☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||||
For the quarterly period ended | March 31, 2023 | |||||||
☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||||
For the transition period from to |
Delaware | 13-3728359 | ||||||||||
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||||||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Class A Common Stock, $0.01 par value per share | CTSH | The Nasdaq Stock Market LLC |
Large Accelerated Filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ |
Class | Number of Shares | |||||||
Class A Common Stock, par value $0.01 per share | 507,477,456 |
Page | ||||||||
PART I. | ||||||||
Item 1. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II. | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
Defined Term | Definition | ||||
10b5-1 Plan | Trading plan adopted pursuant to Rule 10b5-1 of the Exchange Act | ||||
Adjusted Diluted EPS | Adjusted diluted earnings per share | ||||
ASC | Accounting Standards Codification | ||||
ASR | Accelerated Stock Repurchase | ||||
CC | Constant Currency | ||||
CE | Continental Europe | ||||
CITA | Commissioner of Income Tax (Appeals) in India | ||||
CMT | Communications, Media and Technology | ||||
Credit Agreement | Credit agreement with a commercial bank syndicate dated October 6, 2022 | ||||
CTS India | Our principal operating subsidiary in India | ||||
DOJ | United States Department of Justice | ||||
DSO | Days Sales Outstanding | ||||
EPS | Earnings per share | ||||
EU | European Union | ||||
Exchange Act | Securities Exchange Act of 1934, as amended | ||||
FS | Financial Services | ||||
GAAP | Generally Accepted Accounting Principles in the United States of America | ||||
HS | Health Sciences | ||||
High Court | Madras, India High Court | ||||
India Defined Contribution Obligation | Certain statutory defined contribution obligations of employees and employers in India | ||||
IoT | Internet of Things | ||||
IRS | Internal Revenue Service | ||||
ITD | Indian Income Tax Department | ||||
Mobica | MOBICA HOLDINGS LIMITED | ||||
NA | North America | ||||
P&R | Products & Resources | ||||
RoW | Rest of World | ||||
SCI | Supreme Court of India | ||||
SEC | United States Securities and Exchange Commission | ||||
Second Circuit | United States Court of Appeals for the Second Circuit | ||||
SG&A | Selling, general and administrative | ||||
Syntel | Syntel Sterling Best Shores Mauritius Ltd. | ||||
Tax Reform Act | Tax Cuts and Jobs Act | ||||
Term Loan | Unsecured term loan under the Credit Agreement | ||||
TriZetto | The TriZetto Group, Inc., now known as Cognizant Technology Software Group, Inc. | ||||
UK | United Kingdom | ||||
USDC-NJ | United States District Court for the District of New Jersey | ||||
USDC-SDNY | United States District Court for the Southern District of New York |
Cognizant Technology Solutions | 1 | March 31, 2023 Form 10-Q |
Forward Looking Statements |
Cognizant Technology Solutions | 2 | March 31, 2023 Form 10-Q |
Cognizant Technology Solutions | 3 | March 31, 2023 Form 10-Q |
(in millions, except par values) | March 31, 2023 | December 31, 2022 | |||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 2,458 | $ | 2,191 | |||||||
Short-term investments | 23 | 310 | |||||||||
Trade accounts receivable, net | 3,718 | 3,796 | |||||||||
Other current assets | 1,029 | 969 | |||||||||
Total current assets | 7,228 | 7,266 | |||||||||
Property and equipment, net | 1,102 | 1,101 | |||||||||
Operating lease assets, net | 842 | 876 | |||||||||
Goodwill | 6,040 | 5,710 | |||||||||
Intangible assets, net | 1,262 | 1,168 | |||||||||
Deferred income tax assets, net | 666 | 642 | |||||||||
Long-term investments | 424 | 427 | |||||||||
Other noncurrent assets | 583 | 662 | |||||||||
Total assets | $ | 18,147 | $ | 17,852 | |||||||
Liabilities and Stockholders’ Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 332 | $ | 360 | |||||||
Deferred revenue | 469 | 398 | |||||||||
Short-term debt | 16 | 8 | |||||||||
Operating lease liabilities | 173 | 174 | |||||||||
Accrued expenses and other current liabilities | 2,331 | 2,407 | |||||||||
Total current liabilities | 3,321 | 3,347 | |||||||||
Deferred revenue, noncurrent | 32 | 19 | |||||||||
Operating lease liabilities, noncurrent | 688 | 714 | |||||||||
Deferred income tax liabilities, net | 215 | 180 | |||||||||
Long-term debt | 630 | 638 | |||||||||
Long-term income taxes payable | 283 | 283 | |||||||||
Other noncurrent liabilities | 317 | 362 | |||||||||
