UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
| | | | | | | | |
| ☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended | June 30, 20212022 |
| ☐ | 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.) |
| | |
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 | ☐ |
| | | |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | |
| | 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 July 23, 2021:22, 2022:
| | | | | | | | |
| Class | | Number of Shares |
| Class A Common Stock, par value $0.01 per share | | 525,597,200517,784,927 |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
TABLE OF CONTENTS
| | | | | | | | |
| | | Page |
| |
| | |
| PART I. | | |
| | |
| Item 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Item 2. | | |
| | |
| Item 3. | | |
| | |
| Item 4. | | |
| | |
| PART II. | | |
| | |
| Item 1. | | |
| | |
| Item 1A. | | |
| | |
| Item 2. | | |
| | |
| Item 6. | | |
| |
| |
GLOSSARY | | | | | | |
| 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 |
AI | Artificial Intelligence |
| ASC | Accounting Standards Codification | |
| ASR | Accelerated Stock Repurchase | |
| CC | Constant Currency | |
| CITA | Commissioner of Income Tax (Appeals) | |
| | |
| CMT | Communications, Media and Technology | |
| COVID-19 | The novel coronavirus disease |
COVID-19 Charges | Costs directly related to the COVID-19 pandemic |
| Credit Agreement | Credit agreement with a commercial bank syndicate, dated November 5, 2018 |
Credit Loss Standardas amended | ASC Topic 326: "Financial Instruments - Credit Losses" |
| CTS India | Our principal operating subsidiary in India |
DevOps | Agile relationship between development and IT operations |
Division Bench | Division Bench of the Madras High Court |
| DOJ | United States Department of Justice | |
| DSO | Days Sales Outstanding | |
| EPS | Earnings Per Share | |
ESG Mobility | ESG Mobility GmbHEnvironmental, Social and Governance | |
| EU | European Union | |
| Exchange Act | Securities Exchange Act of 1934, as amended | |
| GAAP | Generally Accepted Accounting Principles in the United States of America | |
| High Court | Madras 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 |
IT | Information Technology |
| ITD | Indian Income Tax Department |
LIBOR | London Inter-bank Offered Rate |
Linium | The ServiceNow business of Ness Digital Engineering |
Magenic | Magenic Technologies, LLC |
| SCI | Supreme Court of India | |
| SEC | United States Securities and Exchange Commission | |
ServianSecond Circuit | SVN HoldCo Pty LimitedUnited States Court of Appeals for the Second Circuit | |
| SG&A | Selling, general and administrative |
SLP | Special Leave Petition |
| Syntel | Syntel Sterling Best Shores Mauritius Ltd. | |
| Tax Reform Act | Tax Cuts and Jobs Act | |
| Term Loan | Unsecured term loan |
Third Circuit under the Credit Agreement | United States Court of Appeals for the Third Circuit |
| TriZetto | The TriZetto Group, Inc., now known as Cognizant Technology Software Group, Inc. | |
| 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 | June 30, 20212022 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) | (in millions, except par values) | June 30, 2021 | | December 31, 2020 | (in millions, except par values) | June 30, 2022 | | December 31, 2021 |
| Assets | Assets | | Assets | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 1,368 | | | $ | 2,680 | | Cash and cash equivalents | $ | 1,768 | | | $ | 1,792 | |
| Short-term investments | Short-term investments | 482 | | | 44 | | Short-term investments | 552 | | | 927 | |
| Trade accounts receivable, net | Trade accounts receivable, net | 3,419 | | | 3,087 | | Trade accounts receivable, net | 3,785 | | | 3,557 | |
| Other current assets | Other current assets | 1,182 | | | 1,040 | | Other current assets | 918 | | | 1,066 | |
| Total current assets | Total current assets | 6,451 | | | 6,851 | | Total current assets | 7,023 | | | 7,342 | |
| Property and equipment, net | Property and equipment, net | 1,225 | | | 1,251 | | Property and equipment, net | 1,121 | | | 1,171 | |
| Operating lease assets, net | Operating lease assets, net | 1,004 | | | 1,013 | | Operating lease assets, net | 907 | | | 933 | |
| Goodwill | Goodwill | 5,457 | | | 5,031 | | Goodwill | 5,517 | | | 5,620 | |
| Intangible assets, net | Intangible assets, net | 1,219 | | | 1,046 | | Intangible assets, net | 1,101 | | | 1,218 | |
| Deferred income tax assets, net | Deferred income tax assets, net | 308 | | | 445 | | Deferred income tax assets, net | 473 | | | 404 | |
| Long-term investments | Long-term investments | 433 | | | 440 | | Long-term investments | 443 | | | 463 | |
| Other noncurrent assets | Other noncurrent assets | 732 | | | 846 | | Other noncurrent assets | 673 | | | 701 | |
| Total assets | Total assets | $ | 16,829 | | | $ | 16,923 | | Total assets | $ | 17,258 | | | $ | 17,852 | |
| Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | Liabilities and Stockholders’ Equity | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | $ | 351 | | | $ | 389 | | Accounts payable | $ | 357 | | | $ | 361 | |
| Deferred revenue | Deferred revenue | 356 | | | 383 | | Deferred revenue | 408 | | | 403 | |
| Short-term debt | Short-term debt | 38 | | | 38 | | Short-term debt | 38 | | | 38 | |
| Operating lease liabilities | Operating lease liabilities | 204 | | | 211 | | Operating lease liabilities | 178 | | | 195 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 2,234 | | | 2,519 | | Accrued expenses and other current liabilities | 2,172 | | | 2,532 | |
| Total current liabilities | Total current liabilities | 3,183 | | | 3,540 | | Total current liabilities | 3,153 | | | 3,529 | |
| Deferred revenue, noncurrent | Deferred revenue, noncurrent | 33 | | | 36 | | Deferred revenue, noncurrent | 24 | | | 40 | |
| Operating lease liabilities, noncurrent | Operating lease liabilities, noncurrent | 842 | | | 846 | | Operating lease liabilities, noncurrent | 747 | | | 783 | |
| Deferred income tax liabilities, net | Deferred income tax liabilities, net | 230 | | | 206 | | Deferred income tax liabilities, net | 207 | | | 218 | |
| Long-term debt | Long-term debt | 645 | | | 663 | | Long-term debt | 608 | | | 626 | |
| Long-term income taxes payable | Long-term income taxes payable | 378 | | | 428 | | Long-term income taxes payable | 283 | | | 378 | |
| Other noncurrent liabilities | Other noncurrent liabilities | 313 | | | 368 | | Other noncurrent liabilities | 286 | | | 287 | |
| Total liabilities | Total liabilities | 5,624 | | | 6,087 | | Total liabilities | 5,308 | | | 5,861 | |
Commitments and contingencies (See Note 12) | 0 | | 0 | |
Commitments and contingencies (See Note 10) | | Commitments and contingencies (See Note 10) | 0 | | 0 |
| Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
Preferred stock, $0.10 par value, 15 shares authorized, NaN issued | 0 | | | 0 | | |
Class A common stock, $0.01 par value, 1,000 shares authorized, 525 and 530 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | 5 | | | 5 | | |
Preferred stock, $0.10 par value, 15 shares authorized, none issued | | Preferred stock, $0.10 par value, 15 shares authorized, none issued | — | | | — | |
| Class A common stock, $0.01 par value, 1,000 shares authorized, 518 and 525 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | | Class A common stock, $0.01 par value, 1,000 shares authorized, 518 and 525 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | 5 | | | 5 | |
| Additional paid-in capital | Additional paid-in capital | 32 | | | 32 | | Additional paid-in capital | 21 | | | 27 | |
| Retained earnings | Retained earnings | 11,086 | | | 10,689 | | Retained earnings | 12,193 | | | 11,922 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | 82 | | | 110 | | Accumulated other comprehensive income (loss) | (269) | | | 37 | |
| Total stockholders’ equity | Total stockholders’ equity | 11,205 | | | 10,836 | | Total stockholders’ equity | 11,950 | | | 11,991 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 16,829 | | | $ | 16,923 | | Total liabilities and stockholders’ equity | $ | 17,258 | | | $ | 17,852 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| | | | | | | | |
| Cognizant Technology Solutions | 2 | June 30, 20212022 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| (in millions, except per share data) | (in millions, except per share data) | Three Months Ended
June 30, | | Six Months Ended
June 30, | (in millions, except per share data) | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | Revenues | $ | 4,585 | | | $ | 4,000 | | | $ | 8,986 | | | $ | 8,225 | | Revenues | $ | 4,906 | | | $ | 4,585 | | | $ | 9,732 | | | $ | 8,986 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
| Cost of revenues (exclusive of depreciation and amortization expense shown separately below) | Cost of revenues (exclusive of depreciation and amortization expense shown separately below) | 2,863 | | | 2,615 | | | 5,627 | | | 5,362 | | Cost of revenues (exclusive of depreciation and amortization expense shown separately below) | 3,119 | | | 2,863 | | | 6,216 | | | 5,627 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | 881 | | | 711 | | | 1,708 | | | 1,422 | | Selling, general and administrative expenses | 883 | | | 881 | | | 1,745 | | | 1,708 | |
| Restructuring charges | 0 | | | 71 | | | 0 | | | 126 | | |
| | Depreciation and amortization expense | Depreciation and amortization expense | 145 | | | 136 | | | 286 | | | 269 | | Depreciation and amortization expense | 144 | | | 145 | | | 287 | | | 286 | |
| Income from operations | Income from operations | 696 | | | 467 | | | 1,365 | | | 1,046 | | Income from operations | 760 | | | 696 | | | 1,484 | | | 1,365 | |
| Other income (expense), net: | Other income (expense), net: | | Other income (expense), net: | |
| Interest income | Interest income | 7 | | | 37 | | | 16 | | | 78 | | Interest income | 9 | | | 7 | | | 15 | | | 16 | |
| Interest expense | Interest expense | (2) | | | (9) | | | (4) | | | (15) | | Interest expense | (3) | | | (2) | | | (5) | | | (4) | |
| Foreign currency exchange gains (losses), net | Foreign currency exchange gains (losses), net | (7) | | | (2) | | | (16) | | | (104) | | Foreign currency exchange gains (losses), net | (4) | | | (7) | | | (4) | | | (16) | |
| Other, net | Other, net | 0 | | | 2 | | | (2) | | | 0 | | Other, net | (1) | | | — | | | — | | | (2) | |
| Total other income (expense), net | Total other income (expense), net | (2) | | | 28 | | | (6) | | | (41) | | Total other income (expense), net | 1 | | | (2) | | | 6 | | | (6) | |
| Income before provision for income taxes | Income before provision for income taxes | 694 | | | 495 | | | 1,359 | | | 1,005 | | Income before provision for income taxes | 761 | | | 694 | | | 1,490 | | | 1,359 | |
| Provision for income taxes | Provision for income taxes | (184) | | | (134) | | | (344) | | | (276) | | Provision for income taxes | (184) | | | (184) | | | (354) | | | (344) | |
| Income (loss) from equity method investments | Income (loss) from equity method investments | 2 | | | 0 | | | 2 | | | (1) | | Income (loss) from equity method investments | — | | | 2 | | | 4 | | | 2 | |
| Net income | Net income | $ | 512 | | | $ | 361 | | | $ | 1,017 | | | $ | 728 | | Net income | $ | 577 | | | $ | 512 | | | $ | 1,140 | | | $ | 1,017 | |
| Basic earnings per share | Basic earnings per share | $ | 0.97 | | | $ | 0.67 | | | $ | 1.93 | | | $ | 1.34 | | Basic earnings per share | $ | 1.11 | | | $ | 0.97 | | | $ | 2.18 | | | $ | 1.93 | |
| Diluted earnings per share | Diluted earnings per share | $ | 0.97 | | | $ | 0.67 | | | $ | 1.92 | | | $ | 1.34 | | Diluted earnings per share | $ | 1.11 | | | $ | 0.97 | | | $ | 2.18 | | | $ | 1.92 | |
| Weighted average number of common shares outstanding - Basic | Weighted average number of common shares outstanding - Basic | 527 | | | 541 | | | 528 | | | 543 | | Weighted average number of common shares outstanding - Basic | 520 | | | 527 | | | 522 | | | 528 | |
