Delaware | 0-24429 | 13-3728359 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
Glenpointe Centre West 500 Frank W. Burr Blvd. Teaneck, New Jersey | 07666 | |||
(Address of Principal Executive Offices) | (Zip Code) |
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425). |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12). |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)). |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)). |
Emerging growth company | ☐ |
Item 2.02. | Results of Operations and Financial Condition. |
Item 9.01. | Financial Statements and Exhibits. |
Exhibit No. | Description | |
99.1 |
* | The information in Item 2.02 and Exhibit 99.1 of this current report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing. |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION | |
By: | /s/ Karen McLoughlin |
Name: | Karen McLoughlin |
Title: | Chief Financial Officer |
Exhibit No. | Description | |
99.1 |
Glenpointe Centre West | ||||
500 Frank W. Burr Blvd. | ||||
Teaneck, NJ 07666 |
• | Quarterly revenue rose to $3.77 billion, up 9.1% from the year-ago quarter. |
• | Quarterly GAAP diluted EPS was $0.84, compared to $0.73 in the year-ago quarter. |
• | Quarterly non-GAAP diluted EPS1 was $0.98, compared to $0.86 in the year-ago quarter. |
▪ | Fourth quarter 2017 revenue expected to be in the range of $3.79 billion to $3.85 billion. |
▪ | Fourth quarter 2017 non-GAAP diluted EPS2 expected to be at least $0.95. |
▪ | Full year 2017 revenue expected to be in the range of $14.78 billion to $14.84 billion. |
▪ | Full year 2017 non-GAAP diluted EPS expected to be at least $3.70. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues | $ | 3,766 | $ | 3,453 | $ | 10,982 | $ | 10,025 | |||||||
Operating expenses: | |||||||||||||||
Cost of revenues (exclusive of depreciation and amortization expense shown separately below) | 2,337 | 2,077 | 6,792 | 6,030 | |||||||||||
Selling, general and administrative expenses | 674 | 701 | 2,069 | 2,001 | |||||||||||
Depreciation and amortization expense | 107 | 92 | 297 | 266 | |||||||||||
Income from operations | 648 | 583 | 1,824 | 1,728 | |||||||||||
Other income (expense), net: | |||||||||||||||
Interest income | 34 | 27 | 97 | 86 | |||||||||||
Interest expense | (6 | ) | (5 | ) | (18 | ) | (15 | ) | |||||||
Foreign currency exchange gains (losses), net | (16 | ) | 7 | 41 | (4 | ) | |||||||||
Other, net | (2 | ) | 1 | (2 | ) | 2 | |||||||||
Total other income (expense), net | 10 | 30 | 118 | 69 | |||||||||||
Income before provision for income taxes | 658 | 613 | 1,942 | 1,797 | |||||||||||
Provision for income taxes | (164 | ) | (170 | ) | (421 | ) | (661 | ) | |||||||
Income from equity method investment | 1 | 1 | 1 | 1 | |||||||||||
Net income | $ | 495 | $ | 444 | $ | 1,522 | $ | 1,137 | |||||||
Basic earnings per share | $ | 0.84 | $ | 0.73 | $ | 2.56 | $ | 1.88 | |||||||
Diluted earnings per share | $ | 0.84 | $ | 0.73 | $ | 2.55 | $ | 1.87 | |||||||
Weighted average number of common shares outstanding - Basic | 590 | 606 | 594 | 607 | |||||||||||
Dilutive effect of shares issuable under stock-based compensation plans | 2 | 3 | 2 | 3 | |||||||||||
Weighted average number of common shares outstanding - Diluted | 592 | 609 | 596 | 610 | |||||||||||
Dividends declared per common share | $ | 0.15 | $ | — | $ | 0.30 | $ | — |
September 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,577 | $ | 2,034 | |||
Short-term investments | 3,136 | 3,135 | |||||
Trade accounts receivable, net | 2,889 | 2,556 | |||||
Unbilled accounts receivable | 403 | 349 | |||||
Other current assets | 552 | 526 | |||||
Total current assets | 8,557 | 8,600 | |||||
Property and equipment, net | 1,304 | 1,311 | |||||
Goodwill | 2,608 | 2,554 | |||||
Intangible assets, net | 957 | 951 | |||||
Deferred income tax assets, net | 464 | 425 | |||||
Long-term investments | 262 | 62 | |||||
Other noncurrent assets | 428 | 359 | |||||
Total assets | $ | 14,580 | $ | 14,262 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 186 | $ | 175 | |||
Deferred revenue | 333 | 306 | |||||
Short-term debt | 100 | 81 | |||||
Accrued expenses and other current liabilities | 1,981 | 1,856 | |||||
Total current liabilities | 2,600 | 2,418 | |||||
Deferred revenue, noncurrent | 114 | 151 | |||||
Deferred income tax liabilities, net | 5 | 6 | |||||
Long-term debt | 723 | 797 | |||||
Other noncurrent liabilities | 159 | 162 | |||||
Total liabilities | 3,601 | 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, 590 and 608 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 6 | 6 | |||||
Additional paid-in capital | 208 | 358 | |||||