Total liabilities | 5,486 | 5,543 | |||||||||
Stockholders’ equity: | |||||||||||
Preferred stock, $0.10 par value, 15 shares authorized, none issued | — | — | |||||||||
Class A common stock, $0.01 par value, 1,000 shares authorized, 507 and 509 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 5 | 5 | |||||||||
Additional paid-in capital | 22 | 15 | |||||||||
Retained earnings | 12,856 | 12,588 | |||||||||
Accumulated other comprehensive income (loss) | (222) | (299) | |||||||||
Total stockholders’ equity | 12,661 | 12,309 | |||||||||
Total liabilities and stockholders’ equity | $ | 18,147 | $ | 17,852 |
Cognizant Technology Solutions | 4 | March 31, 2023 Form 10-Q |
(in millions, except per share data) | Three Months Ended March 31, | ||||||||||
2023 | 2022 | ||||||||||
Revenues | $ | 4,812 | $ | 4,826 | |||||||
Operating expenses: | |||||||||||
Cost of revenues (exclusive of depreciation and amortization expense shown separately below) | 3,143 | 3,097 | |||||||||
Selling, general and administrative expenses | 835 | 862 | |||||||||
Depreciation and amortization expense | 132 | 143 | |||||||||
Income from operations | 702 | 724 | |||||||||
Other income (expense), net: | |||||||||||
Interest income | 30 | 6 | |||||||||
Interest expense | (9) | (2) | |||||||||
Foreign currency exchange gains (losses), net | 12 | — | |||||||||
Other, net | 3 | 1 | |||||||||
Total other income (expense), net | 36 | 5 | |||||||||
Income before provision for income taxes | 738 | 729 | |||||||||
Provision for income taxes | (158) | (170) | |||||||||
Income (loss) from equity method investments | — | 4 | |||||||||
Net income | $ | 580 | $ | 563 | |||||||
Basic earnings per share | $ | 1.14 | $ | 1.07 | |||||||
Diluted earnings per share | $ | 1.14 | $ | 1.07 | |||||||
Weighted average number of common shares outstanding - Basic | 509 | 524 | |||||||||
Dilutive effect of shares issuable under stock-based compensation plans | — | 1 | |||||||||
Weighted average number of common shares outstanding - Diluted | 509 | 525 |
Cognizant Technology Solutions | 5 | March 31, 2023 Form 10-Q |
(in millions) | Three Months Ended March 31, | ||||||||||
2023 | 2022 | ||||||||||
Net income | $ | 580 | $ | 563 | |||||||
Change in Accumulated other comprehensive income (loss), net of tax: | |||||||||||
Foreign currency translation adjustments | 43 | (37) | |||||||||
Unrealized gains and losses on cash flow hedges | 34 | (19) | |||||||||
Other comprehensive income (loss) | 77 | (56) | |||||||||
Comprehensive income | $ | 657 | $ | 507 |
Cognizant Technology Solutions | 6 | March 31, 2023 Form 10-Q |
(in millions) | Class A Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | 509 | $ | 5 | $ | 15 | $ | 12,588 | $ | (299) | $ | 12,309 | |||||||||||||||||||||||||||
Net income | — | — | — | 580 | — | 580 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 77 | 77 | ||||||||||||||||||||||||||||||||
Common stock issued, stock-based compensation plans | 2 | — | 23 | — | — | 23 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 44 | — | — | 44 | ||||||||||||||||||||||||||||||||
Repurchases of common stock | (4) | — | (60) | (163) | — | (223) | ||||||||||||||||||||||||||||||||
Dividends declared, $0.29 per share | — | — | — | (149) | — | (149) | ||||||||||||||||||||||||||||||||
Balance, March 31, 2023 | 507 | $ | 5 | $ | 22 | $ | 12,856 | $ | (222) | $ | 12,661 | |||||||||||||||||||||||||||
(in millions) | Class A Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 525 | $ | 5 | $ | 27 | $ | 11,922 | $ | 37 | $ | 11,991 | |||||||||||||||||||||||||||
Net income | — | — | — | 563 | — | 563 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | (56) | (56) | ||||||||||||||||||||||||||||||||
Common stock issued, stock-based compensation plans | 1 | — | 31 | — | — | 31 | ||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 56 | — | — | 56 | ||||||||||||||||||||||||||||||||
Repurchases of common stock | (5) | — | (83) | (387) | — | (470) | ||||||||||||||||||||||||||||||||
Dividends declared, $0.27 per share | — | — | — | (142) | — | (142) | ||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 521 | $ | 5 | $ | 31 | $ | 11,956 | $ | (19) | $ | 11,973 | |||||||||||||||||||||||||||
Cognizant Technology Solutions | 7 | March 31, 2023 Form 10-Q |
(in millions) | For the Three Months Ended March 31, | ||||||||||
2023 | 2022 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 580 | $ | 563 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 132 | 143 | |||||||||
Deferred income taxes | (16) | 70 | |||||||||