| Dilutive effect of shares issuable under stock-based compensation plans | Dilutive effect of shares issuable under stock-based compensation plans | 1 | | | 0 | | | 1 | | | 1 | | Dilutive effect of shares issuable under stock-based compensation plans | 1 | | | 1 | | | 1 | | | 1 | |
| Weighted average number of common shares outstanding - Diluted | Weighted average number of common shares outstanding - Diluted | 528 | | | 541 | | | 529 | | | 544 | | Weighted average number of common shares outstanding - Diluted | 521 | | | 528 | | | 523 | | | 529 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| | | | | | | | |
| Cognizant Technology Solutions | 3 | June 30, 20212022 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| (in millions) | (in millions) | Three Months Ended
June 30, | | Six Months Ended
June 30, | (in millions) | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | Net income | $ | 512 | | | $ | 361 | | | $ | 1,017 | | | $ | 728 | | Net income | $ | 577 | | | $ | 512 | | | $ | 1,140 | | | $ | 1,017 | |
| Other comprehensive income (loss), net of tax: | | |
| Change in Accumulated other comprehensive income (loss), net of tax: | | Change in Accumulated other comprehensive income (loss), net of tax: | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 14 | | | 38 | | | (11) | | | (97) | | Foreign currency translation adjustments | (193) | | | 14 | | | (230) | | | (11) | |
| Change in unrealized gains and losses on cash flow hedges | (13) | | | 38 | | | (17) | | | (53) | | |
| Unrealized gains and losses on cash flow hedges | | Unrealized gains and losses on cash flow hedges | (57) | | | (13) | | | (76) | | | (17) | |
| | Other comprehensive income (loss) | Other comprehensive income (loss) | 1 | | | 76 | | | (28) | | | (150) | | Other comprehensive income (loss) | (250) | | | 1 | | | (306) | | | (28) | |
| Comprehensive income | Comprehensive income | $ | 513 | | | $ | 437 | | | $ | 989 | | | $ | 578 | | Comprehensive income | $ | 327 | | | $ | 513 | | | $ | 834 | | | $ | 989 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| | | | | | | | |
| Cognizant Technology Solutions | 4 | June 30, 20212022 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 | |
| Net income | | — | | | — | | | — | | | 577 | | | — | | | 577 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (250) | | | (250) | |
| Common stock issued, stock-based compensation plans | | 1 | | | — | | | 21 | | | — | | | — | | | 21 | |
| Stock-based compensation expense | | — | | | — | | | 89 | | | — | | | — | | | 89 | |
| Repurchases of common stock | | (4) | | | — | | | (120) | | | (198) | | | — | | | (318) | |
| Dividends declared, $0.27 per share | | — | | | — | | | — | | | (142) | | | — | | | (142) | |
| Balance, June 30, 2022 | | 518 | | | $ | 5 | | | $ | 21 | | | $ | 12,193 | | | $ | (269) | | | $ | 11,950 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Class A Common Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| Shares | | Amount | |
| Balance, December 31, 2020 | | 530 | | | $ | 5 | | | $ | 32 | | | $ | 10,689 | | | $ | 110 | | | $ | 10,836 | |
| Net income | | — | | | — | | | — | | | 505 | | | — | | | 505 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (29) | | | (29) | |
| Common stock issued, stock-based compensation plans | | 1 | | | — | | | 43 | | | — | | | — | | | 43 | |
| Stock-based compensation expense | | — | | | — | | | 62 | | | — | | | — | | | 62 | |
| Repurchases of common stock | | (3) | | | — | | | (93) | | | (159) | | | — | | | (252) | |
| Dividends declared, $0.24 per share | | — | | | — | | | — | | | (128) | | | — | | | (128) | |
| Balance, March 31, 2021 | | 528 | | | 5 | | | 44 | | | 10,907 | | | 81 | | | 11,037 | |
| Net income | | — | | | — | | | — | | | 512 | | | — | | | 512 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
| Common stock issued, stock-based compensation plans | | 1 | | | — | | | 32 | | | — | | | — | | | 32 | |
| Stock-based compensation expense | | — | | | — | | | 67 | | | — | | | — | | | 67 | |
| Repurchases of common stock | | (4) | | | — | | | (111) | | | (205) | | | — | | | (316) | |
| Dividends declared, $0.24 per share | | — | | | — | | | — | | | (128) | | | — | | | (128) | |
| Balance, June 30, 2021 | | 525 | | | $ | 5 | | | $ | 32 | | | $ | 11,086 | | | $ | 82 | | | $ | 11,205 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Class A Common Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| Shares | | Amount | |
| Balance, December 31, 2019 | | 548 | | | $ | 5 | | | $ | 33 | | | $ | 11,022 | | | $ | (38) | | | $ | 11,022 | |
Cumulative effect of changes in accounting principle(1) | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
| Net income | | — | | | — | | | — | | | 367 | | | — | | | 367 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (226) | | | (226) | |
| Common stock issued, stock-based compensation plans | | 2 | | | — | | | 40 | | | — | | | — | | | 40 | |
| Stock-based compensation expense | | — | | | — | | | 55 | | | — | | | — | | | 55 | |
| Repurchases of common stock | | (9) | | | — | | | (87) | | | (439) | | | — | | | (526) | |
| Dividends declared, $0.22 per share | | — | | | — | | | — | | | (120) | | | — | | | (120) | |
| Balance, March 31, 2020 | | 541 | | | 5 | | | 41 | | | 10,831 | | | (264) | | | 10,613 | |
| Net income | | — | | | — | | | — | | | 361 | | | — | | | 361 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 76 | | | 76 | |
| Common stock issued, stock-based compensation plans | | 2 | | | — | | | 36 | | | — | | | — | | | 36 | |
| Stock-based compensation expense | | — | | | — | | | 65 | | | — | | | — | | | 65 | |
| Repurchases of common stock | | (1) | | | — | | | (59) | | | 0 | | | — | | | (59) | |
| Dividends declared, $0.22 per share | | — | | | — | | | — | | | (120) | | | — | | | (120) | |
| Balance, June 30, 2020 | | 542 | | | $ | 5 | | | $ | 83 | | | $ | 11,072 | | | $ | (188) | | | $ | 10,972 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1)Reflects the adoption of the Credit Loss Standard on January 1, 2020. Refer to the notes in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| | | | | | | | |
| Cognizant Technology Solutions | 5 | June 30, 20212022 Form 10-Q |
COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| (in millions) | (in millions) | For the Six Months Ended
June 30, | (in millions) | For the Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2022 | | 2021 |
| Cash flows from operating activities: | Cash flows from operating activities: | | Cash flows from operating activities: | |
| Net income | Net income | $ | 1,017 | | | $ | 728 | | Net income | $ | 1,140 | | | $ | 1,017 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 286 | | | 273 | | Depreciation and amortization | 287 | | | 286 | |
| | Deferred income taxes | Deferred income taxes | 119 | | | (93) | | Deferred income taxes | (74) | | | 119 | |
| Stock-based compensation expense | Stock-based compensation expense | 129 | | | 120 | | Stock-based compensation expense | 145 | | | 129 | |
| | Other | Other | (2) | | | 187 | | Other | 51 | | | (2) | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
| Trade accounts receivable | Trade accounts receivable | (279) | | | 78 | | Trade accounts receivable | (251) | | | (279) | |
| Other current and noncurrent assets | Other current and noncurrent assets | 60 | | | 171 | | Other current and noncurrent assets | 131 | | | 60 | |
| Accounts payable | Accounts payable | 17 | | | 103 | | Accounts payable | (9) | | | 17 | |
| Deferred revenues, current and noncurrent | Deferred revenues, current and noncurrent | (34) | | | 19 | | Deferred revenues, current and noncurrent | (8) | | | (34) | |
| Other current and noncurrent liabilities | Other current and noncurrent liabilities | (591) | | | (110) | | Other current and noncurrent liabilities | (578) | | | (591) | |
| Net cash provided by operating activities | Net cash provided by operating activities | 722 | | | 1,476 | | Net cash provided by operating activities | 834 | | | 722 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
| Purchases of property and equipment | Purchases of property and equipment | (163) | | | (205) | | Purchases of property and equipment | (163) | | | (163) | |
| Purchases of available-for-sale investment securities | Purchases of available-for-sale investment securities | (105) | | | 0 | | Purchases of available-for-sale investment securities | (513) | | | (105) | |
| | Proceeds from maturity or sale of available-for-sale investment securities | | Proceeds from maturity or sale of available-for-sale investment securities | 375 | | | — | |
| Purchases of held-to-maturity investment securities | Purchases of held-to-maturity investment securities | (89) | | | (202) | | Purchases of held-to-maturity investment securities | (32) | | | (89) | |
| Proceeds from maturity of held-to-maturity investment securities | Proceeds from maturity of held-to-maturity investment securities | 76 | | | 346 | | Proceeds from maturity of held-to-maturity investment securities | 30 | | | 76 | |
| Purchases of other investments | Purchases of other investments | (642) | | | (264) | | Purchases of other investments | (256) | | | (642) | |
| Proceeds from maturity or sale of other investments | Proceeds from maturity or sale of other investments | 322 | | | 283 | | Proceeds from maturity or sale of other investments | 769 | | | 322 | |
| Proceeds from sales of businesses | | Proceeds from sales of businesses | 19 | | | — | |
| Payments for business combinations, net of cash acquired | Payments for business combinations, net of cash acquired | (658) | | | (489) | | Payments for business combinations, net of cash acquired | — | | | (658) | |
| Net cash (used in) investing activities | (1,259) | | | (531) | | |
| Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 229 | | | (1,259) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
| Issuance of common stock under stock-based compensation plans | Issuance of common stock under stock-based compensation plans | 75 | | | 76 | | Issuance of common stock under stock-based compensation plans | 52 | | | 75 | |
| | Repurchases of common stock | Repurchases of common stock | (560) | | | (585) | | Repurchases of common stock | (792) | | | (560) | |
| Repayment of Term Loan borrowings and finance lease and earnout obligations | Repayment of Term Loan borrowings and finance lease and earnout obligations | (28) | | | (25) | | Repayment of Term Loan borrowings and finance lease and earnout obligations | (26) | | | (28) | |
| Proceeds from borrowings under the revolving credit facility | 0 | | | 1,740 | | |
| | Dividends paid | Dividends paid | (255) | | | (242) | | Dividends paid | (284) | | | (255) | |
| Net cash (used in) provided by financing activities | (768) | | | 964 | | |
| Net cash (used in) financing activities | | Net cash (used in) financing activities | (1,050) | | | (768) | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (7) | | | (132) | | Effect of exchange rate changes on cash and cash equivalents | (37) | | | (7) | |
| (Decrease) increase in cash and cash equivalents | (1,312) | | | 1,777 | | |
| (Decrease) in cash and cash equivalents | | (Decrease) in cash and cash equivalents | (24) | | | (1,312) | |
| Cash and cash equivalents, beginning of year | Cash and cash equivalents, beginning of year | 2,680 | | | 2,645 | | Cash and cash equivalents, beginning of year | 1,792 | | | 2,680 | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 1,368 | | | $ | 4,422 | | Cash and cash equivalents, end of period | $ | 1,768 | | | $ | 1,368 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| | | | | | | | |
| Cognizant Technology Solutions | 6 | June 30, 20212022 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, 2020.2021. 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.
