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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended | September 30, 2024 |
☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the transition period from to |
Commission File Number 0-24429 COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter) | | | | | | | | | | | |
Delaware | | 13-3728359 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
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300 Frank W. Burr Blvd.
Teaneck, New Jersey 07666
(Address of Principal Executive Offices including Zip Code)
Registrant’s telephone number, including area code: (201) 801-0233
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report) Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
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 |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No: ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | |
Large Accelerated Filer | ☒ | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 25, 2024:
| | | | | | | | |
Class | | Number of Shares |
Class A Common Stock, par value $0.01 per share | | 495,824,260 |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
TABLE OF CONTENTS
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PART I. | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 5. | | |
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Item 6. | | |
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GLOSSARY | | | | | | |
Defined Term | Definition | |
10b5-1 Plan | Trading plan adopted pursuant to Rule 10b5-1 under the Exchange Act | |
Adjusted Diluted EPS | Adjusted diluted earnings per share | |
AI | Artificial intelligence | |
ASC | Accounting Standards Codification | |
CC | Constant Currency | |
CE | Continental Europe | |
CITA | Commissioner of Income Tax (Appeals) in India | |
CMT | Communications, Media and Technology | |
CODM | Chief Operating Decision Maker | |
Credit Agreement | Credit agreement with a commercial bank syndicate dated April 18, 2024, as amended | |
CTS India | Our principal operating subsidiary in India | |
DOJ | United States Department of Justice | |
DSO | Days Sales Outstanding | |
DTSA | Defend Trade Secrets Act | |
EPS | Earnings per share | |
ESG | Environmental, social and corporate governance | |
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 | |
GenAI | Generative artificial intelligence | |
HS | Health Sciences | |
High Court | Madras, India High Court | |
India Defined Contribution Obligation | Certain statutory defined contribution obligations of employees and employers in India | |
IRS | Internal Revenue Service | |
ITAT | Income Tax Appellate Tribunal in India | |
ITD | Indian Income Tax Department | |
NA | North America | |
Ninth Circuit | United States Court of Appeals for the Ninth Circuit | |
OECD | Organization for Economic Cooperation and Development | |
P&R | Products & Resources | |
Recently completed acquisitions | Acquisitions that were completed in the 12 months preceding the beginning of the reporting period (in order to identify the impact of such acquisitions for the first twelve months of ownership) | |
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-CDCA | United States District Court for the Central District of California | |
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 | |
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Cognizant Technology Solutions | 1 | September 30, 2024 Form 10-Q |
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Forward Looking Statements |
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Exchange Act) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,” “would,” “plan,” “intend,” “estimate,” “predict,” “potential,” “continue,” “should” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.
Such forward-looking statements may be included in various filings made by us with the SEC, in press releases or in oral statements made by or with the approval of one of our authorized executive officers. These forward-looking statements, such as statements regarding our anticipated future revenues, operating margin, earnings, capital expenditures, impacts to our business, financial results and financial condition as a result of the competitive marketplace for talent and future attrition trends, anticipated effective income tax rate and income tax expense, liquidity, financing strategy, access to capital, capital return strategy, investment strategies, cost management, plans and objectives, including those related to the NextGen program, investment in our business, potential acquisitions, industry trends, client behaviors and trends, the outcome of and costs associated with regulatory and litigation matters, the appropriateness of the accrual related to the India Defined Contribution Obligation, matters related to the Belcan acquisition and other statements regarding matters that are not historical facts, are based on our current expectations, estimates and projections, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Actual results, performance, achievements and outcomes could differ materially from the results expressed in, or anticipated or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including:
