ended
2020
2019
2020
2019
Revenues
$
4,243
$
4,248
$
12,468
$
12,499
Operating expenses:
Cost of revenues (exclusive of depreciation and amortization expense
shown separately below)
2,647
2,681
8,009
7,885
Selling, general and administrative expenses
804
706
2,226
2,296
Restructuring charges
51
65
177
116
Depreciation and amortization expense
138
127
407
375
Income from operations
603
669
1,649
1,827
Other income (expense), net:
Interest income
27
43
105
136
Interest expense
(6)
(7)
(21)
(20)
Foreign currency exchange gains (losses), net
(1)
(47)
(105)
(29)
Other, net
1
-
1
3
Total other income (expense), net
21
(11)
(20)
90
Income before provision for income taxes
624
658
1,629
1,917
Provision for income taxes
(276)
(160)
(552)
(469)
Income (loss) from equity method investment
-
(1)
(1)
(1)
Net income
$
348
$
497
$
1,076
$
1,447
Basic earnings per share
$
0.64
$
0.90
$
1.98
$
2.57
Diluted earnings per share
$
0.64
$
0.90
$
1.98
$
2.57
Weighted average number of common shares outstanding - Basic
542
551
543
563
Dilutive effect of shares issuable under stock-based compensation plans
1
-
-
-
Weighted average number of common shares outstanding - Diluted
543
551
543
563
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(in millions, except par values)
2020
2019
Assets
Current assets:
Cash and cash equivalents
$
4,436
$
2,645
Short-term investments
139
779
Trade accounts receivable, net
3,118
3,256
Other current assets
926
931
Total current assets
8,619
7,611
Property and equipment, net
1,313
1,309
Operating lease assets, net
1,004
926
4,931
3,979
Intangible assets, net
1,087
1,041
Deferred income tax assets, net
563
585
Long-term investments
441
17
Other noncurrent assets
829
736
Total assets
$
18,787
$
16,204
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$
420
$
239
Deferred revenue
285
313
Short-term debt
38
38
Operating lease liabilities
213
202
Accrued expenses and other current liabilities
2,340
2,191
Total current liabilities
3,296
2,983
Deferred revenue, noncurrent
32
23
Operating lease liabilities, noncurrent
820
745
Deferred income tax liabilities, net
310
35
Long-term debt
2,412
700
Long-term income taxes payable
428
478
Other noncurrent liabilities
349
218
Total liabilities
7,647
5,182
Stockholders' equity:
Preferred stock,
-
-
Class A common stock,
outstanding as of
5
5
Additional paid-in capital
33
33
Retained earnings
11,142
11,022
Accumulated other comprehensive income (loss)
(40)
(38)
Total stockholders' equity
11,140
11,022
Total liabilities and stockholders' equity
$
18,787
$
16,204
Reconciliations of Non-GAAP Financial Measures
(Unaudited)
(dollars in millions, except per share amounts)
Three Months Ended
Nine Months Ended
Guidance
2020
2019
2020
2019
Full Year 2020
GAAP income from operations
$
603
$
669
$
1,649
$
1,827
Realignment charges(a)
8
65
40
116
2020 Fit for Growth Plan restructuring charges(b)
43
-
137
-
COVID-19 charges
21
-
52
-
Incremental accrual related to the India Defined
Contribution Obligation(d)
-
-
-
117
Adjusted Income From Operations
$
675
$
734
$
1,878
$
2,060
GAAP operating margin
14.2
%
15.7
%
13.2
%
14.6
%
Realignment charges
0.2
1.6
0.3
1.0
0.3%
2020 Fit for Growth Plan restructuring charges
1.0
-
1.1
-
0.9% - 1.0%
COVID-19 charges
0.5
-
0.5
-
0.4%
Incremental accrual related to the India Defined
Contribution Obligation
-
-
-
0.9
(d)
Adjusted Operating Margin
15.9
%
17.3
%
15.1