| | | | | | | | | | | | | | |
| 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 ourthe business segments. We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors. Our consulting and technology services include consulting, application development, systems integration, and application testing services as well as software solutions and related services while our outsourcing services include application maintenance, infrastructure and business process services. Revenues are attributed to geographic regions based upon client location, which is the client's billing address. Substantially all revenues in ourthe North America region relate to operationsclients in the United States.
We have defined our Financial Services, Healthcare,Health Sciences (previously referred to as Healthcare), Products and Resources and Communications, Media and Technology segments as ("FS"), ("HC"HS"), ("P&R"), and ("CMT"), respectively, in our disaggregation of revenues tables.
| | | Three Months Ended
June 30, 2021 | | Six Months Ended
June 30, 2021 | | Three Months Ended
June 30, 2022 | | Six Months Ended
June 30, 2022 |
| | (in millions) | (in millions) | | FS | | HC | | P&R | | CMT | | Total | | FS | | HC | | P&R | | CMT | | Total | (in millions) | | FS | | HS | | P&R | | CMT | | Total | | FS | | HS | | P&R | | CMT | | Total |
| | Revenues | | Revenues | | | | |
| Geography: | Geography: | | | | | Geography: | |
| North America | North America | | $ | 1,049 | | | $ | 1,131 | | | $ | 723 | | | $ | 469 | | | $ | 3,372 | | | $ | 2,062 | | | $ | 2,232 | | | $ | 1,441 | | | $ | 920 | | | $ | 6,655 | | North America | | $ | 1,104 | | | $ | 1,210 | | | $ | 770 | | | $ | 572 | | | $ | 3,656 | | | $ | 2,184 | | | $ | 2,405 | | | $ | 1,531 | | | $ | 1,105 | | | $ | 7,225 | |
| United Kingdom | United Kingdom | | 130 | | | 45 | | | 116 | | | 112 | | | 403 | | | 255 | | | 85 | | | 222 | | | 211 | | | 773 | | United Kingdom | | 147 | | | 44 | | | 134 | | | 133 | | | 458 | | | 298 | | | 88 | | | 266 | | | 259 | | | 911 | |
| Continental Europe | Continental Europe | | 186 | | | 120 | | | 132 | | | 44 | | | 482 | | | 378 | | | 238 | | | 235 | | | 87 | | | 938 | | Continental Europe | | 143 | | | 126 | | | 143 | | | 33 | | | 445 | | | 300 | | | 246 | | | 288 | | | 70 | | | 904 | |
| Europe - Total | Europe - Total | | 316 | | | 165 | | | 248 | | | 156 | | | 885 | | | 633 | | | 323 | | | 457 | | | 298 | | | 1,711 | | Europe - Total | | 290 | | | 170 | | | 277 | | | 166 | | | 903 | | | 598 | | | 334 | | | 554 | | | 329 | | | 1,815 | |
| Rest of World | Rest of World | | 137 | | | 29 | | | 84 | | | 78 | | | 328 | | | 265 | | | 58 | | | 155 | | | 142 | | | 620 | | Rest of World | | 148 | | | 28 | | | 93 | | | 78 | | | 347 | | | 288 | | | 61 | | | 185 | | | 158 | | | 692 | |
| Total | Total | | $ | 1,502 | | | $ | 1,325 | | | $ | 1,055 | | | $ | 703 | | | $ | 4,585 | | | $ | 2,960 | | | $ | 2,613 | | | $ | 2,053 | | | $ | 1,360 | | | $ | 8,986 | | Total | | $ | 1,542 | | | $ | 1,408 | | | $ | 1,140 | | | $ | 816 | | | $ | 4,906 | | | $ | 3,070 | | | $ | 2,800 | | | $ | 2,270 | | | $ | 1,592 | | | $ | 9,732 | |
| | Service line: | Service line: | | Service line: | |
| Consulting and technology services | Consulting and technology services | | $ | 1,012 | | | $ | 769 | | | $ | 668 | | | $ | 422 | | | $ | 2,871 | | | $ | 1,979 | | | $ | 1,514 | | | $ | 1,284 | | | $ | 818 | | | $ | 5,595 | | Consulting and technology services | | $ | 1,078 | | | $ | 805 | | | $ | 753 | | | $ | 465 | | | $ | 3,101 | | | $ | 2,135 | | | $ | 1,609 | | | $ | 1,507 | | | $ | 913 | | | $ | 6,164 | |
| Outsourcing services | Outsourcing services | | 490 | | | 556 | | | 387 | | | 281 | | | 1,714 | | | 981 | | | 1,099 | | | 769 | | | 542 | | | 3,391 | | Outsourcing services | | 464 | | | 603 | | | 387 | | | 351 | | | 1,805 | | | 935 | | | 1,191 | | | 763 | | | 679 | | | 3,568 | |
| Total | Total | | $ | 1,502 | | | $ | 1,325 | | | $ | 1,055 | | | $ | 703 | | | $ | 4,585 | | | $ | 2,960 | | | $ | 2,613 | | | $ | 2,053 | | | $ | 1,360 | | | $ | 8,986 | | Total | | $ | 1,542 | | | $ | 1,408 | | | $ | 1,140 | | | $ | 816 | | | $ | 4,906 | | | $ | 3,070 | | | $ | 2,800 | | | $ | 2,270 | | | $ | 1,592 | | | $ | 9,732 | |
| | Type of contract: | Type of contract: | | Type of contract: | |
| Time and materials | Time and materials | | $ | 908 | | | $ | 514 | | | $ | 446 | | | $ | 422 | | | $ | 2,290 | | | $ | 1,807 | | | $ | 1,033 | | | $ | 864 | | | $ | 819 | | | $ | 4,523 | | Time and materials | | $ | 894 | | | $ | 505 | | | $ | 471 | | | $ | 471 | | | $ | 2,341 | | | $ | 1,784 | | | $ | 999 | | | $ | 938 | | | $ | 919 | | | $ | 4,640 | |
| Fixed-price | Fixed-price | | 500 | | | 529 | | | 506 | | | 249 | | | 1,784 | | | 971 | | | 1,028 | | | 987 | | | 479 | | | 3,465 | | Fixed-price | | 578 | | | 617 | | | 581 | | | 309 | | | 2,085 | | | 1,135 | | | 1,235 | | | 1,153 | | | 601 | | | 4,124 | |
| Transaction or volume-based | Transaction or volume-based | | 94 | | | 282 | | | 103 | | | 32 | | | 511 | | | 182 | | | 552 | | | 202 | | | 62 | | | 998 | | Transaction or volume-based | | 70 | | | 286 | | | 88 | | | 36 | | | 480 | | | 151 | | | 566 | | | 179 | | | 72 | | | 968 | |
| Total | Total | | $ | 1,502 | | | $ | 1,325 | | | $ | 1,055 | | | $ | 703 | | | $ | 4,585 | | | $ | 2,960 | | | $ | 2,613 | | | $ | 2,053 | | | $ | 1,360 | | | $ | 8,986 | | Total | | $ | 1,542 | | | $ | 1,408 | | | $ | 1,140 | | | $ | 816 | | | $ | 4,906 | | | $ | 3,070 | | | $ | 2,800 | | | $ | 2,270 | | | $ | 1,592 | | | $ | 9,732 | |
| | | | | | | | |
| Cognizant Technology Solutions | 7 | June 30, 20212022 Form 10-Q |
| | | Three Months Ended
June 30, 2020 | | Six Months Ended
June 30, 2020 | | Three Months Ended
June 30, 2021 | | Six Months Ended
June 30, 2021 |
| | (in millions) | (in millions) | | FS | | HC | | P&R | | CMT | | Total | | FS | | HC | | P&R | | CMT | | Total | (in millions) | | FS | | HS | | P&R | | CMT | | Total | | FS | | HS | | P&R | | CMT | | Total |
| | Revenues | | Revenues | | | | |
| Geography: | Geography: | | | | | Geography: | |
| North America | North America | | $ | 978 | | | $ | 999 | | | $ | 620 | | | $ | 409 | | | $ | 3,006 | | | $ | 1,990 | | | $ | 2,037 | | | $ | 1,309 | | | $ | 860 | | | $ | 6,196 | | North America | | $ | 1,049 | | | $ | 1,131 | | | $ | 723 | | | $ | 469 | | | $ | 3,372 | | | $ | 2,062 | | | $ | 2,232 | | | $ | 1,441 | | | $ | 920 | | | $ | 6,655 | |
| United Kingdom | United Kingdom | | 110 | | | 36 | | | 89 | | | 79 | | | 314 | | | 230 | | | 76 | | | 182 | | | 163 | | | 651 | | United Kingdom | | 130 | | | 45 | | | 116 | | | 112 | | | 403 | | | 255 | | | 85 | | | 222 | | | 211 | | | 773 | |
| Continental Europe | Continental Europe | | 182 | | | 102 | | | 94 | | | 41 | | | 419 | | | 373 | | | 201 | | | 203 | | | 79 | | | 856 | | Continental Europe | | 186 | | | 120 | | | 132 | | | 44 | | | 482 | | | 378 | | | 238 | | | 235 | | | 87 | | | 938 | |
| Europe - Total | Europe - Total | | 292 | | | 138 | | | 183 | | | 120 | | | 733 | | | 603 | | | 277 | | | 385 | | | 242 | | | 1,507 | | Europe - Total | | 316 | | | 165 | | | 248 | | | 156 | | | 885 | | | 633 | | | 323 | | | 457 | | | 298 | | | 1,711 | |
| Rest of World | Rest of World | | 126 | | | 20 | | | 64 | | | 51 | | | 261 | | | 254 | | | 37 | | | 127 | | | 104 | | | 522 | | Rest of World | | 137 | | | 29 | | | 84 | | | 78 | | | 328 | | | 265 | | | 58 | | | 155 | | | 142 | | | 620 | |
| Total | Total | | $ | 1,396 | | | $ | 1,157 | | | $ | 867 | | | $ | 580 | | | $ | 4,000 | | | $ | 2,847 | | | $ | 2,351 | | | $ | 1,821 | | | $ | 1,206 | | | $ | 8,225 | | Total | | $ | 1,502 | | | $ | 1,325 | | | $ | 1,055 | | | $ | 703 | | | $ | 4,585 | | | $ | 2,960 | | | $ | 2,613 | | | $ | 2,053 | | | $ | 1,360 | | | $ | 8,986 | |
| | Service line: | Service line: | | Service line: | |