•economic and geopolitical conditions globally, in particular in the markets in which our clients and operations are concentrated;
•our ability to attract, train and retain skilled employees, including highly skilled technical personnel and personnel with experience in key digital areas and senior management to lead our business globally, at an acceptable cost;
•unexpected terminations of client contracts on short notice or reduced spending by clients for reasons beyond our control;
•challenges related to growing our business organically as well as inorganically through acquisitions, and our ability to achieve our targeted growth rates;
•our ability to successfully implement our NextGen program and the amount of costs, timing of incurring costs, and ultimate benefits of such plans;
•our ability to achieve our profitability goals and maintain our capital return strategy;
•fluctuations in foreign currency exchange rates, or the failure of our hedging strategies to mitigate such fluctuations;
•our ability to meet specified service levels or milestones required by certain of our contracts;
•intense and evolving competition and significant technological advances that our service offerings must keep pace with in the rapidly changing markets we compete in;
•our ability to successfully use AI-based technologies in our client offerings and our own internal operations;
•legal, reputation and financial risks if we fail to protect client and/or our data from security breaches and/or cyber attacks;
•the impact of future pandemics, epidemics or other outbreaks of disease, on our business, results of operations, liquidity and financial condition;
•the impact of climate change on our business;
•our ability to meet ESG expectations and commitments;
•the effectiveness of our risk management, business continuity and disaster recovery plans and the potential that our global delivery capabilities could be impacted;
•restrictions on visas, in particular in the United States, UK and EU, or immigration more generally or increased costs of such visas or the wages we are required to pay employees on visas, which may affect our ability to compete for and provide services to our clients;
•risks related to anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing, both of which could impair our ability to serve our clients;
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Cognizant Technology Solutions | 2 | September 30, 2024 Form 10-Q |
•risks and costs related to complying with numerous and evolving legal and regulatory requirements and client expectations in the many jurisdictions in which we operate;
•potential changes in tax laws, or in their interpretation or enforcement, failure by us to adapt our corporate structure and intercompany arrangements, or adverse outcomes of tax audits, investigations or proceedings;
•potential exposure to litigation and legal claims in the conduct of our business; and
•the factors set forth in "Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC, including this report in the section titled “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part I, Item 1. Business” in our Annual Report on Form 10-K for the year ended December 31, 2023. We undertake 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 laws.
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Cognizant Technology Solutions | 3 | September 30, 2024 Form 10-Q |
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited).
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
| | | | | | | | | | | |
(in millions, except par values) | September 30, 2024 | | December 31, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 2,013 | | | $ | 2,621 | |
Short-term investments | 12 | | | 14 | |
Trade accounts receivable, net | 4,206 | | | 3,849 | |
Other current assets | 1,317 | | | 1,022 | |
Total current assets | 7,548 | | | 7,506 | |
Property and equipment, net | 1,001 | | | 1,048 | |
Operating lease assets, net | 587 | | | 611 | |
Goodwill | 7,132 | | | 6,085 | |
Intangible assets, net | 1,681 | | | 1,149 | |
Deferred income tax assets, net | 1,091 | | | 993 | |
Long-term investments | 90 | | | 435 | |
Other noncurrent assets | 1,034 | | | 656 | |
Total assets | $ | 20,164 | | | $ | 18,483 | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 304 | | | $ | 337 | |
Deferred revenue | 355 | | | 385 | |
Short-term debt | 33 | | | 33 | |
Operating lease liabilities | 192 | | | 153 | |
Accrued expenses and other current liabilities | 2,504 | | | 2,425 | |
Total current liabilities | 3,388 | | | 3,333 | |
Deferred revenue, noncurrent | 28 | | | 42 | |
Operating lease liabilities, noncurrent | 455 | | | 523 | |
Deferred income tax liabilities, net | 218 | | | 226 | |
Long-term debt | 1,183 | | | 606 | |
Long-term income taxes payable | — | | | 157 | |
Other noncurrent liabilities | 440 | | | 369 | |
Total liabilities | 5,712 | | | 5,256 | |
Commitments and contingencies (See Note 12) | | | |