%
16.5
%
approximately 15%
GAAP diluted earnings per share
$
0.64
$
0.90
$
1.98
$
2.57
Effect of above adjustments, pre-tax
0.13
0.12
0.42
0.41
(a), (b), (c), (d)
Non-operating foreign currency exchange (gains) losses, pre-tax(e)
-
0.09
0.19
0.06
(e)
Tax effect of above adjustments (f)
(0.06)
(0.03)
(0.10)
(0.11)
(a), (b), (c), (d), (e)
Tax on Accumulated Indian Earnings (g)
0.26
-
0.26
-
0.26
Adjusted Diluted Earnings Per Share
$
0.97
$
1.08
$
2.75
$
2.93
Notes:
(a) Realignment charges include:
Three Months Ended
Nine Months Ended
2020
2019
2020
2019
(in millions)
Executive transition costs
$
-
$
-
$
-
$
22
Employee separation costs
-
33
-
60
Employee retention costs
-
18
15
18
Professional fees
8
14
25
16
Total realignment charges
$
8
$
65
$
40
$
116
Executive transition costs are costs associated with our CEO transition and the departure of our President in 2019. The total costs related to the realignment program are reported in 'Restructuring charges' in our unaudited consolidated statements of operations. We do not expect to incur significant realignment charges during the remainder of 2020. Our guidance anticipates pre-tax charges in the range of
(b)
2020 Fit for Growth Plan restructuring charges include:
Three Months Ended
Nine Months Ended
(in millions)
Employee separation costs
$
38
$
103
Employee retention costs
-
5
Facility exit costs and other charges
5
29
Total 2020 Fit For Growth charges
$
43
$
137
These charges include
During the three and nine months ended
(d)
During the first quarter of 2019, a ruling of the
(e)
Non-operating foreign currency exchange gains and losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, are reported in 'Foreign currency exchange gains (losses), net' in our unaudited consolidated statements of operations. Non-operating foreign currency exchange gains and losses are subject to high variability and low visibility and therefore cannot be provided on a forward-looking basis without unreasonable efforts.
(f)
Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
Three Months Ended
Nine Months Ended
2020
2019
2020
2019
(in millions)
(in millions)
Non-GAAP income tax benefit (expense) related to:
Realignment charges
$
2
$
17
$
10
$
30
2020 Fit For Growth plan restructuring charges
11
-
36
-
COVID-19 charges
6
-
14
-
Incremental accrual related to the India Defined Contribution Obligation
-
-
-
31
Foreign currency exchange gains and losses
15
(2)
(3)
(1)
The effective tax rate related to each of our non-GAAP adjustments varies depending on the jurisdictions in which such income and expenses are generated and the statutory rates applicable in those jurisdictions.
(g)
During the third quarter of 2020, after a thorough analysis of the impact of several changes in tax law on the cost of earnings repatriation and considering our strategic decision to increase our investments to accelerate growth in various international markets and expand our global delivery footprint, we reversed our indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded a
Reconciliations of net cash
(in millions)
Cash and cash equivalents
$
4,436
$
2,645
Short-term investments(a)
139
779
Less:
Short-term debt
38
38
Long-term debt
2,412
700
Net cash
$
2,125
$
2,686
Notes:
(a)
As of
The above tables serve to reconcile the Non-GAAP financial measures to the most directly 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.