| Consulting and technology services | Consulting and technology services | | $ | 933 | | | $ | 666 | | | $ | 520 | | | $ | 338 | | | $ | 2,457 | | | $ | 1,880 | | | $ | 1,328 | | | $ | 1,110 | | | $ | 686 | | | $ | 5,004 | | Consulting and technology services | | $ | 1,012 | | | $ | 769 | | | $ | 668 | | | $ | 422 | | | $ | 2,871 | | | $ | 1,979 | | | $ | 1,514 | | | $ | 1,284 | | | $ | 818 | | | $ | 5,595 | |
| Outsourcing services | Outsourcing services | | 463 | | | 491 | | | 347 | | | 242 | | | 1,543 | | | 967 | | | 1,023 | | | 711 | | | 520 | | | 3,221 | | Outsourcing services | | 490 | | | 556 | | | 387 | | | 281 | | | 1,714 | | | 981 | | | 1,099 | | | 769 | | | 542 | | | 3,391 | |
| Total | Total | | $ | 1,396 | | | $ | 1,157 | | | $ | 867 | | | $ | 580 | | | $ | 4,000 | | | $ | 2,847 | | | $ | 2,351 | | | $ | 1,821 | | | $ | 1,206 | | | $ | 8,225 | | Total | | $ | 1,502 | | | $ | 1,325 | | | $ | 1,055 | | | $ | 703 | | | $ | 4,585 | | | $ | 2,960 | | | $ | 2,613 | | | $ | 2,053 | | | $ | 1,360 | | | $ | 8,986 | |
| | Type of contract: | Type of contract: | | Type of contract: | |
| Time and materials | Time and materials | | $ | 873 | | | $ | 468 | | | $ | 363 | | | $ | 357 | | | $ | 2,061 | | | $ | 1,757 | | | $ | 943 | | | $ | 772 | | | $ | 740 | | | $ | 4,212 | | Time and materials | | $ | 908 | | | $ | 514 | | | $ | 446 | | | $ | 422 | | | $ | 2,290 | | | $ | 1,807 | | | $ | 1,033 | | | $ | 864 | | | $ | 819 | | | $ | 4,523 | |
| Fixed-price | Fixed-price | | 444 | | | 417 | | | 409 | | | 201 | | | 1,471 | | | 927 | | | 826 | | | 852 | | | 420 | | | 3,025 | | Fixed-price | | 500 | | | 529 | | | 506 | | | 249 | | | 1,784 | | | 971 | | | 1,028 | | | 987 | | | 479 | | | 3,465 | |
| Transaction or volume-based | Transaction or volume-based | | 79 | | | 272 | | | 95 | | | 22 | | | 468 | | | 163 | | | 582 | | | 197 | | | 46 | | | 988 | | Transaction or volume-based | | 94 | | | 282 | | | 103 | | | 32 | | | 511 | | | 182 | | | 552 | | | 202 | | | 62 | | | 998 | |
| Total | Total | | $ | 1,396 | | | $ | 1,157 | | | $ | 867 | | | $ | 580 | | | $ | 4,000 | | | $ | 2,847 | | | $ | 2,351 | | | $ | 1,821 | | | $ | 1,206 | | | $ | 8,225 | | Total | | $ | 1,502 | | | $ | 1,325 | | | $ | 1,055 | | | $ | 703 | | | $ | 4,585 | | | $ | 2,960 | | | $ | 2,613 | | | $ | 2,053 | | | $ | 1,360 | | | $ | 8,986 | |
|
Costs to Fulfill
Costs to fulfill, such as setup or transition activities, are recorded in "Other noncurrent assets" in our unaudited consolidated statements of financial position and the amortization expense of costs to fulfill is included in "Cost of revenues" in our unaudited consolidated statements of operations. Costs to obtain contracts were immaterial for the periods disclosed. The following table presents information related to the capitalized costs to fulfill for the six months ended June 30:
| | (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Beginning balance | Beginning balance | | $ | 467 | | | $ | 485 | | Beginning balance | | $ | 394 | | | $ | 467 | |
| Costs capitalized | | Costs capitalized | | 19 | | | 25 | |
| Amortization expense | Amortization expense | | (58) | | | (44) | | Amortization expense | | (55) | | | (58) | |
| Costs capitalized | | 25 | | | 59 | | |
| Impairment | | (9) | | | (6) | | |
| Impairment charge | | Impairment charge | | — | | | (9) | |
| Ending balance | Ending balance | | $ | 425 | | | $ | 494 | | Ending balance | | $ | 358 | | | $ | 425 | |
Contract Balances
A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in "Other current assets" in our unaudited consolidated statements of financial position and primarily relate to unbilled amounts on fixed-price contracts utilizing the cost-to-cost method of revenue recognition. The table below shows significant movements in contract assets for the six months ended June 30:
| | (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Beginning balance | Beginning balance | | $ | 315 | | | $ | 334 | | Beginning balance | | $ | 310 | | | $ | 315 | |
| Revenues recognized during the period but not billed | Revenues recognized during the period but not billed | | 266 | | | 252 | | Revenues recognized during the period but not billed | | 318 | | | 266 | |
| Amounts reclassified to trade accounts receivable | Amounts reclassified to trade accounts receivable | | (229) | | | (247) | | Amounts reclassified to trade accounts receivable | | (243) | | | (229) | |
| | Effect of foreign currency exchange movements | | Effect of foreign currency exchange movements | | (7) | | | — | |
| Ending balance | Ending balance | | $ | 352 | | | $ | 339 | | Ending balance | | $ | 378 | | | $ | 352 | |
| | | | | | | | |
| Cognizant Technology Solutions | 8 | June 30, 20212022 Form 10-Q |
Our contractContract liabilities, or deferred revenue, consist of advance payments and billings in excess of revenues recognized. The table below shows significant movements in the deferred revenue balances (current and noncurrent) for the six months ended June 30:
| | (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Beginning balance | Beginning balance | | $ | 419 | | | $ | 336 | | Beginning balance | | $ | 443 | | | $ | 419 | |
| Amounts billed but not recognized as revenues | Amounts billed but not recognized as revenues | | 327 | | | 297 | | Amounts billed but not recognized as revenues | | 385 | | | 327 | |
| Revenues recognized related to the opening balance of deferred revenue | | (357) | | | (268) | | |
| | Revenues recognized related to the beginning balance of deferred revenue | | Revenues recognized related to the beginning balance of deferred revenue | | (388) | | | (357) | |
| Effect of foreign currency exchange movements | | Effect of foreign currency exchange movements | | (8) | | | — | |
| Ending balance | Ending balance | | $ | 389 | | | $ | 365 | | Ending balance | | $ | 432 | | | $ | 389 | |
Revenues recognized during the three and six months ended June 30, 20212022 for performance obligations satisfied or partially satisfied in previous periods were immaterial.
Remaining Performance Obligations
As of June 30, 2021,2022, the aggregate amount of transaction price allocated to remaining performance obligations was $1,705$1,605 million, of which approximately 75%approximately 85% is expected to be recognized as revenuerevenues within 2 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 LossLosses
We calculate expected credit losses for our 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 six months ended June 30:
| | (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Beginning balance | Beginning balance | | $ | 57 | | | $ | 67 | | Beginning balance | | $ | 50 | | | $ | 57 | |
| Impact of adoption of the Credit Loss Standard | | — | | | (1) | | |
| Credit loss expense | | 1 | | | 18 | | |
| Credit loss expense (income) | | Credit loss expense (income) | | — | | | 1 | |
| Write-offs charged against the allowance | Write-offs charged against the allowance | | (9) | | | (9) | | Write-offs charged against the allowance | | (7) | | | (9) | |
| | Ending balance | Ending balance | | $ | 49 | | | $ | 75 | | Ending balance | | $ | 43 | | | $ | 49 | |
| | | | | | | | | | | | | | |
Note 3 — Business Combinations |
Acquisitions completed during the six months ended June 30, 2021 were not individually or in the aggregate material to our operations. Accordingly, pro forma results have not been presented. We have allocated the purchase price related to these transactions to tangible and intangible assets acquired and liabilities assumed, including goodwill, based on their estimated fair values. Goodwill from our acquisition of ESG Mobility has been allocated to our Products and Resources segment. Goodwill from other 2021 acquisitions is expected to benefit all of our reportable segments and has been allocated as such. The primary items that generated goodwill are the value of the acquired assembled workforces and synergies between the acquired companies and us, neither of which qualify as an identifiable intangible asset.