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, 496 and 498 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | 5 | | | 5 | |
Additional paid-in capital | 58 | | | 15 | |
Retained earnings | 14,347 | | | 13,301 | |
Accumulated other comprehensive income (loss) | 42 | | | (94) | |
Total stockholders’ equity | 14,452 | | | 13,227 | |
Total liabilities and stockholders’ equity | $ | 20,164 | | | $ | 18,483 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Cognizant Technology Solutions | 4 | September 30, 2024 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except per share data) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Revenues | $ | 5,044 | | | $ | 4,897 | | | $ | 14,654 | | | $ | 14,595 | |
Operating expenses: | | | | | | | |
Cost of revenues (exclusive of depreciation and amortization expense shown separately below) | 3,311 | | | 3,209 | | | 9,661 | | | 9,583 | |
Selling, general and administrative expenses | 833 | | | 801 | | | 2,379 | | | 2,466 | |
Restructuring charges | 33 | | | 72 | | | 85 | | | 189 | |
Depreciation and amortization expense | 129 | | | 129 | | | 388 | | | 392 | |
Income from operations | 738 | | | 686 | | | 2,141 | | | 1,965 | |
Other income (expense), net: | | | | | | | |
Interest income | 31 | | | 32 | | | 91 | | | 92 | |
Interest expense | (14) | | | (11) | | | (35) | | | (30) | |
Foreign currency exchange gains (losses), net | (8) | | | — | | | (1) | | | 3 | |
Other, net | 1 | | | 6 | | | 2 | | | 8 | |
Total other income (expense), net | 10 | | | 27 | | | 57 | | | 73 | |
Income before provision for income taxes | 748 | | | 713 | | | 2,198 | | | 2,038 | |
Provision for income taxes | (170) | | | (191) | | | (514) | | | (473) | |
Income (loss) from equity method investments | 4 | | | 3 | | | 10 | | | 3 | |
Net income | $ | 582 | | | $ | 525 | | | $ | 1,694 | | | $ | 1,568 | |
Basic earnings per share | $ | 1.17 | | | $ | 1.04 | | | $ | 3.41 | | | $ | 3.10 | |
Diluted earnings per share | $ | 1.17 | | | $ | 1.04 | | | $ | 3.41 | | | $ | 3.09 | |
Weighted average number of common shares outstanding - Basic | 496 | | | 504 | | | 497 | | | 506 | |
Dilutive effect of shares issuable under stock-based compensation plans | — | | | 1 | | | — | | | 1 | |
Weighted average number of common shares outstanding - Diluted | 496 | | | 505 | | | 497 | | | 507 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Cognizant Technology Solutions | 5 | September 30, 2024 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net income | $ | 582 | | | $ | 525 | | | $ | 1,694 | | | $ | 1,568 | |
Change in Accumulated other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | 206 | | | (129) | | | 132 | | | (35) | |
Unrealized gains and losses on cash flow hedges | (14) | | | (15) | | | 4 | | | 49 | |
| | | | | | | |
Other comprehensive income (loss) | 192 | | | (144) | | | 136 | | | 14 | |
Comprehensive income | $ | 774 | | | $ | 381 | | | $ | 1,830 | | | $ | 1,582 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Cognizant Technology Solutions | 6 | September 30, 2024 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except per share data) | | Class A Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| Shares | | Amount | |
Balance, December 31, 2023 | | 498 | | | $ | 5 | | | $ | 15 | | | $ | 13,301 | | | $ | (94) | | | $ | 13,227 | |
Net income | | — | | | — | | | — | | | 546 | | | — | | | 546 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (62) | | | (62) | |
Common stock issued, stock-based compensation plans | | 1 | | | — | | | 20 | | | — | | | — | | | 20 | |
Stock-based compensation expense | | — | | | — | | | 42 | | | — | | | — | | | 42 | |
Repurchases of common stock | | (2) | | | — | | | (57) | | | (76) | | | — | | | (133) | |
Dividends declared, $0.30 per share | | — | | | — | | | — | | | (150) | | | — | | | (150) | |
Balance, March 31, 2024 | | 497 | | | 5 | | | 20 | | | 13,621 | | | (156) | | | 13,490 | |
Net income | | — | | | — | | | — | | | 566 | | | — | | | 566 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 6 | | | 6 | |
Common stock issued, stock-based compensation plans | | 1 | | | — | | | 15 | | | — | | | — | | | 15 | |
Stock-based compensation expense | | — | | | — | | | 48 | | | — | | | — | | | 48 | |
Repurchases of common stock | | (1) | | | — | | | (68) | | | (8) | | | — | | | (76) | |
Dividends declared, $0.30 per share | | — | | | — | | | — | | | (151) | | | — | | | (151) | |
Balance, June 30, 2024 | | 497 | | | 5 | | | 15 | | | 14,028 | | | (150) | | | 13,898 | |
Net income | | — | | | — | | | — | | | 582 | | | — | | | 582 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 192 | | | 192 | |
Common stock issued, stock-based compensation plans | | 1 | | | — | | | 14 | | | — | | | — | | | 14 | |
Common stock issued, acquisition related | | 1 | | | — | | | 113 | | | — | | | — | | | 113 | |
Stock-based compensation expense | | — | | | — | | | 44 | | | — | | | — | | | 44 | |
Repurchases of common stock | | (3) | | | — | | | (128) | | | (114) | | | — | | | (242) | |
Dividends declared, $0.30 per share | | — | | | — | | | — | | | (149) | | | — | | | (149) | |