Stock-based compensation expense | 44 | 56 | |||||||||
Other | 27 | 27 | |||||||||
Changes in assets and liabilities: | |||||||||||
Trade accounts receivable | 89 | (117) | |||||||||
Other current and noncurrent assets | (17) | (73) | |||||||||
Accounts payable | (26) | 35 | |||||||||
Deferred revenues, current and noncurrent | 71 | 36 | |||||||||
Other current and noncurrent liabilities | (155) | (434) | |||||||||
Net cash provided by operating activities | 729 | 306 | |||||||||
Cash flows from investing activities: | |||||||||||
Purchases of property and equipment | (98) | (120) | |||||||||
Purchases of available-for-sale investment securities | — | (65) | |||||||||
Proceeds from maturity or sale of available-for-sale investment securities | 225 | 310 | |||||||||
Purchases of held-to-maturity investment securities | (3) | (16) | |||||||||
Proceeds from maturity of held-to-maturity investment securities | 15 | 20 | |||||||||
Purchases of other investments | (26) | (39) | |||||||||
Proceeds from maturity or sale of other investments | 81 | 591 | |||||||||
Proceeds from sales of businesses | — | 19 | |||||||||
Payments for business combinations, net of cash acquired | (409) | — | |||||||||
Net cash (used in) provided by investing activities | (215) | 700 | |||||||||
Cash flows from financing activities: | |||||||||||
Issuance of common stock under stock-based compensation plans | 23 | 31 | |||||||||
Repurchases of common stock | (222) | (474) | |||||||||
Repayment of Term Loan borrowings and finance lease and earnout obligations | (1) | (14) | |||||||||
Dividends paid | (150) | (143) | |||||||||
Net cash (used in) financing activities | (350) | (600) | |||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | — | (6) | |||||||||
Increase in cash, cash equivalents and restricted cash | 164 | 400 | |||||||||
Cash, cash equivalents and restricted cash beginning of year | 2,294 | 1,792 | |||||||||
Cash and cash equivalents, end of period | $ | 2,458 | $ | 2,192 |
Cognizant Technology Solutions | 8 | March 31, 2023 Form 10-Q |
Note 1 — Interim Consolidated Financial Statements |
Note 2 — Revenues and Trade Accounts Receivable |
Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||
(in millions) | Financial Services | Health Sciences | Products and Resources | Communications, Media and Technology | Total | |||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Geography: | ||||||||||||||||||||||||||||||||
North America | $ | 1,033 | $ | 1,248 | $ | 741 | $ | 523 | $ | 3,545 | ||||||||||||||||||||||
United Kingdom | 162 | 37 | 132 | 147 | 478 | |||||||||||||||||||||||||||
Continental Europe | 152 | 124 | 150 | 35 | 461 | |||||||||||||||||||||||||||
Europe - Total | 314 | 161 | 282 | 182 | 939 | |||||||||||||||||||||||||||
Rest of World | 129 | 24 | 95 | 80 | 328 | |||||||||||||||||||||||||||
Total | $ | 1,476 | $ | 1,433 | $ | 1,118 | $ | 785 | $ | 4,812 | ||||||||||||||||||||||
Service line: | ||||||||||||||||||||||||||||||||
Consulting and technology services | $ | 1,000 | $ | 812 | $ | 732 | $ | 442 | $ | 2,986 | ||||||||||||||||||||||
Outsourcing services | 476 | 621 | 386 | 343 | 1,826 | |||||||||||||||||||||||||||
Total | $ | 1,476 | $ | 1,433 | $ | 1,118 | $ | 785 | $ | 4,812 | ||||||||||||||||||||||
Type of contract: | ||||||||||||||||||||||||||||||||
Time and materials | $ | 861 | $ | 490 | $ | 445 | $ | 464 | $ | 2,260 | ||||||||||||||||||||||
Fixed-price | 545 | 650 | 585 | 293 | 2,073 | |||||||||||||||||||||||||||
Transaction or volume-based | 70 | 293 | 88 | 28 | 479 | |||||||||||||||||||||||||||
Total | $ | 1,476 | $ | 1,433 | $ | 1,118 | $ | 785 | $ | 4,812 |
Cognizant Technology Solutions | 9 | March 31, 2023 Form 10-Q |
Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||
(in millions) | Financial Services | Health Sciences | Products and Resources | Communications, Media and Technology | Total | |||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Geography: | ||||||||||||||||||||||||||||||||
North America | $ | 1,080 | $ | 1,195 | $ | 761 | $ | 533 | $ | 3,569 | ||||||||||||||||||||||
United Kingdom | 151 | 44 | 132 | 126 | 453 | |||||||||||||||||||||||||||
Continental Europe | 157 | 120 | 145 | 37 | 459 | |||||||||||||||||||||||||||
Europe - Total | 308 | 164 | 277 | 163 | 912 | |||||||||||||||||||||||||||
Rest of World | 140 | 33 | 92 | 80 | 345 | |||||||||||||||||||||||||||
Total | $ | 1,528 | $ | 1,392 | $ | 1,130 | $ | 776 | $ | 4,826 | ||||||||||||||||||||||
Service line: | ||||||||||||||||||||||||||||||||