During the six months ended June 30, 2021, we acquired 100% ownership in each of the following:
•Linium, a cloud transformation consultancy group specializing in the ServiceNow platform and solutions for smart digital enterprise workflows, acquired to broaden our enterprise service management capabilities (acquired January 31, 2021);
| | | | | | | | |
| Cognizant Technology Solutions | 9 | June 30, 2021 Form 10-Q |
•Magenic, a provider of agile software and cloud development, DevOps, experience design and advisory services across a range of industries, acquired to enhance our global software engineering expertise (acquired February 1, 2021);
•Servian, an Australia-based enterprise transformation consultancy specializing in data analytics, AI, digital services, experience design and cloud, acquired to enhance our digital portfolio and market presence in Australia and New Zealand (acquired April 1, 2021); and
•ESG Mobility, a digital automotive engineering research and development provider for connected, autonomous and electric vehicles, acquired to expand our digital engineering expertise, particularly in connected vehicles (acquired June 1, 2021).
The allocations of preliminary purchase price to the fair value of the aggregate assets acquired and liabilities assumed were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Servian | | Magenic | | ESG Mobility | | Linium | | Total | | Weighted Average Useful Life |
| Cash | $ | 4 | | | $ | 13 | | | $ | 28 | | | $ | 0 | | | $ | 45 | | | |
| Trade accounts receivable | 15 | | | 17 | | | 24 | | | 5 | | | 61 | | | |
| Property and equipment and other assets | 7 | | | 4 | | | 8 | | | 1 | | | 20 | | | |
| Operating lease assets, net | 7 | | | 10 | | | 27 | | | 0 | | | 44 | | | |
| Non-deductible goodwill | 178 | | | 34 | | | 31 | | | 0 | | | 243 | | | |
| Tax-deductible goodwill | 0 | | | 114 | | | 24 | | | 57 | | | 195 | | | |
| Customer relationship assets | 76 | | | 90 | | | 77 | | | 24 | | | 267 | | | 10.2 years |
| Other intangible assets | 2 | | | 1 | | | 0 | | | 0 | | | 3 | | | 4.1 years |
| | | | | | | | | | | |
| Current liabilities | (13) | | | (30) | | | (20) | | | (2) | | | (65) | | | |
| Noncurrent liabilities | (29) | | | (7) | | | (65) | | | 0 | | | (101) | | | |
| Purchase price, inclusive of contingent consideration | $ | 247 | | | $ | 246 | | | $ | 134 | | | $ | 85 | | | $ | 712 | | | |
The above allocations are preliminary and will be finalized as soon as practicable within the measurement period, but in no event later than one year following the date of acquisition.
| | | | | | | | | | | | | | |
Note 4 — Restructuring Charges |
During 2020, we incurred costs related to both our realignment program and our 2020 Fit for Growth Plan. Our realignment program, which began in 2017, improved our client focus, cost structure and the efficiency and effectiveness of our delivery while continuing to drive revenue growth. Our 2020 Fit for Growth Plan, which began in the fourth quarter of 2019, simplified our organizational model and optimized our cost structure in order to partially fund the investments required to execute on our strategy and advance our growth agenda and included our decision to exit certain content-related services that were not in line with our strategic vision for the Company. The total costs related to our realignment program and our 2020 Fit for Growth Plan are reported in "Restructuring charges" in our unaudited consolidated statement of operations. During the three and six months ended June 30, 2020, we incurred certain employee retention costs and professional fees of $12 million and $32 million, respectively, related to our realignment program and employee separation, employee retention and facility exit costs and other charges of $59 million and $94 million, respectively, related to our 2020 Fit for Growth Plan. We did not incur any costs related to these plans during the three and six months ended June 30, 2021.
| | | | | | | | |
Cognizant | 10 | June 30, 20212022 Form 10-Q |
Our investments were as follows:
| | (in millions) | (in millions) | June 30, 2021 | | December 31, 2020 | (in millions) | June 30, 2022 | | December 31, 2021 |
| Short-term investments: | Short-term investments: | | Short-term investments: | |
| Equity investment security | Equity investment security | $ | 27 | | | $ | 27 | | Equity investment security | $ | 26 | | | $ | 26 | |
| Available-for-sale investment securities | Available-for-sale investment securities | 105 | | | 0 | | Available-for-sale investment securities | 448 | | | 310 | |
| Held-to-maturity investment securities | Held-to-maturity investment securities | 27 | | | 14 | | Held-to-maturity investment securities | 38 | | | 37 | |
| Time deposits | Time deposits | 323 | | | 3 | | Time deposits | 40 | | | 554 | |
| Total short-term investments | Total short-term investments | $ | 482 | | | $ | 44 | | Total short-term investments | $ | 552 | | | $ | 927 | |
| | Long-term investments: | Long-term investments: | | Long-term investments: | |
| Equity and cost method investments | $ | 36 | | | $ | 35 | | |
| Other investments | | Other investments | $ | 68 | | | $ | 66 | |
Restricted time deposits(1) | Restricted time deposits(1) | 397 | | | 405 | | Restricted time deposits(1) | 375 | | | 397 | |
| Total long-term investments | Total long-term investments | $ | 433 | | | $ | 440 | | Total long-term investments | $ | 443 | | | $ | 463 | |
Equity Investment Security
Our equity investment security is a U.S. dollar denominated investment in a fixed income mutual fund. Realized and unrealized gains and losses were immaterial for the three and six months ended June 30, 20212022 and 2020.2021.
Available-for-Sale Investment Securities
Our available-for-sale investment securities consist of highly rated U.S. dollar denominated investments in certificates of deposit and commercial paper maturing within one year. As of June 30, 2022, the amortized cost and fair value of the available-for-sale investments were $448 million. As of December 31, 2021, the amortized cost and fair value of ourthe available-for-sale investments was $105were $310 million. Unrealized gains and losses were immaterial as of June 30, 20212022 and thereDecember 31, 2021. There were 0no realized gains or losses related to ourthe available-for-sale investment securities during the six months ended June 30, 20212022 and 2020.2021. There were no sales of available-for sale investment securities during the six months ended June 30, 2022 and 2021.
Held-to-Maturity Investment Securities
Our held-to-maturity investment securities consist of Indian rupee denominated investments in commercial paper and international corporate bonds. Our investment guidelines are to purchase securities that are investment grade at the time of acquisition. The basis for the measurement of fair value of ourthe held-to-maturity investmentsinvestment securities is Level 2 in the fair value hierarchy.
The amortized cost and fair value of held-to-maturity investment securities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2022 | | December 31, 2021 |
| (in millions) | (in millions) | June 30, 2021 | | December 31, 2020 | (in millions) | Amortized
Cost | | | Fair
Value | | Amortized
Cost | | Fair
Value |
| | Amortized
Cost | | | Fair
Value | | Amortized
Cost | | Fair
Value | |
| Short-term investments, maturing within one year: | Short-term investments, maturing within one year: | | | | Short-term investments, maturing within one year: | | | |
| Corporate and other debt securities | $ | 7 | | | | $ | 7 | | | $ | 14 | | | $ | 14 | | |
| Corporate debt securities | | Corporate debt securities | $ | 19 | | | | $ | 19 | | | $ | 17 | | | $ | 17 | |
| Commercial paper | Commercial paper | 20 | | | | 20 | | | 0 | | | 0 | | Commercial paper | 19 | | | | 19 | | | 20 | | | 20 | |
| Total short-term held-to-maturity investments | $ | 27 | | | | $ | 27 | | | $ | 14 | | | $ | 14 | | |
| Total held-to-maturity investments | | Total held-to-maturity investments | $ | 38 | | | | $ | 38 | | | $ | 37 | | | $ | 37 | |
As of June 30, 2021,2022, $12 million of corporate debt securities and $16 million of commercial paper securities in the amount of $3 million were in an unrealized loss position. The total unrealized loss was less than $1 million and NaNnone of the securities had been in an unrealized loss position for longer than 12 months. As of December 31, 2020, there were2021, 0$17 million held-to-maturity investmentof corporate debt securities and $10 million of commercial paper were in an unrealized loss position. The total unrealized loss was less than $1 million and none of the securities had been in an unrealized loss position for longer than 12 months.
The securities in our portfolio are highly rated and short-term in nature. As of June 30, 2021, our2022, the corporate and other debt securities were ratedrated AA+ or better and ourthe commercial paper securities were rated A-1+ by CRISIL,CRISIL, an Indian subsidiary of S&P Global.
| | | | | | | | |
| Cognizant Technology Solutions | 1110 | June 30, 20212022 Form 10-Q |
Equity and Cost MethodOther Investments
As of June 30, 20212022 and December 31, 2020,2021, we had equity method investments of $33$66 million and $31$63 million, respectively, primarily related to an investment in the technology sector. As of June 30, 2022 and cost method investmentsDecember 31, 2021, we had equity securities without a readily determinable fair value of $3$2 million and $4$3 million, respectively.
| | | | | | | | | | | | | | |
Note 64 — Accrued Expenses and Other Current Liabilities |
Accrued expenses and other current liabilities were as follows: | | | | | | | | | | | |
| (in millions) | June 30, 2021 | | December 31, 2020 |
| Compensation and benefits | $ | 1,472 | | | $ | 1,607 | |
| Customer volume and other incentives | 258 | | | 266 | |
| | | |
| Income taxes | 25 | | | 34 | |
| Professional fees | 171 | | | 143 | |
| Other | 308 | | | 469 | |
| Total accrued expenses and other current liabilities | $ | 2,234 | | | $ | 2,519 | |
| | | | | | | | | | | |
| (in millions) | June 30, 2022 | | December 31, 2021 |
| Compensation and benefits | $ | 1,277 | | | $ | 1,601 | |
| Customer volume and other incentives | 279 | | | 242 | |
| | | |
| Income taxes | 126 | | | 74 | |
| Professional fees | 175 | | | 220 | |
| Other | 315 | | | 395 | |
| Total accrued expenses and other current liabilities | $ | 2,172 | | | $ | 2,532 | |
In 2018, we entered into the Credit Agreement providing for the $750 million Term Loan and a $1,750 million unsecured revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan.
The Credit Agreement requires interest to be paid, at our option, at either the ABR, or the Eurocurrency Rate or the Daily Simple RFR (each as defined in the Credit Agreement), plus, in each case, an Applicable Margin (as defined in the Credit Agreement). Initially, the Applicable Margin is 0.875% with respect to Eurocurrency Rate loansand Daily Simple RFR and 0.00% with respect to ABR loans. Subsequently, the Applicable Margin with respect to Eurocurrency Rate loansand Daily Simple RFR may range from 0.75% to 1.125%, depending on our public debt ratings (or, if we have not received public debt ratings, from 0.875% to 1.125%, depending on our Leverage Ratio, which is the ratio of indebtedness for borrowed money to Consolidated EBITDA, as defined in the Credit Agreement). Our Credit Agreement also providesThe Term Loan is a mechanism for determining an alternative rate of interest to the Eurocurrency rate after LIBOR is no longer available.Rate Loan.