Balance, September 30, 2024 | | 496 | | | $ | 5 | | | $ | 58 | | | $ | 14,347 | | | $ | 42 | | | $ | 14,452 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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Cognizant Technology Solutions | 7 | September 30, 2024 Form 10-Q |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions, except per share data) | | Class A Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| 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 | |
Net income | | — | | | — | | | — | | | 463 | | | — | | | 463 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 81 | | | 81 | |
Common stock issued, stock-based compensation plans | | 1 | | | — | | | 18 | | | — | | | — | | | 18 | |
Stock-based compensation expense | | — | | | — | | | 42 | | | — | | | — | | | 42 | |
Repurchases of common stock | | (3) | | | — | | | (65) | | | (150) | | | — | | | (215) | |
Dividends declared, $0.29 per share | | — | | | — | | | — | | | (147) | | | — | | | (147) | |
Balance, June 30, 2023 | | 505 | | | 5 | | | 17 | | | 13,022 | | | (141) | | | 12,903 | |
Net income | | — | | | — | | | — | | | 525 | | | — | | | 525 | |
Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (144) | | | (144) | |
Common stock issued, stock-based compensation plans | | — | | | — | | | 16 | | | — | | | — | | | 16 | |
Stock-based compensation expense | | — | | | — | | | 47 | | | — | | | — | | | 47 | |
Repurchases of common stock | | (4) | | | — | | | (64) | | | (253) | | | — | | | (317) | |
Dividends declared, $0.29 per share | | — | | | — | | | — | | | (148) | | | — | | | (148) | |
Balance, September 30, 2023 | | 501 | | | $ | 5 | | | $ | 16 | | | $ | 13,146 | | | $ | (285) | | | $ | 12,882 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Cognizant Technology Solutions | 8 | September 30, 2024 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
(in millions) | For the Nine Months Ended September 30, |
| 2024 | | 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 1,694 | | | $ | 1,568 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 399 | | | 419 | |
| | | |
Deferred income taxes | (202) | | | (287) | |
Stock-based compensation expense | 134 | | | 133 | |
| | | |
Other | 23 | | | 57 | |
Changes in assets and liabilities, net of the effect of business combinations: | | | |
Trade accounts receivable, current | (166) | | | (14) | |
Other current and noncurrent assets | (512) | | | 142 | |
Accounts payable | (29) | | | (35) | |
Deferred revenues, current and noncurrent | (56) | | | (93) | |
Other current and noncurrent liabilities | (81) | | | (297) | |
Net cash provided by operating activities | 1,204 | | | 1,593 | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (214) | | | (239) | |
Purchases of available-for-sale investment securities | — | | | (59) | |
Proceeds from maturity or sale of available-for-sale investment securities | — | | | 225 | |
Purchases of held-to-maturity investment securities | — | | | (3) | |
Proceeds from maturity of held-to-maturity investment securities | 3 | | | 24 | |
Purchases of other investments | (1) | | | (399) | |
Proceeds from maturity or sale of other investments | 260 | | | 361 | |
| | | |
Payments for business combinations, net of cash acquired | (1,615) | | | (409) | |
Net cash (used in) investing activities | (1,567) | | | (499) | |
Cash flows from financing activities: | | | |
Issuance of common stock under stock-based compensation plans | 49 | | | 57 | |
| | | |
| | | |
Repurchases of common stock | (451) | | | (751) | |
Repayment of Term Loan borrowings and earnout and finance lease obligations | (61) | | | (15) | |
Proceeds from borrowings under the revolving credit facility | 600 | | | — | |
Dividends paid | (450) | | | (445) | |
Net cash (used in) financing activities | (313) | | | (1,154) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents | (28) | | | (30) | |
(Decrease) in cash, cash equivalents and restricted cash and cash equivalents | (704) | | | (90) | |
Cash, cash equivalents and restricted cash and cash equivalents beginning of year | 2,717 | | | 2,294 | |
Cash and cash equivalents, end of period | $ | 2,013 | | | $ | 2,204 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
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Cognizant Technology Solutions | 9 | September 30, 2024 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | | | | | | | | | | | | |
Note 1 — Interim Consolidated Financial Statements |
The terms “Cognizant,” “we,” “our,” “us” and “the Company” refer to Cognizant Technology Solutions Corporation and its subsidiaries unless the context indicates otherwise. We have prepared the accompanying unaudited consolidated financial statements included herein in accordance with GAAP and the Exchange Act. The accompanying unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2023. In our opinion, all adjustments considered necessary for a fair statement of the accompanying unaudited consolidated financial statements have been included and all adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire year.