Consulting and technology services | $ | 1,057 | $ | 804 | $ | 754 | $ | 448 | $ | 3,063 | ||||||||||||||||||||||
Outsourcing services | 471 | 588 | 376 | 328 | 1,763 | |||||||||||||||||||||||||||
Total | $ | 1,528 | $ | 1,392 | $ | 1,130 | $ | 776 | $ | 4,826 | ||||||||||||||||||||||
Type of contract: | ||||||||||||||||||||||||||||||||
Time and materials | $ | 890 | $ | 494 | $ | 467 | $ | 448 | $ | 2,299 | ||||||||||||||||||||||
Fixed-price | 557 | 618 | 572 | 292 | 2,039 | |||||||||||||||||||||||||||
Transaction or volume-based | 81 | 280 | 91 | 36 | 488 | |||||||||||||||||||||||||||
Total | $ | 1,528 | $ | 1,392 | $ | 1,130 | $ | 776 | $ | 4,826 | ||||||||||||||||||||||
(in millions) | 2023 | 2022 | ||||||||||||
Beginning balance | $ | 265 | $ | 394 | ||||||||||
Costs capitalized | 15 | 12 | ||||||||||||
Amortization expense | (22) | (27) | ||||||||||||
Ending balance | $ | 258 | $ | 379 |
(in millions) | 2023 | 2022 | ||||||||||||
Beginning balance | $ | 326 | $ | 310 | ||||||||||
Revenues recognized during the period but not billed | 248 | 259 | ||||||||||||
Amounts reclassified to trade accounts receivable | (223) | (202) | ||||||||||||
Amounts acquired in business combinations | 9 | — | ||||||||||||
Ending balance | $ | 360 | $ | 367 |
(in millions) | 2023 | 2022 | ||||||||||||
Beginning balance | $ | 417 | $ | 443 | ||||||||||
Amounts billed but not recognized as revenues | 322 | 396 | ||||||||||||
Revenues recognized related to the beginning balance of deferred revenue | (251) | (361) | ||||||||||||
Amounts acquired in business combinations | 13 | — | ||||||||||||
Ending balance | $ | 501 | $ | 478 |
Cognizant Technology Solutions | 10 | March 31, 2023 Form 10-Q |
(in millions) | 2023 | 2022 | ||||||||||||
Beginning balance | $ | 43 | $ | 50 | ||||||||||
Credit loss expense | 4 | 9 | ||||||||||||
Write-offs charged against the allowance | (11) | (2) | ||||||||||||
Ending balance | $ | 36 | $ | 57 |
Note 3 — Business Combinations |
Cognizant Technology Solutions | 11 | March 31, 2023 Form 10-Q |
(in millions) | OneSource Virtual | Mobica | Total | Weighted Average Useful Life | |||||||||||||||||||
Cash | $ | — | $ | 20 | $ | 20 | |||||||||||||||||
Trade accounts receivable | — | 10 | 10 | ||||||||||||||||||||
Other current assets | 4 | 8 | 12 | ||||||||||||||||||||
Property and equipment and other assets | 1 | 6 | 7 | ||||||||||||||||||||
Non-deductible goodwill | 18 | 203 | 221 | ||||||||||||||||||||
Tax-deductible goodwill | 88 | — | 88 | ||||||||||||||||||||
Customer relationship assets | 11 | 118 | 129 | 10.9 years | |||||||||||||||||||
Current liabilities | (17) | (38) | (55) | ||||||||||||||||||||
Noncurrent liabilities | (1) | (2) | (3) | ||||||||||||||||||||
Purchase price | $ | 104 | $ | 325 | $ | 429 |
Note 4 — Investments |
(in millions) | March 31, 2023 | December 31, 2022 | |||||||||
Short-term investments: | |||||||||||
Equity investment security | $ | 10 | $ | 10 | |||||||
Available-for-sale investment securities | — | 225 | |||||||||
Held-to-maturity investment securities | 12 | 24 | |||||||||
Time deposits | 1 | 51 | |||||||||
Total short-term investments | $ | 23 | $ | 310 |
Long-term investments: | |||||||||||
Other investments | $ | 64 | $ | 70 | |||||||
Restricted time deposits(1) | 360 | 357 | |||||||||
Total long-term investments | $ | 424 | $ | 427 |
Cognizant Technology Solutions | 12 | March 31, 2023 Form 10-Q |
Note 5 — Accrued Expenses and Other Current Liabilities |
(in millions) | March 31, 2023 | December 31, 2022 | |||||||||
Compensation and benefits | $ | 1,206 | $ | 1,446 | |||||||
Customer volume and other incentives | 251 | 222 | |||||||||
Income taxes | 348 | 217 | |||||||||
Professional fees | 154 | 165 | |||||||||
Other | 372 | 357 | |||||||||
Total accrued expenses and other current liabilities | $ | 2,331 | $ | 2,407 |
Note 6 — Debt |
Cognizant Technology Solutions | 13 | March 31, 2023 Form 10-Q |
(in millions) | March 31, 2023 | December 31, 2022 | |||||||||
Term Loan | $ | 650 | $ | 650 | |||||||
Less: | |||||||||||
Current maturities | (16) | (8) | |||||||||
Unamortized deferred financing costs | (4) | (4) | |||||||||
Long-term debt, net of current maturities | $ | 630 | $ | 638 |
Note 7 — Income Taxes |
Three Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
Effective income tax rate | 21.4 | % | 23.3 | % |
Cognizant Technology Solutions | 14 | March 31, 2023 Form 10-Q |
Note 8 — Derivative Financial Instruments |
(in millions) | March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||