We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan.
The Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. We were in compliance with all debt covenants and representations of the Credit Agreement as of June 30, 2021.2022.
In February 2021,March 2022, our India subsidiary renewed its 13 billion Indian rupee ($175165 million at the June 30, 20212022 exchange rate) working capital facility, which requires us to repay any balances within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made prior towithin 30 days afterof disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February.annually. As of June 30, 2022, we have not borrowed funds under this facility.
Short-term Debt
As of both June 30, 20212022 and December 31, 2020,2021, we had $38 million of short-term debt related to current maturities of ourthe Term Loan.
Long-term Debt
The following table summarizes ourthe long-term debt balances as of:
| | (in millions) | (in millions) | June 30, 2021 | | December 31, 2020 | (in millions) | June 30, 2022 | | December 31, 2021 |
| | Term Loan | Term Loan | $ | 685 | | | $ | 703 | | Term Loan | $ | 647 | | | $ | 666 | |
| Less: | Less: | | Less: | |
| Current maturities - Term Loan | (38) | | | (38) | | |
| Current maturities | | Current maturities | (38) | | | (38) | |
| Deferred financing costs | Deferred financing costs | (2) | | | (2) | | Deferred financing costs | (1) | | | (2) | |
| Long-term debt, net of current maturities | Long-term debt, net of current maturities | $ | 645 | | | $ | 663 | | Long-term debt, net of current maturities | $ | 608 | | | $ | 626 | |
The carrying value of our debt approximated its fair value as of June 30, 20212022 and December 31, 2020.
| | | | | | | | |
Cognizant | 12 | June 30, 2021 Form 10-Q |
In March 2021, we reached an agreement with the IRS, which effectively settled tax years 2012 through 2016. As a result of this effective settlement, in the first quarter of 2021, we recorded a reduction of $43 million to our uncertain tax position balance, which resulted in a $14 million discrete benefit to the provision for income taxes and a $29 million adjustment to our current income tax balance sheet accounts. Tax years that remain subject to examination by the IRS are 2017 onward. As of June 30, 2021 and December 31, 2020, our prepaid taxes, which are presented in "Other current assets" in our unaudited consolidated statements of financial position, were $370 million and $274 million, respectively.
Our effective income tax rates were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Effective income tax rate | 26.5 | % | | 27.1 | % | | 25.3 | % | | 27.5 | % |
The effective tax rate decreased in 2021 as compared to 2020 primarily as a result of significantly lower non-deductible foreign currency exchange losses in our unaudited consolidated statement of operations in the 2021 period.
We are involved in an ongoing dispute with the ITD in connection with a previously disclosed transaction undertaken by CTS India in 2016 to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $2.8 billion. As a result of that transaction, which was undertaken pursuant to a plan approved by the High Court in Chennai, India, we previously paid $135 million in Indian income taxes - an amount we believe includes all applicable taxes owed for this transaction under Indian law. In March 2018, we received a communication from the ITD asserting that the ITD is owed an additional 33 billion Indian rupees ($444 million at the June 30, 2021 exchange rate) on the 2016 transaction. Immediately thereafter, the ITD placed an attachment on certain of our India bank accounts. In addition to the dispute on the 2016 transaction, we are also involved in another ongoing dispute with the ITD relating to a 2013 transaction undertaken by CTS India to repurchase shares from its shareholders valued at $523 million (the two disputes are collectively referred to as the "ITD Dispute").
In April 2018, the High Court admitted our writ petition for a stay of the actions of the ITD and lifted the ITD’s attachment on our bank accounts. As part of the interim stay order, we deposited 5 billion Indian rupees ($67 million at the June 30, 2021 exchange rate and $68 million at the December 31, 2020 exchange rate) representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. In addition, the High Court placed a lien on certain time deposits of CTS India in the amount of 28 billion Indian rupees ($377 million at the June 30, 2021 exchange rate and $384 million at the December 31, 2020 exchange rate), which is the remainder of the disputed tax amount related to the 2016 transaction.
In June 2019, the High Court dismissed our previously admitted writ petitions on the ITD Dispute, holding that the Company must exhaust other remedies, such as pursuing the matter before other appellate bodies, for resolution of the ITD Dispute prior to intervention by the High Court. The High Court did not issue a ruling on the substantive issue of whether we owe additional tax as a result of either the 2016 or the 2013 transaction. In July 2019, we appealed the High Court’s orders before the Division Bench. In September 2019, the Division Bench partly allowed the Company’s appeal with respect to the 2016 transaction, but did not issue a ruling on the substantive issue of the tax implications of the transactions. In October 2019, we filed a SLP before the SCI with respect to the 2016 transaction. In March 2020, the SCI referred the case based on the 2016 transaction back to the ITD with directions to carry out the assessment following the due process of law. Further, until the conclusion of the assessment, the SCI maintained in place the lien on our 28 billion Indian rupees time deposit and did not order the release of the 5 billion Indian rupees deposit held by the ITD. In April 2020, we received an assessment from the ITD, which is consistent with its previous assertions regarding our 2016 transaction. In June 2020, we filed an appeal against this assessment.
As of June 30, 2021 and December 31, 2020, the balance of deposits under lien was $397 million and $405 million, respectively, presented in "Long-term investments", including a portion of the interest previously earned. As of June 30, 2021 and December 31, 2020, the deposit with the ITD was $67 million and $68 million respectively, presented in "Other noncurrent assets".
We believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions. Accordingly, we have not recorded any reserves for these matters as of June 30, 2021.
| | | | | | | | |
| Cognizant Technology Solutions | 1311 | June 30, 20212022 Form 10-Q |
Our effective income tax rates were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Effective income tax rate | 24.2 | % | | 26.5 | % | | 23.8 | % | | 25.3 | % |
We are involved in two separate ongoing disputes with the ITD in connection with previously disclosed share repurchase transactions undertaken by CTS India in 2013 and 2016 to repurchase shares from its shareholders (non-Indian Cognizant entities) valued at $523 million and $2.8 billion, respectively.
The 2016 transaction was undertaken pursuant to a plan approved by the High Court in Chennai, India, and resulted in the payment of $135 million in Indian income taxes - an amount we believe includes all the applicable taxes owed for this transaction under Indian law. In March 2018, the ITD asserted that it is owed an additional 33 billion Indian rupees ($418 million at the June 30, 2022 exchange rate) on the 2016 transaction. We deposited 5 billion Indian rupees, representing 15% of the disputed tax amount related to the 2016 transaction, with the ITD. As of June 30, 2022 and December 31, 2021, the deposit with the ITD was $63 million and $67 million, respectively, presented in "Other noncurrent assets". Additionally, certain time deposits of CTS India were placed under lien in favor of the ITD, representing the remainder of the disputed tax amount. As of June 30, 2022 and December 31, 2021, the balance of deposits under lien was 30 billion Indian rupees, including previously earned interest, or $375 million and $397 million, respectively, as presented in "Long-term investments". The dispute in relation to the 2013 share repurchase transaction is also in litigation. At this time, the ITD has not made specific demands with regards to this transaction.
In April 2020, we received a formal assessment from the ITD on the 2016 transaction, which is consistent with its previous assertions. In June 2020, we filed an appeal against this assessment to the CITA. In March 2022, we received a negative decision from the CITA.
We continue to believe we have paid all applicable taxes owed on both the 2016 and the 2013 transactions and we continue to defend our positions with respect to both matters. Accordingly, we have not recorded any reserves for these matters as of June 30, 2022.
| | | | | | | | | | | | | | |
| Note 7 — Derivative Financial Instruments |
In the normal course of business, we use foreign exchange forward and option contracts to manage foreign currency exchange rate risk. Derivatives may give rise to credit risk from the possible non-performance by counterparties. Credit risk is limited to the fair value of those contracts that are favorable to us. We have limited our credit risk by limiting the amount of credit exposure with any one financial institution and conducting ongoing evaluation of the creditworthiness of the financial institutions with which we do business. In addition, all the assets and liabilities related to ourthe foreign exchange derivative contracts set forth in the below table are subject to master netting arrangements, such as the International Swaps and Derivatives Association Master Agreement, with each individual counterparty. These master netting arrangements generally provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. We have presented all the assets and liabilities related to ourthe foreign exchange derivative contracts, as applicable, on a gross basis, with no offsets, in our unaudited consolidated statements of financial position. There is no financial collateral (including cash collateral) posted or received by us related to ourthe foreign exchange derivative contracts.
| | | | | | | | |
| Cognizant Technology Solutions | 12 | June 30, 2022 Form 10-Q |
The following table provides information on the location and fair values of derivative financial instruments included in our unaudited consolidated statements of financial position as of:
| | (in millions) | (in millions) | | | | June 30, 2021 | | December 31, 2020 | (in millions) | | | | June 30, 2022 | | December 31, 2021 |
| Designation of Derivatives | Designation of Derivatives | | Location on Statement of
Financial Position | | Assets | | Liabilities | | Assets | | Liabilities | 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 | Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | | Other current assets | | $ | 35 | | | $ | — | | | $ | 45 | | | $ | — | | Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | | Other current assets | | $ | 6 | | | $ | — | | | $ | 51 | | | $ | — | |
| | Other noncurrent assets | | 9 | | | — | | | 26 | | | — | | | Other noncurrent assets | | — | | | — | | | 15 | | | — | |
| | Accrued expenses and other current liabilities | | — | | | 2 | | | — | | | 0 | | | Accrued expenses and other current liabilities | | — | | | 21 | | | — | | | — | |
| | Other noncurrent liabilities | | — | | | 2 | | | — | | | 0 | | | Other noncurrent liabilities | | — | | | 10 | | | — | | | — | |
| | Total | | $ | 44 | | | $ | 4 | | | $ | 71 | | | $ | 0 | | | Total | | 6 | | | 31 | | | 66 | | | — | |
| Foreign exchange forward contracts – Not designated as hedging instruments | Foreign exchange forward contracts – Not designated as hedging instruments | | Other current assets | | 1 | | | — | | | 1 | | | — | | Foreign exchange forward contracts – Not designated as hedging instruments | | Other current assets | | 3 | | | — | | | 3 | | | — | |
| | Accrued expenses and other current liabilities | | — | | | 0 | | | — | | | 1 | | | Accrued expenses and other current liabilities | | — | | | — | | | — | | | 7 | |
| | Total | | 1 | | | 0 | | | 1 | | | 1 | | | Total | | 3 | | | — | | | 3 | | | 7 | |
| Total | Total | | $ | 45 | | | $ | 4 | | | $ | 72 | | | $ | 1 | | Total | | $ | 9 | | | $ | 31 | | | $ | 69 | | | $ | 7 | |
Cash Flow Hedges
We have entered into a series of foreign exchange derivative contracts that are designated as cash flow hedges of Indian rupee denominated payments in India. These contracts are intended to partially offset the impact of movement of the Indian rupee against the U.S. dollar on future operating costs and are scheduled to mature each month during the remainder of 2021, 2022, 2023 and the first six months of 2023.2024. The changes in fair value of these contracts are initially reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position and are subsequently reclassified to earnings within "Cost of revenues" and "Selling, general and administrative expenses" in our unaudited consolidated statements of operations in the same period that the forecasted Indian rupee denominated payments are recorded in earnings. As of June 30, 2021,2022, we estimateestimate that $32$11 million, net of tax, of net gainslosses related to derivatives designated as cash flow hedges reported in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of financial position is expected to be reclassified into earnings within the next 12 months.