New Accounting Pronouncements
| | | | | | | | | | | |
Date Issued and Topic | Effective Date | Description | Impact |
November 2023
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
| Annual period starting in 2024 and interim periods starting in 2025
Retrospective basis
| The standard requires enhanced segment disclosures but does not change the definition of a segment or the guidance for determining a reportable segment. The amendments require disclosure of significant segment expenses regularly provided to the CODM included within segment operating profit or loss and a description of how the CODM utilizes segment operating profit or loss to assess segment performance and allocate resources. The new standard also allows companies to disclose multiple measures of segment profit or loss if those measures are used to allocate resources. | The adoption of the new standard is not expected to have a significant impact on our disclosures. |
December 2023
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
| Annual period starting in 2025
Prospective basis although retrospective application is permitted
| The standard requires enhanced income tax disclosures primarily related to the income tax rate reconciliation and income taxes paid information. | The Company is currently evaluating the impact of the new standard on its disclosures. |
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Cognizant Technology Solutions | 10 | September 30, 2024 Form 10-Q |
| | | | | | | | | | | | | | |
Note 2 — Revenues and Trade Accounts Receivable |
Disaggregation of Revenues
The tables below present disaggregated revenues from contracts with clients by client location, service line and contract type for each of our reportable business segments. We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by industry, market and other economic factors. Our consulting and technology services include consulting, application development, systems integration, quality engineering and assurance services as well as software solutions and related services while our outsourcing services include application maintenance, infrastructure and security as well as business process services. Revenues are attributed to geographic regions based upon client location, which is the client's billing address. Substantially all revenues in the North America region relate to clients in the United States.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2024 | | Nine Months Ended September 30, 2024 |
| | |
(in millions) | | FS | | HS | | P&R | | CMT | | Total | | FS | | HS | | P&R | | CMT | | Total |
Revenues | | | | | | | | | | | | | | | | | | | | |
Geography: | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 1,048 | | | $ | 1,295 | | | $ | 828 | | | $ | 564 | | | $ | 3,735 | | | $ | 3,064 | | | $ | 3,756 | | | $ | 2,362 | | | $ | 1,694 | | | $ | 10,876 | |
United Kingdom | | 147 | | | 47 | | | 157 | | | 131 | | | 482 | | | 428 | | | 138 | | | 415 | | | 401 | | | 1,382 | |
Continental Europe | | 156 | | | 143 | | | 154 | | | 32 | | | 485 | | | 457 | | | 413 | | | 447 | | | 121 | | | 1,438 | |
Europe - Total | | 303 | | | 190 | | | 311 | | | 163 | | | 967 | | | 885 | | | 551 | | | 862 | | | 522 | | | 2,820 | |
Rest of World | | 135 | | | 29 | | | 89 | | | 89 | | | 342 | | | 369 | | | 84 | | | 263 | | | 242 | | | 958 | |
Total | | $ | 1,486 | | | $ | 1,514 | | | $ | 1,228 | | | $ | 816 | | | $ | 5,044 | | | $ | 4,318 | | | $ | 4,391 | | | $ | 3,487 | | | $ | 2,458 | | | $ | 14,654 | |
| | | | | | | | | | | | | | | | | | | | |
Service line: | | | | | | | | | | | | | | | | | | | | |
Consulting and technology services | | $ | 1,051 | | | $ | 895 | | | $ | 833 | | | $ | 447 | | | $ | 3,226 | | | $ | 3,025 | | | $ | 2,560 | | | $ | 2,297 | | | $ | 1,373 | | | $ | 9,255 | |
Outsourcing services | | 435 | | | 619 | | | 395 | | | 369 | | | 1,818 | | | 1,293 | | | 1,831 | | | 1,190 | | | 1,085 | | | 5,399 | |