Designation of Derivatives | Location on Statement of Financial Position | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||||||||
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | Other current assets | $ | 5 | $ | — | $ | 1 | $ | — | |||||||||||||||||||||||
Other noncurrent assets | 3 | — | 1 | — | ||||||||||||||||||||||||||||
Accrued expenses and other current liabilities | — | 26 | — | 53 | ||||||||||||||||||||||||||||
Other noncurrent liabilities | — | 5 | — | 17 | ||||||||||||||||||||||||||||
Total | 8 | 31 | 2 | 70 | ||||||||||||||||||||||||||||
Foreign exchange forward contracts – Not designated as hedging instruments | Other current assets | 2 | — | 4 | — | |||||||||||||||||||||||||||
Accrued expenses and other current liabilities | — | 10 | — | 5 | ||||||||||||||||||||||||||||
Total | 2 | 10 | 4 | 5 | ||||||||||||||||||||||||||||
Total | $ | 10 | $ | 41 | $ | 6 | $ | 75 |
Cognizant Technology Solutions | 15 | March 31, 2023 Form 10-Q |
(in millions) | March 31, 2023 | December 31, 2022 | |||||||||
2023 | $ | 1,513 | $ | 1,865 | |||||||
2024 | 1,235 | 1,010 | |||||||||
2025 | 190 | — | |||||||||
Total notional value of contracts outstanding (1) | $ | 2,938 | $ | 2,875 | |||||||
(in millions) | Change in Derivative Gains and Losses Recognized in Accumulated Other Comprehensive Income (Loss) (effective portion) | Location of Net (Losses) and Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) | Net (Losses) and Gains Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (effective portion) | ||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | 33 | $ | (10) | Cost of revenues | $ | (11) | $ | 12 | ||||||||||||||||||||
SG&A expenses | (1) | 1 | |||||||||||||||||||||||||||
Total | $ | (12) | $ | 13 |
(in millions) | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||
Notional | Fair Value | Notional | Fair Value | ||||||||||||||||||||
Contracts outstanding | $ | 1,505 | $ | (8) | $ | 1,433 | $ | (1) |
Location of Net (Losses) Gains on Derivative Instruments | Amount of Net (Losses) Gains on Derivative Instruments | ||||||||||||||||
(in millions) | 2023 | 2022 | |||||||||||||||
Foreign exchange forward contracts – Not designated as hedging instruments | $ | (10) | $ | 13 |
Cognizant Technology Solutions | 16 | March 31, 2023 Form 10-Q |
Note 9 — Fair Value Measurements |
(in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Cash equivalents: | |||||||||||||||||||||||
Money market funds | $ | 554 | $ | — | $ | — | $ | 554 | |||||||||||||||
Time deposits | — | 604 | — | 604 | |||||||||||||||||||
Short-term investments: | |||||||||||||||||||||||
Time deposits | — | 1 | — | 1 | |||||||||||||||||||
Equity investment security | 10 | — | — | 10 | |||||||||||||||||||
Other current assets: | |||||||||||||||||||||||
Foreign exchange forward contracts | — | 7 | — | 7 | |||||||||||||||||||
Long-term investments: | |||||||||||||||||||||||
Restricted time deposits(1) | — | 360 | — | 360 | |||||||||||||||||||
Other noncurrent assets | |||||||||||||||||||||||
Foreign exchange forward contracts | — | 3 | — | 3 | |||||||||||||||||||
Accrued expenses and other current liabilities: | |||||||||||||||||||||||
Foreign exchange forward contracts | — | (36) | — | (36) | |||||||||||||||||||
Contingent consideration liabilities | — | — | (10) | (10) | |||||||||||||||||||
Other noncurrent liabilities: | |||||||||||||||||||||||
Foreign exchange forward contracts | — | (5) | — | (5) | |||||||||||||||||||
Contingent consideration liabilities | — | — | (24) | (24) |
Cognizant Technology Solutions | 17 | March 31, 2023 Form 10-Q |
(in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
Cash equivalents: | |||||||||||||||||||||||
Money market funds | $ | 367 | $ | — | $ | — | $ | 367 | |||||||||||||||
Time deposits | — | 359 | — | 359 | |||||||||||||||||||
Commercial paper | — | 512 | — | 512 | |||||||||||||||||||
Short-term investments: | |||||||||||||||||||||||
Time deposits | — | 51 | — | 51 | |||||||||||||||||||
Equity investment security | 10 | — | — | 10 | |||||||||||||||||||
Available-for-sale investment securities: | |||||||||||||||||||||||
Certificates of deposit and commercial paper | — | 225 | — | 225 | |||||||||||||||||||
Other current assets: | |||||||||||||||||||||||
Foreign exchange forward contracts | — | 5 | — | 5 | |||||||||||||||||||
Long-term investments: | |||||||||||||||||||||||
Restricted time deposits(1) | — | 357 | — | 357 | |||||||||||||||||||
Other noncurrent assets: | |||||||||||||||||||||||