Retained earnings | 10,721 | 10,478 | |||||
Accumulated other comprehensive income (loss) | 44 | (114 | ) | ||||
Total stockholders’ equity | 10,979 | 10,728 | |||||
Total liabilities and stockholders’ equity | $ | 14,580 | $ | 14,262 |
Three Months Ended September 30, | Nine Months Ended September 30, | Guidance | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | Q4 2017 | Full Year 2017 | ||||||||||||||
GAAP income from operations | $ | 648 | $ | 583 | $ | 1,824 | $ | 1,728 | |||||||||||
Add: Stock-based compensation expense (a) | 52 | 49 | 161 | 165 | |||||||||||||||
Add: Acquisition-related charges (b) | 35 | 35 | 104 | 94 | |||||||||||||||
Add: Realignment charges (c) | 19 | — | 69 | — | |||||||||||||||
Non-GAAP income from operations | $ | 754 | $ | 667 | $ | 2,158 | $ | 1,987 | |||||||||||
GAAP operating margin | 17.2 | % | 16.9 | % | 16.6 | % | 17.2 | % | |||||||||||
Effect of stock-based compensation expense | 1.4 | 1.4 | 1.5 | 1.7 | 1.4% - 1.5% | ||||||||||||||
Effect of acquisition-related charges | 0.9 | 1.0 | 1.0 | 0.9 | (b) | ||||||||||||||
Effect of realignment charges | 0.5 | — | 0.6 | — | approximately 0.5% | ||||||||||||||
Non-GAAP operating margin | 20.0 | % | 19.3 | % | 19.7 | % | 19.8 | % | at least 19.6% | ||||||||||
GAAP diluted earnings per share | $ | 0.84 | $ | 0.73 | $ | 2.55 | $ | 1.87 | |||||||||||
Effect of above operating adjustments, pre-tax | 0.18 | 0.14 | 0.56 | 0.42 | (a), (b), (c) | (a), (b), (c) | |||||||||||||
Effect of non-operating foreign currency exchange (gains) losses, pre-tax (d) | 0.02 | (0.01 | ) | (0.06 | ) | 0.01 | (d) | (d) | |||||||||||
Tax effect of non-GAAP adjustments to pre-tax income (e) | (0.06 | ) | (0.04 | ) | (0.21 | ) | (0.12 | ) | (a), (b), (c), (d) | (a), (b), (c), (d) | |||||||||
Effect of recognition of income tax benefit related to an uncertain tax position (f) | — | — | (0.09 | ) | — | — | (0.09) | ||||||||||||
Effect of incremental income tax expense related to the India Cash Remittance (g) | — | 0.04 | — | 0.35 | — | — | |||||||||||||
Non-GAAP diluted earnings per share | $ | 0.98 | $ | 0.86 | $ | 2.75 | $ | 2.53 | at least $0.95 | at least $3.70 |
(a) | Stock-based compensation expense reported in: |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Cost of revenues | $ | 13 | $ | 13 | $ | 41 | $ | 39 | |||||||
Selling, general and administrative expenses | 39 | 36 | 120 | 126 |
(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. We cannot provide acquisition-related charges on a forward-looking basis without unreasonable effort as such charges may fluctuate based on the timing, size, and complexity of future acquisitions as well as other uncertainty inherent in mergers and acquisitions. |
(c) | Realignment charges include severance costs, including costs associated with the voluntary separation program, or VSP, 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. The total costs related to the realignment are reported in "Selling, general and administrative expenses" in our consolidated statements of operations and are expected to be incurred primarily in 2017. However, as we continue to evaluate our realignment program, additional expenses may arise in 2018. Our guidance anticipates realignment charges for the fourth quarter of 2017 of approximately $0.01 per share and for the full year 2017 of approximately $0.08 per share. |
(d) | 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, reported in "Foreign currency exchange gains (losses), net" in our 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. |
(e) | Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income: |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Non-GAAP income tax benefit (expense) related to: | |||||||||||||||
Stock-based compensation expense | $ | 19 | $ | 10 | $ | 60 | $ | 37 | |||||||
Acquisition-related charges | 11 | 12 | 35 | 34 | |||||||||||
Realignment charges | 6 | — | 24 | — | |||||||||||
Foreign currency exchange gains (losses) | (1 | ) | 2 | 4 | 3 |
(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. |
(g) | In May 2016, our principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities, valued at $2.8 billion. As a result of this transaction, we incurred an incremental income tax expense of $24 million and $214 million during the three and nine months ended September 30, 2016, respectively. |
Three Months Ended September 30, 2017 | ||||||||||||
% Change | ||||||||||||
$ | % of total | Sequential | Year over Year | |||||||||
Revenues by Segment: | ||||||||||||
Financial Services | $ | 1,427 | 37.9 | % | 1.5 | % | 3.8 | % | ||||
Healthcare | 1,085 | 28.8 | % | 3.3 | % | 9.3 | % | |||||