The notional value of the outstanding contracts by year of maturity was as follows:
| | | | | | | | | | | |
| (in millions) | June 30, 2022 | | December 31, 2021 |
| 2022 | $ | 1,038 | | | $ | 1,643 | |
| 2023 | 1,380 | | | 880 | |
| 2024 | 395 | | | — | |
Total notional value of contracts outstanding (1) | $ | 2,813 | | | $ | 2,523 | |
| | | |
(1)Includes $8 million and $78 million notional value of option contracts as of June 30, 2022 and December 31, 2021, respectively, with the remaining notional value related to forward contracts.
| | | | | | | | |
| Cognizant Technology Solutions | 1413 | June 30, 20212022 Form 10-Q |
The notional values of our outstanding contracts by year of maturity were as follows:
| | | | | | | | | | | |
| (in millions) | June 30, 2021 | | December 31, 2020 |
| 2021 | $ | 815 | | | $ | 1,470 | |
| 2022 | 1,098 | | | 803 | |
| 2023 | 325 | | | 0 | |
Total notional value of contracts outstanding (1) | $ | 2,238 | | | $ | 2,273 | |
| | | |
(1)Includes $128 million and $133 million notional value of option contracts as of June 30, 2021 and December 31, 2020, respectively, with the remaining notional value related to forward contracts.
The following table provides information on the location and amounts of pre-tax gains and losses on our cash flow hedges for the three months ended June 30:
| | (in millions) | (in millions) | Change in
Derivative (Losses) Gains Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion) | | Location of Net Gains (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion) | | Net Gains (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion) | (in millions) | Change in
Derivative Gains and Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion) | | Location of Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion) | | Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion) |
| | | 2021 | | 2020 | | | | 2021 | | 2020 | | 2022 | | 2021 | | | | 2022 | | 2021 |
| Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | (3) | | | $ | 35 | | | Cost of revenues | | $ | 12 | | | $ | (9) | | Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | (66) | | | $ | (3) | | | Cost of revenues | | $ | 5 | | | $ | 12 | |
| | | SG&A expenses | | 2 | | | (2) | | | | SG&A expenses | | 1 | | | 2 | |
| | Total | | $ | 14 | | | $ | (11) | | | Total | | $ | 6 | | | $ | 14 | |
The following table provides information on the location and amounts of pre-tax gains and losses on our cash flow hedges for the six months ended June 30:
| | (in millions) | (in millions) | Change in
Derivative Gains (Losses) Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion) | | Location of Net Gains (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion) | | Net Gains (Losses) Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion) | (in millions) | Change in
Derivative Gains and Losses Recognized
in Accumulated Other
Comprehensive Income (Loss)
(effective portion) | | Location of Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion) | | Net Gains Reclassified
from Accumulated Other
Comprehensive Income (Loss)
into Income
(effective portion) |
| | | 2021 | | 2020 | | | | 2021 | | 2020 | | 2022 | | 2021 | | | | 2022 | | 2021 |
| Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | 14 | | | $ | (78) | | | Cost of revenues | | $ | 30 | | | $ | (12) | | Foreign exchange forward and option contracts – Designated as cash flow hedging instruments | $ | (76) | | | $ | 14 | | | Cost of revenues | | $ | 17 | | | $ | 30 | |
| | | SG&A expenses | | 5 | | | (2) | | | | SG&A expenses | | 2 | | | 5 | |
| | Total | | $ | 35 | | | $ | (14) | | | Total | | $ | 19 | | | $ | 35 | |
The activity related to the change in net unrealized gains and losses on ourthe cash flow hedges included in "Accumulated other comprehensive income (loss)" in our unaudited consolidated statements of stockholders' equity is presented in Note 119.
Other Derivatives
We use foreign exchange forward contracts to provide an economic hedge against balance sheet exposures to certain monetary assets and liabilities denominated in currencies other than the functional currency of our foreign subsidiaries. We entered into foreign exchange forward contracts that are scheduled to mature in 2021.the third quarter of 2022. Realized gains or losses and changes in the estimated fair value of these derivative financial instruments are recorded in the caption "Foreign currency exchange gains (losses), net" in our unaudited consolidated statements of operations.
Additional information related to ourthe outstanding foreign exchange forward contracts not designated as hedging instruments was as follows:
| | (in millions) | (in millions) | June 30, 2021 | | December 31, 2020 | (in millions) | June 30, 2022 | | December 31, 2021 |
| | Notional | | Fair Value | | Notional | | Fair Value | | Notional | | Fair Value | | Notional | | Fair Value |
| Contracts outstanding | Contracts outstanding | $ | 796 | | | $ | 1 | | | $ | 637 | | | $ | 0 | | Contracts outstanding | $ | 1,072 | | | $ | 3 | | | $ | 847 | | | $ | (4) | |
| | | | | | | | |
| Cognizant Technology Solutions | 1514 | June 30, 20212022 Form 10-Q |
The following table provides information on the location and amounts of realized and unrealized pre-tax gains and losses on ourthe other derivative financial instruments for the three and six months ended June 30:
| | | Location of Net Gains (Losses) on
Derivative Instruments | | Amount of Net Gains (Losses) on Derivative Instruments | | Location of Net Gains on
Derivative Instruments | | Amount of Net Gains on Derivative Instruments |
| | | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Foreign exchange forward contracts – Not designated as hedging instruments | Foreign exchange forward contracts – Not designated as hedging instruments | Foreign currency exchange gains (losses), net | | $ | 3 | | | $ | (3) | | | $ | 6 | | | $ | 3 | | Foreign exchange forward contracts – Not designated as hedging instruments | Foreign currency exchange gains (losses), net | | $ | 32 | | | $ | 3 | | | $ | 45 | | | $ | 6 | |
The related cash flow impacts of all of ourthe derivative activities are reflected as cash flows from operating activities.
| | | | | | | | | | | | | | |
Note 108 — Fair Value Measurements |
We measure our cash equivalents, certain investments, contingent consideration liabilities and foreign exchange forward and option contracts at fair value. The authoritative guidance defines fairFair value asis the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.
The fair value hierarchy consists of the following three levels:
•Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities.
•Level 2 – Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
•Level 3 – Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
The following table summarizes ourthe financial assets and (liabilities) measured at fair value on a recurring basis as of June 30, 2021:2022:
| | (in millions) | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents: | Cash equivalents: | | Cash equivalents: | |
| Money market funds | Money market funds | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | | Money market funds | $ | 360 | | | $ | — | | | $ | — | | | $ | 360 | |
| Time deposits | Time deposits | — | | | 4 | | | — | | | 4 | | Time deposits | — | | | 229 | | | — | | | 229 | |
| Commercial paper | Commercial paper | — | | | 285 | | | — | | | 285 | | Commercial paper | — | | | 205 | | | — | | | 205 | |
| Short-term investments: | Short-term investments: | | Short-term investments: | |
| Time deposits | Time deposits | 0 | | | 323 | | | 0 | | | 323 | | Time deposits | — | | | 40 | | | — | | | 40 | |
| Equity investment security | Equity investment security | 27 | | | 0 | | | 0 | | | 27 | | Equity investment security | 26 | | | — | | | — | | | 26 | |
| Available-for-sale investment securities: | Available-for-sale investment securities: | | Available-for-sale investment securities: | |
| Commercial paper | 0 | | | 105 | | | 0 | | | 105 | | |
| Certificates of deposit and commercial paper | | Certificates of deposit and commercial paper | — | | | 448 | | | — | | | 448 | |
| Other current assets: | Other current assets: | | Other current assets: | |
| Foreign exchange forward and option contracts | 0 | | | 36 | | | 0 | | | 36 | | |
| Foreign exchange forward contracts | | Foreign exchange forward contracts | — | | | 9 | | | — | | | 9 | |
| Long-term investments: | Long-term investments: | | Long-term investments: | |
Restricted time deposits(1) | Restricted time deposits(1) | — | | | 397 | | | — | | | 397 | | Restricted time deposits(1) | — | | | 375 | | | — | | | 375 | |
| Other noncurrent assets | | |
| Foreign exchange forward contracts | 0 | | | 9 | | | 0 | | | 9 | | |
| | Accrued expenses and other current liabilities: | Accrued expenses and other current liabilities: | | Accrued expenses and other current liabilities: | |
| Foreign exchange forward contracts and option contracts | 0 | | | (2) | | | 0 | | | (2) | | |
| Foreign exchange forward and option contracts | | Foreign exchange forward and option contracts | — | | | (21) | | | — | | | (21) | |
| Contingent consideration liabilities | Contingent consideration liabilities | 0 | | | 0 | | | (27) | | | (27) | | Contingent consideration liabilities | — | | | — | | | (21) | | | (21) | |
| Other noncurrent liabilities: | Other noncurrent liabilities: | | Other noncurrent liabilities: | |
| Foreign exchange forward contracts and option contracts | 0 | | | (2) | | | 0 | | | (2) | | |
| Foreign exchange forward contracts | | Foreign exchange forward contracts | — | | | (10) | | | — | | | (10) | |
| Contingent consideration liabilities | Contingent consideration liabilities | 0 | | | 0 | | | (13) | | | (13) | | Contingent consideration liabilities | — | | | — | | | (16) | | | (16) | |
| | | | | | | | |
| Cognizant Technology Solutions | 1615 | June 30, 20212022 Form 10-Q |
The following table summarizes ourthe financial assets and (liabilities) measured at fair value on a recurring basis as of December 31, 2020:2021:
| | (in millions) | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total | (in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents: | Cash equivalents: | | Cash equivalents: | |