Foreign exchange forward contracts | — | 1 | — | 1 | |||||||||||||||||||
Accrued expenses and other current liabilities: | |||||||||||||||||||||||
Foreign exchange forward contracts | — | (58) | — | (58) | |||||||||||||||||||
Contingent consideration liabilities | — | — | (9) | (9) | |||||||||||||||||||
Other noncurrent liabilities: | |||||||||||||||||||||||
Foreign exchange forward contracts | — | (17) | — | (17) | |||||||||||||||||||
Contingent consideration liabilities | — | — | (13) | (13) |
(in millions) | March 31, 2023 | March 31, 2022 | ||||||||||||
Beginning balance | $ | 22 | $ | 35 | ||||||||||
Initial measurement recognized at acquisition | — | 1 | ||||||||||||
Change in fair value recognized in SG&A expenses | 12 | 3 | ||||||||||||
Payments | — | (3) | ||||||||||||
Ending balance | $ | 34 | $ | 36 |
Cognizant Technology Solutions | 18 | March 31, 2023 Form 10-Q |
Note 10 — Accumulated Other Comprehensive Income (Loss) |
(in millions) | Before Tax Amount | Tax Effect | Net of Tax Amount | |||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||
Beginning balance | $ | (256) | $ | 8 | $ | (248) | ||||||||||||||
Change in foreign currency translation adjustments | 41 | 2 | 43 | |||||||||||||||||
Ending balance | $ | (215) | $ | 10 | $ | (205) | ||||||||||||||
Unrealized gains and losses on cash flow hedges: | ||||||||||||||||||||
Beginning balance | $ | (68) | $ | 17 | $ | (51) | ||||||||||||||
Unrealized gains arising during the period | 33 | (8) | 25 | |||||||||||||||||
Reclassifications of net loss: | ||||||||||||||||||||
Cost of revenues | 11 | (3) | 8 | |||||||||||||||||
SG&A expenses | 1 | — | 1 | |||||||||||||||||
Net change | 45 | (11) | 34 | |||||||||||||||||
Ending balance | $ | (23) | $ | 6 | $ | (17) | ||||||||||||||
Accumulated other comprehensive income (loss): | ||||||||||||||||||||
Beginning balance | $ | (324) | $ | 25 | $ | (299) | ||||||||||||||
Other comprehensive income (loss) | 86 | (9) | 77 | |||||||||||||||||
Ending balance | $ | (238) | $ | 16 | $ | (222) |
(in millions) | Before Tax Amount | Tax Effect | Net of Tax Amount | |||||||||||||||||
Foreign currency translation adjustments: | ||||||||||||||||||||
Beginning balance | $ | (22) | $ | 2 | $ | (20) | ||||||||||||||
Change in foreign currency translation adjustments | (38) | 1 | (37) | |||||||||||||||||
Ending balance | $ | (60) | $ | 3 | $ | (57) | ||||||||||||||
Unrealized gains and losses on cash flow hedges: | ||||||||||||||||||||
Beginning balance | $ | 71 | $ | (14) | $ | 57 | ||||||||||||||
Unrealized (losses) arising during the period | (10) | 2 | (8) | |||||||||||||||||
Reclassifications of net (gains) to: | ||||||||||||||||||||
Cost of revenues | (12) | 2 | (10) | |||||||||||||||||
SG&A expenses | (1) | — | (1) | |||||||||||||||||
Net change | (23) | 4 | (19) | |||||||||||||||||
Ending balance | $ | 48 | $ | (10) | $ | 38 | ||||||||||||||
Accumulated other comprehensive income (loss): | ||||||||||||||||||||
Beginning balance | $ | 49 | $ | (12) | $ | 37 | ||||||||||||||
Other comprehensive income (loss) | (61) | 5 | (56) | |||||||||||||||||
Ending balance | $ | (12) | $ | (7) | $ | (19) |
Cognizant Technology Solutions | 19 | March 31, 2023 Form 10-Q |
Note 11— Commitments and Contingencies |
Cognizant Technology Solutions | 20 | March 31, 2023 Form 10-Q |
Note 12 — Segment Information |
Cognizant Technology Solutions | 21 | March 31, 2023 Form 10-Q |
(in millions) | 2023 | 2022 | |||||||||
Financial Services | $ | 306 | $ | 318 | |||||||
Health Sciences | 327 | 296 | |||||||||
Products and Resources | 215 | 245 | |||||||||
Communications, Media and Technology | 158 | 188 | |||||||||
Total segment operating profit | 1,006 | 1,047 | |||||||||
Less: unallocated costs | 304 | 323 | |||||||||
Income from operations | $ | 702 | $ | 724 |
As of | |||||||||||
(in millions) | March 31, 2023 | December 31, 2022 | |||||||||
Long-lived Assets: (1) | |||||||||||
North America(2) | $ | 355 | $ | 354 | |||||||
Europe | 95 | 86 | |||||||||
Rest of World (3) | 652 | 661 | |||||||||
Total | $ | 1,102 | $ | 1,101 |
Note 13 — Subsequent Events |
Cognizant Technology Solutions | 22 | March 31, 2023 Form 10-Q |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Executive Summary |
Revenue |
Income from Operations |
Operating Margin |
Diluted EPS |
GAAP | Adjusted1 |
Revenue down $14 million or 0.3% from Q1 2022; up 1.5% in constant currency1 | Income from Operations down $22 million or 3.0% from Q1 2022 | Operating margin down 40 bps from Q1 2022 | Diluted EPS up $0.07 or 6.5% from Q1 2022 Adjusted Diluted EPS1 up $0.03 or 2.8% from Q1 2022 | |||||||||||||||||||||||