Products and Resources (a) | 774 | 20.6 | % | 3.6 | % | 14.0 | % | |||||
Communications, Media and Technology (b) | 480 | 12.7 | % | 2.8 | % | 18.2 | % | |||||
Total Revenues | $ | 3,766 | 2.6 | % | 9.1 | % | ||||||
Revenues by Geography: | ||||||||||||
North America | $ | 2,891 | 76.8 | % | 1.4 | % | 6.7 | % | ||||
United Kingdom | 301 | 8.0 | % | 4.5 | % | 2.7 | % | |||||
Rest of Europe | 327 | 8.7 | % | 12.4 | % | 34.0 | % | |||||
Europe - Total | 628 | 16.7 | % | 8.5 | % | 16.9 | % | |||||
Rest of World | 247 | 6.6 | % | 2.9 | % | 19.9 | % | |||||
Total Revenues | $ | 3,766 | 2.6 | % | 9.1 | % |
Nine Months Ended September 30, 2017 | |||||||||||
% Change | |||||||||||
$ | % of total | Year over Year | |||||||||
Revenues by Segment: | |||||||||||
Financial Services | $ | 4,209 | 38.3 | % | 4.9 | % | |||||
Healthcare | 3,138 | 28.6 | % | 9.5 | % | ||||||
Products and Resources (a) | 2,258 | 20.6 | % | 14.5 | % | ||||||
Communications, Media and Technology (b) | 1,377 | 12.5 | % | 17.2 | % | ||||||
Total Revenues | $ | 10,982 | 9.5 | % | |||||||
Revenues by Geography: | |||||||||||
North America | $ | 8,503 | 77.4 | % | 8.6 | % | |||||
United Kingdom | 863 | 7.9 | % | (4.4 | )% | ||||||
Rest of Europe | 903 | 8.2 | % | 27.7 | % | ||||||
Europe - Total | 1,766 | 16.1 | % | 9.7 | % | ||||||
Rest of World | 713 | 6.5 | % | 22.1 | % | ||||||
Total Revenues | $ | 10,982 | 9.5 | % |
Employee Metrics: | September 30, 2017 | June 30, 2017 | September 30, 2016 | ||||||
Number of employees | 256,100 | 256,800 | 255,800 |
(a) | Previously referred to as Manufacturing/Retail/Logistics. |
(b) | Previously referred to as Other. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net income | $ | 495 | $ | 444 | $ | 1,522 | $ | 1,137 | |||||||
Adjustments for non-cash income and expenses | 121 | 81 | 399 | 418 | |||||||||||
Changes in assets and liabilities | 157 | 78 | (350 | ) | (514 | ) | |||||||||
Net cash provided by operating activities(a) | 773 | 603 | 1,571 | 1,041 | |||||||||||
Cash flows from investing activities: | |||||||||||||||
Purchases of property and equipment | (78 | ) | (74 | ) | (204 | ) | (213 | ) | |||||||
Net sales (purchases) of investments | 20 | (505 | ) | (146 | ) | (475 | ) | ||||||||
Payments for business combinations, net of cash acquired | (66 | ) | (34 | ) | (72 | ) | (185 | ) | |||||||
Net cash (used in) investing activities | (124 | ) | (613 | ) | (422 | ) | (873 | ) | |||||||
Cash flows from financing activities: | |||||||||||||||
Repurchases of common stock | (13 | ) | (157 | ) | (1,557 | ) | (492 | ) | |||||||
Net change in borrowings and capital lease obligations | (170 | ) | (14 | ) | (62 | ) | (391 | ) | |||||||
Dividends paid | (90 | ) | — | (179 | ) | — | |||||||||
Issuance of common stock under stock-based compensation plans | 42 | 44 | 146 | 135 | |||||||||||
Net cash (used in) financing activities(a) | (231 | ) | (127 | ) | (1,652 | ) | (748 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | 2 | 3 | 46 | 5 | |||||||||||
Increase (decrease) in cash and cash equivalents | 420 | (134 | ) | (457 | ) | (575 | ) | ||||||||
Cash and cash equivalents, beginning of year | 1,157 | 1,684 | 2,034 | 2,125 | |||||||||||
Cash and cash equivalents, end of period | $ | 1,577 | $ | 1,550 | $ | 1,577 | $ | 1,550 |
Three Months Ended | ||||||||||
Stock Repurchases under Board of Directors' authorized stock repurchase program: | September 30, 2017 | June 30, 2017 | September 30, 2016 | |||||||
Shares repurchased(b) | 2.2 | — | 2.5 | |||||||
Remaining authorized balance | $ | 2,000 |
(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 $9 million reduction in net cash used in financing activities and a $9 million increase in the net cash provided by operating activities for the three months ended September 30, 2016 and a $19 million reduction in net cash used in financing activities and a $19 million increase in the net cash provided by operating activities for the nine months ended September 30, 2016. |
(b) | In March 2017, we entered into accelerated share repurchase agreements, referred to collectively as the ASR, with certain financial institutions under our stock repurchase program. Under the terms of the ASR and in exchange for up-front payments of $1,500 million, the financial institutions initially delivered 21.5 million shares. In August 2017, upon the final settlement of the ASR, we received an additional 2.2 million shares based on the final volume-weighted average price of the Company's Class A common stock during the purchase period less the negotiated discount. |
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