Total | | $ | 1,486 | | | $ | 1,514 | | | $ | 1,228 | | | $ | 816 | | | $ | 5,044 | | | $ | 4,318 | | | $ | 4,391 | | | $ | 3,487 | | | $ | 2,458 | | | $ | 14,654 | |
| | | | | | | | | | | | | | | | | | | | |
Type of contract: | | | | | | | | | | | | | | | | | | | | |
Time and materials | | $ | 833 | | | $ | 499 | | | $ | 511 | | | $ | 439 | | | $ | 2,282 | | | $ | 2,421 | | | $ | 1,486 | | | $ | 1,428 | | | $ | 1,336 | | | $ | 6,671 | |
Fixed-price | | 608 | | | 738 | | | 627 | | | 327 | | | 2,300 | | | 1,761 | | | 2,111 | | | 1,803 | | | 994 | | | 6,669 | |
Transaction or volume-based | | 45 | | | 277 | | | 90 | | | 50 | | | 462 | | | 136 | | | 794 | | | 256 | | | 128 | | | 1,314 | |
Total | | $ | 1,486 | | | $ | 1,514 | | | $ | 1,228 | | | $ | 816 | | | $ | 5,044 | | | $ | 4,318 | | | $ | 4,391 | | | $ | 3,487 | | | $ | 2,458 | | | $ | 14,654 | |
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Cognizant Technology Solutions | 11 | September 30, 2024 Form 10-Q |
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| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| | |
(in millions) | | FS | | HS | | P&R | | CMT | | Total | | FS | | HS | | P&R | | CMT | | Total |
Revenues | | | | | | | | | | | | | | | | | | | | |
Geography: | | | | | | | | | | | | | | | | | | | | |
North America | | $ | 1,040 | | | $ | 1,194 | | | $ | 785 | | | $ | 580 | | | $ | 3,599 | | | $ | 3,100 | | | $ | 3,675 | | | $ | 2,306 | | | $ | 1,652 | | | $ | 10,733 | |
United Kingdom | | 156 | | | 43 | | | 137 | | | 150 | | | 486 | | | 473 | | | 124 | | | 406 | | | 434 | | | 1,437 | |
Continental Europe | | 151 | | | 139 | | | 153 | | | 41 | | | 484 | | | 458 | | | 398 | | | 463 | | | 120 | | | 1,439 | |
Europe - Total | | 307 | | | 182 | | | 290 | | | 191 | | | 970 | | | 931 | | | 522 | | | 869 | | | 554 | | | 2,876 | |
Rest of World | | 128 | | | 29 | | | 95 | | | 76 | | | 328 | | | 383 | | | 81 | | | 290 | | | 232 | | | 986 | |
Total | | $ | 1,475 | | | $ | 1,405 | | | $ | 1,170 | | | $ | 847 | | | $ | 4,897 | | | $ | 4,414 | | | $ | 4,278 | | | $ | 3,465 | | | $ | 2,438 | | | $ | 14,595 | |
| | | | | | | | | | | | | | | | | | | | |
Service line: | | | | | | | | | | | | | | | | | | | | |
Consulting and technology services | | $ | 1,013 | | | $ | 806 | | | $ | 763 | | | $ | 440 | | | $ | 3,022 | | | $ | 3,019 | | | $ | 2,440 | | | $ | 2,258 | | | $ | 1,318 | | | $ | 9,035 | |
Outsourcing services | | 462 | | | 599 | | | 407 | | | 407 | | | 1,875 | | | 1,395 | | | 1,838 | | | 1,207 | | | 1,120 | | | 5,560 | |
Total | | $ | 1,475 | | | $ | 1,405 | | | $ | 1,170 | | | $ | 847 | | | $ | 4,897 | | | $ | 4,414 | | | $ | 4,278 | | | $ | 3,465 | | | $ | 2,438 | | | $ | 14,595 | |
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Type of contract: | | | | | | | | | | | | | | | | | | | | |
Time and materials | | $ | 806 | | | $ | 513 | | | $ | 471 | | | $ | 471 | | | $ | 2,261 | | | $ | 2,478 | | | $ | 1,520 | | | $ | 1,391 | | | $ | 1,395 | | | $ | 6,784 | |
Fixed-price | | 611 | | | 640 | | | 610 | | | 328 | | | 2,189 | | | 1,764 | | | 1,945 | | | 1,807 | | | 926 | | | 6,442 | |
Transaction or volume-based | | 58 | | | 252 | | | 89 | | | 48 | | | 447 | | | 172 | | | 813 | | | 267 | | | 117 | | | 1,369 | |
Total | | $ | 1,475 | | | $ | 1,405 | | | $ | 1,170 | | | $ | 847 | | | $ | 4,897 | | | $ | 4,414 | | | $ | 4,278 | | | $ | 3,465 | | | $ | 2,438 | | | $ | 14,595 | |
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Costs to Fulfill
The following table shows significant movements in the capitalized costs to fulfill for the nine months ended September 30:
| | | | | | | | | | | | | | |
(in millions) | | 2024 | | 2023 |
Beginning balance | | $ | 245 | | | $ | 265 | |
Costs capitalized | | 43 | | | 41 | |
Amortization expense | | (69) | | | (64) | |
| | | | |
Ending balance | | $ | 219 | | | $ | 242 | |
Costs to obtain contracts were immaterial for the periods disclosed.