Schedule of Supplemental Information
(Unaudited)
(dollars in millions)
Three Months Ended
Year over Year
$
% of total
% Change
Constant
Currency %
Change (a)
Revenues by Segment:
Financial Services
$
1,469
34.6
%
(1.5)
%
(2.2)
%
Healthcare
1,231
29.0
%
4.8
%
4.2
%
Products and Resources
927
21.9
%
(4.0)
%
(4.6)
%
Communications, Media and Technology (b)
616
14.5
%
0.2
%
(0.2)
%
Total Revenues
$
4,243
(0.1)
%
(0.7)
%
Revenues by Geography:
$
3,179
74.9
%
(1.4)
%
(1.4)
%
345
8.1
%
6.2
%
2.0
%
Continental
437
10.3
%
1.6
%
(2.4)
%
782
18.4
%
3.6
%
(0.5)
%
Rest of World
282
6.7
%
4.4
%
7.1
%
Total Revenues
$
4,243
(0.1)
%
(0.7)
%
Nine Months Ended
Year over Year
$
% of total
% Change
Constant
Currency %
Change (a)
Revenues by Segment:
Financial Services
$
4,316
34.6
%
(1.9)
%
(1.6)
%
Healthcare
3,582
28.7
%
3.1
%
3.1
%
Products and Resources
2,748
22.1
%
(2.1)
%
(1.5)
%
Communications, Media and Technology (b)
1,822
14.6
%
0.3
%
0.9
%
Total Revenues
$
12,468
(0.2)
%
0.1
%
Revenues by Geography:
$
9,375
75.2
%
(1.2)
%
(1.1)
%
996
8.0
%
2.0
%
2.1
%
Continental
1,293
10.4
%
2.5
%
2.6
%
2,289
18.4
%
2.3
%
2.4
%
Rest of World
804
6.4
%
3.6
%
8.1
%
Total Revenues
$
12,468
(0.2)
%
0.1
%
Employee Metrics:
Number of employees
283,100
289,900
Notes:
(a)
Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See 'About Non-GAAP Financial Measures' for more information.
(b)
Revenues in our Communications, Media and Technology segment were negatively impacted by
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Three Months Ended
Nine Months Ended
2020
2019
2020
2019
Cash flows from operating activities:
Net income
$
348
$
497
$
1,076
$
1,447
Adjustments for non-cash income and expenses
499
221
986
401
Changes in assets and liabilities
78
(1)
339
(287)
Net cash provided by operating activities
925
717
2,401
1,561
Cash flows from investing activities:
Purchases of property and equipment
(104)
(97)
(309)
(299)
Net sales of investments
26
583
189
2,640
Payments for business combinations, net of cash acquired
(580)
(146)
(1,069)
(378)
Net cash (used in) provided by investing activities
(658)
340
(1,189)
1,963
Cash flows from financing activities:
Repurchases of common stock
(248)
(259)
(833)
(2,084)
Repayment of term loan borrowings and finance lease and earnout obligations
(12)
(7)
(37)
(16)
Borrowings under the revolving credit facility
-
-
1,740
-
Dividends paid
(120)
(111)
(362)
(343)
Issuance of common stock under stock-based compensation plans
33
37
109
127
Net cash (used in) provided by financing activities
(347)
(340)
617
(2,316)
Effect of exchange rate changes on cash and cash equivalents
94
(34)
(38)
(26)
Increase in cash and cash equivalents
14
683
1,791
1,182
Cash and cash equivalents, beginning of period
4,422
1,660
2,645
1,161
Cash and cash equivalents, end of period
$
4,436
$
2,343
$
4,436
$
2,343
SUPPLEMENTAL CASH FLOW INFORMATION
(in millions)
Three Months Ended
Stock Repurchases under Board of Directors' authorized stock repurchase program:
Number of shares repurchased
4.1
3.6
Remaining authorized balance
$
1,536
Reconciliation of Free Cash Flow Non-GAAP Financial Measure
(in millions)
Three Months Ended
Nine Months Ended
2020
2019
2020
2019
Net cash provided by operating activities
$
925
$
717
$
2,401
$
1,561
Purchases of property and equipment
(104)
(97)
(309)
(299)
Free cash flow
$
821
$
620
$
2,092
$
1,262
SOURCE Cognizant
For further information: Investor Relations:Katie Royce, Global Head of Investor Relations, 201-679-2739, Katie.Royce@cognizant.com or Media:
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