Cognizant Technology Solutions | 23 | March 31, 2023 Form 10-Q |
Cognizant Technology Solutions | 24 | March 31, 2023 Form 10-Q |
Results of Operations |
% of | % of | Increase / Decrease | |||||||||||||||||||||||||||||||||
(Dollars in millions, except per share data) | 2023 | Revenues | 2022 | Revenues | $ | % | |||||||||||||||||||||||||||||
Revenues | $ | 4,812 | 100.0 | $ | 4,826 | 100.0 | $ | (14) | (0.3) | ||||||||||||||||||||||||||
Cost of revenues(a) | 3,143 | 65.3 | 3,097 | 64.2 | 46 | 1.5 | |||||||||||||||||||||||||||||
Selling, general and administrative expenses(a) | 835 | 17.4 | 862 | 17.9 | (27) | (3.1) | |||||||||||||||||||||||||||||
Depreciation and amortization expense | 132 | 2.7 | 143 | 3.0 | (11) | (7.7) | |||||||||||||||||||||||||||||
Income from operations | 702 | 14.6 | 724 | 15.0 | (22) | (3.0) | |||||||||||||||||||||||||||||
Other income (expense), net | 36 | 5 | 31 | 620.0 | |||||||||||||||||||||||||||||||
Income before provision for income taxes | 738 | 15.3 | 729 | 15.1 | 9 | 1.2 | |||||||||||||||||||||||||||||
Provision for income taxes | (158) | (170) | 12 | (7.1) | |||||||||||||||||||||||||||||||
Income (loss) from equity method investments | — | 4 | (4) | (100.0) | |||||||||||||||||||||||||||||||
Net income | $ | 580 | 12.1 | $ | 563 | 11.7 | $ | 17 | 3.0 | ||||||||||||||||||||||||||
Diluted earnings per share | $ | 1.14 | $ | 1.07 | $ | 0.07 | 6.5 | ||||||||||||||||||||||||||||
Other Financial Information2 | |||||||||||||||||||||||||||||||||||
Adjusted Diluted EPS | $ | 1.11 | $ | 1.08 | $ | 0.03 | 2.8 |
Revenues |
Cognizant Technology Solutions | 25 | March 31, 2023 Form 10-Q |
Revenues - Reportable Business Segments and Geographic Markets |
Q1 2023 as compared to Q1 2022 | Increase / (Decrease) | ||||||||||||||||||||||
(Dollars in millions) | $ | % | CC %3 | ||||||||||||||||||||
Financial Services | $ | (52) | (3.4) | (1.4) | |||||||||||||||||||
Health Sciences | 41 | 2.9 | 3.5 | ||||||||||||||||||||
Products and Resources | (12) | (1.1) | 1.4 | ||||||||||||||||||||
CMT | 9 | 1.2 | 3.9 | ||||||||||||||||||||
Total revenues | $ | (14) | (0.3) | 1.5 |
Q1 2023 as compared to Q1 2022 | Increase / (Decrease) | ||||||||||||||||||||||
(Dollars in millions) | $ | % | CC %3 | ||||||||||||||||||||
North America | $ | (24) | (0.7) | (0.5) | |||||||||||||||||||
United Kingdom | 25 | 5.5 | 14.4 | ||||||||||||||||||||
Continental Europe | 2 | 0.4 | 5.1 | ||||||||||||||||||||
Europe - Total | 27 | 3.0 | 9.7 | ||||||||||||||||||||
Rest of World | (17) | (4.9) | 0.9 | ||||||||||||||||||||
Total revenues | $ | (14) | (0.3) | 1.5 |
Cognizant Technology Solutions | 26 | March 31, 2023 Form 10-Q |
Cost of Revenues (Exclusive of Depreciation and Amortization Expense) |
é | $46M | ||||||||||
é | 1.1% as a % of revenues | ||||||||||
¡ | % of Revenues | ||||||||||
SG&A Expenses (Exclusive of Depreciation and Amortization Expense) |
ê | $27M | ||||||||||
ê | 0.5% as a % of revenues | ||||||||||
¡ | % of Revenues | ||||||||||
Depreciation and Amortization Expense |
Operating Margin - Overall |
ê | $22 million | ||||||||||
ê | 0.4% as a % of revenue | ||||||||||
¡ | % of Revenues | ||||||||||
Cognizant Technology Solutions | 27 | March 31, 2023 Form 10-Q |
Segment Operating Profit |
Segment operating profit | % | Segment operating margin |
(Dollars in millions) | 2023 | % of Revenues | 2022 | % of Revenues | Increase | ||||||||||||||||||||||||
Total segment operating profit | $ | 1,006 | 20.9 | $ | 1,047 | 21.7 | $ | (41) | |||||||||||||||||||||
Less: unallocated costs | 304 | 323 | (19) | ||||||||||||||||||||||||||
Income from operations | $ | 702 | 14.6 | $ | 724 | 15.0 | $ | (22) |
Other Income (Expense), Net |
(in millions) | 2023 | 2022 | Increase/ Decrease | ||||||||||||||
Foreign currency exchange gains (losses) | $ | 22 | $ | (13) | $ | 35 | |||||||||||
(Losses) gains on foreign exchange forward contracts not designated as hedging instruments | (10) | 13 | (23) | ||||||||||||||
Foreign currency exchange gains (losses), net | 12 | — | 12 | ||||||||||||||
Interest income | 30 | 6 | 24 | ||||||||||||||
Interest expense | (9) | (2) | (7) | ||||||||||||||
Other, net | 3 | 1 | 2 | ||||||||||||||
Total other income (expense), net | $ | 36 | $ | 5 | $ | 31 |
Cognizant Technology Solutions | 28 | March 31, 2023 Form 10-Q |
Provision for Income Taxes |
ê | $12M | ||||||||||
¡ Effective Income Tax Rate ê 1.9% | |||||||||||