Contract Balances
The table below shows significant movements in contract assets (current and noncurrent) for the nine months ended September 30:
| | | | | | | | | | | | | | |
(in millions) | | 2024 | | 2023 |
Beginning balance | | $ | 316 | | | $ | 326 | |
Revenues recognized during the period but not billed | | 377 | | | 370 | |
Amounts reclassified to trade accounts receivable | | (270) | | | (316) | |
Amounts acquired in business combinations | | — | | | 9 | |
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Ending balance | | $ | 423 | | | $ | 389 | |
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Cognizant Technology Solutions | 12 | September 30, 2024 Form 10-Q |
The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the nine months ended September 30:
| | | | | | | | | | | | | | |
(in millions) | | 2024 | | 2023 |
Beginning balance | | $ | 427 | | | $ | 417 | |
Amounts billed but not recognized as revenues | | 298 | | | 228 | |
Revenues recognized related to the beginning balance of deferred revenue | | (354) | | | (322) | |
Amounts acquired in business combinations | | 12 | | | 13 | |
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Ending balance | | $ | 383 | | | $ | 336 | |
Revenues recognized during the nine months ended September 30, 2024 for performance obligations satisfied or partially satisfied in previous periods were immaterial.
Remaining Performance Obligations
As of September 30, 2024, the aggregate amount of transaction price allocated to remaining performance obligations was $4,700 million, of which approximately 55% is expected to be recognized as revenues within 2 years and approximately 85% is expected to be recognized as revenues within 5 years. Disclosure is not required for performance obligations that meet any of the following criteria:
(1)contracts with a duration of one year or less as determined under ASC Topic 606: "Revenue from Contracts with Customers",
(2)contracts for which we recognize revenues based on the right to invoice for services performed,
(3)variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or
(4)variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
Many of our performance obligations meet one or more of these exemptions and therefore are not included in the remaining performance obligation amount disclosed above.
Trade Accounts Receivable and Allowance for Credit Losses
We calculate expected credit losses for trade accounts receivable based on historical credit loss rates for each aging category as adjusted for the current market conditions and forecasts about future economic conditions. The following table presents the activity in the allowance for credit losses for trade accounts receivable for the nine months ended September 30:
| | | | | | | | | | | | | | |
(in millions) | | 2024 | | 2023 |
Beginning balance | | $ | 32 | | | $ | 43 | |
Credit loss expense (1) | | 7 | | | 11 | |
Write-offs charged against the allowance | | (9) | | | (18) | |
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Ending balance | | $ | 30 | | | $ | 36 | |
(1)Reported in "Selling, general and administrative expenses" in our unaudited consolidated statements of operations.
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Note 3 — Business Combinations |
On January 22, 2024, through the execution of a share purchase agreement, we acquired 100% ownership in Thirdera, an Elite ServiceNow Partner specializing in advisory, implementation and optimization solutions related to the ServiceNow platform.
On August 26, 2024, through the execution of a merger agreement, we acquired 100% ownership in Belcan, a leading global supplier of Engineering Research & Development services for the commercial aerospace, defense, space, marine and industrial verticals. We paid $1,195 million in cash, net of cash acquired, and issued 1,470,589 shares of our Class A common stock, valued at $113 million, in connection with our acquisition of Belcan.
The acquisitions completed during the nine months ended September 30, 2024 were not material to our operations. Accordingly, pro forma results have not been presented. We have allocated the purchase price related to these transactions to
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Cognizant Technology Solutions | 13 | September 30, 2024 Form 10-Q |
tangible and intangible assets acquired and liabilities assumed, including goodwill, based on their estimated fair values.
The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as follows:
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(in millions) | Thirdera | | Belcan | | Total | | Weighted Average Useful Life |