Net Income |
é | $17M | |||||||
¡ é 0.4% of Revenues | ||||||||
2023 | 2022 | ||||||||||
GAAP diluted EPS | $ | 1.14 | $ | 1.07 | |||||||
Non-operating foreign currency exchange (gains) losses, pre-tax (1) | (0.02) | — | |||||||||
Tax effect of non-operating foreign currency exchange (gains) losses(2) | (0.01) | 0.01 | |||||||||
Adjusted Diluted EPS | $ | 1.11 | $ | 1.08 | |||||||
Cognizant Technology Solutions | 29 | March 31, 2023 Form 10-Q |
Three Months Ended March 31, | |||||||||||
(in millions) | 2023 | 2022 | |||||||||
Non-GAAP income tax benefit (expense) related to: | |||||||||||
Foreign currency exchange gains and losses | 5 | (6) |
Liquidity and Capital Resources |
(in millions) | 2023 | 2022 | Increase / Decrease | |||||||||||||||||
Net cash provided by (used in): | ||||||||||||||||||||
Operating activities | $ | 729 | $ | 306 | $ | 423 | ||||||||||||||
Investing activities | (215) | 700 | (915) | |||||||||||||||||
Financing activities | (350) | (600) | 250 | |||||||||||||||||
Cognizant Technology Solutions | 30 | March 31, 2023 Form 10-Q |
Acquisitions | |||||
Share Repurchases | |||||
Dividend payments | |||||
Commitments and Contingencies |
Critical Accounting Estimates |
Recently Adopted and New Accounting Pronouncements |
Item 3. Quantitative and Qualitative Disclosures about Market Risk. |
Cognizant Technology Solutions | 31 | March 31, 2023 Form 10-Q |
Item 4. Controls and Procedures. |
Cognizant Technology Solutions | 32 | March 31, 2023 Form 10-Q |
Item 1. Legal Proceedings |
Item 1A. Risk Factors |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Month | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (in millions) | ||||||||||||||||||||||
January 1, 2023 - January 31, 2023 | — | $ | — | — | $ | 2,775 | ||||||||||||||||||||
February 1, 2023 - February 28, 2023 | 1,518,589 | 65.85 | 1,518,589 | 2,675 | ||||||||||||||||||||||
March 1, 2023 - March 31, 2023 | 1,676,815 | 59.64 | 1,676,815 | 2,575 | ||||||||||||||||||||||
Total | 3,195,404 | $ | 62.59 | 3,195,404 |
Cognizant Technology Solutions | 33 | March 31, 2023 Form 10-Q |
Item 5. Other Information |
Cognizant Technology Solutions | 34 | March 31, 2023 Form 10-Q |
Item 6. Exhibit Index |
Incorporated by Reference | ||||||||||||||||||||||||||||||||||||||
Number | Exhibit Description | Form | File No. | Exhibit | Date | Filed or Furnished Herewith | ||||||||||||||||||||||||||||||||
3.1 | 8-K | 000-24429 | 3.1 | 6/7/2018 | ||||||||||||||||||||||||||||||||||
3.2 | 8-K | 000-24429 | 3.1 | 9/20/2018 | ||||||||||||||||||||||||||||||||||
10.1 | 10-Q | 000-24429 | 10.1 | 7/28/2022 | ||||||||||||||||||||||||||||||||||
31.1 | Filed | |||||||||||||||||||||||||||||||||||||
31.2 | Filed | |||||||||||||||||||||||||||||||||||||
32.1 | Furnished | |||||||||||||||||||||||||||||||||||||
32.2 | Furnished | |||||||||||||||||||||||||||||||||||||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | Filed | ||||||||||||||||||||||||||||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||||||||||||||||||||||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||||||||||||||||||||||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||||||||||||||||||||||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||||||||||||||||||||||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||||||||||||||||||||||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | Filed |
Cognizant Technology Solutions | 35 | March 31, 2023 Form 10-Q |
Cognizant Technology Solutions Corporation | ||||||||||||||||||||
Date: | May 3, 2023 | By: | /s/ RAVI KUMAR S | |||||||||||||||||
Ravi Kumar S, | ||||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||
(Principal Executive Officer) |
Date: | May 3, 2023 | By: | /s/ JAN SIEGMUND | |||||||||||||||||
Jan Siegmund, | ||||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||
(Principal Financial Officer) |
Cognizant Technology Solutions | 36 | March 31, 2023 Form 10-Q |
Dated: | May 3, 2023 | /s/ Ravi Kumar S | ||||||||||||
Ravi Kumar S, | ||||||||||||||
Chief Executive Officer (Principal Executive Officer) |
Dated: | May 3, 2023 | /s/ Jan Siegmund | ||||||||||||
Jan Siegmund, | ||||||||||||||
Chief Financial Officer (Principal Financial Officer) |
Dated: | May 3, 2023 | /s/ Ravi Kumar S | ||||||||||||
Ravi Kumar S, | ||||||||||||||
Chief Executive Officer (Principal Executive Officer) |
Dated: | May 3, 2023 | /s/ Jan Siegmund | ||||||||||||
Jan Siegmund, | ||||||||||||||
Chief Financial Officer (Principal Financial Officer) |