| Money market funds | Money market funds | $ | 209 | | | $ | — | | | $ | — | | | $ | 209 | | Money market funds | $ | 507 | | | $ | — | | | $ | — | | | $ | 507 | |
| Time deposits | Time deposits | — | | | 203 | | | — | | | 203 | | Time deposits | — | | | 4 | | | — | | | 4 | |
| Commercial paper | Commercial paper | — | | | 200 | | | — | | | 200 | | Commercial paper | — | | | 266 | | | — | | | 266 | |
| Short-term investments: | Short-term investments: | | Short-term investments: | |
| Time deposits | Time deposits | 0 | | | 3 | | | 0 | | | 3 | | Time deposits | — | | | 554 | | | — | | | 554 | |
| Equity investment security | Equity investment security | 27 | | | 0 | | | 0 | | | 27 | | Equity investment security | 26 | | | — | | | — | | | 26 | |
| Available-for-sale investment securities: | | Available-for-sale investment securities: | |
| Commercial paper | | Commercial paper | — | | | 310 | | | — | | | 310 | |
| Other current assets: | Other current assets: | | Other current assets: | |
| Foreign exchange forward and option contracts | Foreign exchange forward and option contracts | 0 | | | 46 | | | 0 | | | 46 | | Foreign exchange forward and option contracts | — | | | 54 | | | — | | | 54 | |
| Long-term investments: | Long-term investments: | | Long-term investments: | |
Restricted time deposits(1) | Restricted time deposits(1) | — | | | 405 | | | — | | | 405 | | Restricted time deposits(1) | — | | | 397 | | | — | | | 397 | |
| Other noncurrent assets: | Other noncurrent assets: | | Other noncurrent assets: | |
| Foreign exchange forward and option contracts | Foreign exchange forward and option contracts | 0 | | | 26 | | | 0 | | | 26 | | Foreign exchange forward and option contracts | — | | | 15 | | | — | | | 15 | |
| Accrued expenses and other current liabilities: | Accrued expenses and other current liabilities: | | Accrued expenses and other current liabilities: | |
| Foreign exchange forward and option contracts | Foreign exchange forward and option contracts | 0 | | | (1) | | | 0 | | | (1) | | Foreign exchange forward and option contracts | — | | | (7) | | | — | | | (7) | |
| Contingent consideration liabilities | Contingent consideration liabilities | 0 | | | 0 | | | (11) | | | (11) | | Contingent consideration liabilities | — | | | — | | | (14) | | | (14) | |
| Other noncurrent liabilities: | Other noncurrent liabilities: | | Other noncurrent liabilities: | |
| | Contingent consideration liabilities | Contingent consideration liabilities | 0 | | | 0 | | | (43) | | | (43) | | Contingent consideration liabilities | — | | | — | | | (21) | | | (21) | |
The following table summarizes the changes in Level 3 contingent consideration liabilities for the six months ended June 30:30:
| | (in millions) | (in millions) | | 2021 | | 2020 | (in millions) | | 2022 | | 2021 |
| Beginning balance | Beginning balance | | $ | 54 | | | $ | 38 | | Beginning balance | | $ | 35 | | | $ | 54 | |
| Initial measurement recognized at acquisition | Initial measurement recognized at acquisition | | 8 | | | 42 | | Initial measurement recognized at acquisition | | 1 | | | 8 | |
| Change in fair value recognized in SG&A expenses | Change in fair value recognized in SG&A expenses | | (19) | | | (23) | | Change in fair value recognized in SG&A expenses | | 5 | | | (19) | |
| Payments | Payments | | (3) | | | (3) | | Payments | | (4) | | | (3) | |
| Ending balance | Ending balance | | $ | 40 | | | $ | 54 | | Ending balance | | $ | 37 | | | $ | 40 | |
We measure the fair value of money market funds based on quoted prices in active markets for identical assets and measure the fair value of our equity investment security based on the published daily net asset value at which investors can freely subscribe to or redeem from the fund. The fair value of certificates of deposit and commercial paper is measured based on relevant trade data, dealer quotes, or model-driven valuations using significant inputs derived from or corroborated by observable market data, such as yield curves and credit spreads. The carrying value of ourthe time deposits approximated fair value as of June 30, 20212022 and December 31, 2020.2021.
We estimate the fair value of each foreign exchange forward contract by using a present value of expected cash flows model. This model calculates the difference between the current market forward price and the contracted forward price for each foreign exchange forward contract and applies the difference in the rates to each outstanding contract. The market forward rates include a discount and credit risk factor. We estimate the fair value of each foreign exchange option contract by using a variant of the Black-Scholes model. This model uses present value techniques and reflects the time value and intrinsic value based on observable market rates.
We estimate the fair value of contingent consideration liabilities associated with our acquisitions using a variation of the income approach, which utilizes one or more significant inputs that are unobservable. This approach calculates the fair value of such liabilities based on the probability-weighted expected performance of the acquired entity against the target performance metric, discounted to present value when appropriate.
During the six months ended June 30, 20212022 and the year ended December 31, 2020,2021, there were no transfers among Level 1, Level 2 or Level 3 financial assets and liabilities.
| | | | | | | | |
| Cognizant Technology Solutions | 1716 | June 30, 20212022 Form 10-Q |
| | | | | | | | | | | | | | |
Note 119 — Accumulated Other Comprehensive Income (Loss) |
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three and six months ended June 30, 2021:2022:
| | | | Three Months | | Six Months | | | Three Months | | Six Months |
| (in millions) | (in millions) | | Before Tax
Amount | | Tax
Effect | | Net of Tax
Amount | | Before Tax
Amount | | Tax
Effect | | Net of Tax
Amount | (in millions) | | Before Tax
Amount | | Tax
Effect | | Net of Tax
Amount | | Before Tax
Amount | | Tax
Effect | | Net of Tax
Amount |
| Foreign currency translation adjustments: | Foreign currency translation adjustments: | | | | | Foreign currency translation adjustments: | | | | |
| Beginning balance | Beginning balance | | $ | 29 | | | $ | 1 | | | $ | 30 | | | $ | 56 | | | $ | (1) | | | $ | 55 | | Beginning balance | | $ | (60) | | | $ | 3 | | | $ | (57) | | | $ | (22) | | | $ | 2 | | | $ | (20) | |
| Change in foreign currency translation adjustments | Change in foreign currency translation adjustments | | 15 | | | (1) | | | 14 | | | (12) | | | 1 | | | (11) | | Change in foreign currency translation adjustments | | (197) | | | 4 | | | (193) | | | (235) | | | 5 | | | (230) | |
| Ending balance | Ending balance | | $ | 44 | | | $ | 0 | | | $ | 44 | | | $ | 44 | | | $ | 0 | | | $ | 44 | | Ending balance | | $ | (257) | | | $ | 7 | | | $ | (250) | | | $ | (257) | | | $ | 7 | | | $ | (250) | |
| Unrealized gains on cash flow hedges: | | | | | |
| Unrealized gains and losses on cash flow hedges: | | Unrealized gains and losses on cash flow hedges: | | | | |
| Beginning balance | Beginning balance | | $ | 63 | | | $ | (12) | | | $ | 51 | | | $ | 67 | | | $ | (12) | | | $ | 55 | | Beginning balance | | $ | 48 | | | $ | (10) | | | $ | 38 | | | $ | 71 | | | $ | (14) | | | $ | 57 | |
| Unrealized (losses) gains arising during the period | | (3) | | | 0 | | | (3) | | | 14 | | | (3) | | | 11 | | |
| Unrealized (losses) arising during the period | | Unrealized (losses) arising during the period | | (66) | | | 14 | | | (52) | | | (76) | | | 16 | | | (60) | |
| Reclassifications of net (gains) to: | Reclassifications of net (gains) to: | | | | | Reclassifications of net (gains) to: | | | | |
| Cost of revenues | Cost of revenues | | (12) | | | 3 | | | (9) | | | (30) | | | 6 | | | (24) | | Cost of revenues | | (5) | | | 1 | | | (4) | | | (17) | | | 3 | | | (14) | |
| SG&A expenses | SG&A expenses | | (2) | | | 1 | | | (1) | | | (5) | | | 1 | | | (4) | | SG&A expenses | | (1) | | | — | | | (1) | | | (2) | | | — | | | (2) | |
| Net change | Net change | | (17) | | | 4 | | | (13) | | | (21) | | | 4 | | | (17) | | Net change | | (72) | | | 15 | | | (57) | | | (95) | | | 19 | | | (76) | |
| Ending balance | Ending balance | | $ | 46 | | | $ | (8) | | | $ | 38 | | | $ | 46 | | | $ | (8) | | | $ | 38 | | Ending balance | | $ | (24) | | | $ | 5 | | | $ | (19) | | | $ | (24) | | | $ | 5 | | | $ | (19) | |
| Accumulated other comprehensive income (loss): | Accumulated other comprehensive income (loss): | | | | | Accumulated other comprehensive income (loss): | | | | |
| Beginning balance | Beginning balance | | $ | 92 | | | $ | (11) | | | $ | 81 | | | $ | 123 | | | $ | (13) | | | $ | 110 | | Beginning balance | | $ | (12) | | | $ | (7) | | | $ | (19) | | | $ | 49 | | | $ | (12) | | | $ | 37 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | (2) | | | 3 | | | 1 | | | (33) | | | 5 | | | (28) | | Other comprehensive income (loss) | | (269) | | | 19 | | | (250) | | | (330) | | | 24 | | | (306) | |
| Ending balance | Ending balance | | $ | 90 | | | $ | (8) | | | $ | 82 | | | $ | 90 | | | $ | (8) | | | $ | 82 | | Ending balance | | $ | (281) | | | $ | 12 | | | $ | (269) | | | $ | (281) | | | $ | 12 | | | $ | (269) | |
Changes in "Accumulated other comprehensive income (loss)" by component were as follows for the three and six months ended June 30, 2020:2021:
| | | | | Three Months | | Six Months | | | Three Months | | Six Months |
| (in millions) | (in millions) | | Before Tax
Amount | | Tax
Effect | | Net of Tax
Amount | | Before Tax
Amount | | Tax
Effect | | Net of Tax
Amount | (in millions) | | Before Tax
Amount | | Tax
Effect | | Net of Tax
Amount | | Before Tax
Amount | | Tax
Effect | | Net of Tax
Amount |
| Foreign currency translation adjustments: | Foreign currency translation adjustments: | | | | | Foreign currency translation adjustments: | | | | |
| Beginning balance | Beginning balance | | $ | (202) | | | $ | 3 | | | $ | (199) | | | $ | (63) | | | $ | (1) | | | $ | (64) | | Beginning balance | | $ | 29 | | | $ | 1 | | | $ | 30 | | | $ | 56 | | | $ | (1) | | | $ | 55 | |
| Change in foreign currency translation adjustments | Change in foreign currency translation adjustments | | 37 | | | 1 | | | 38 | | | (102) | | | 5 | | | (97) | | Change in foreign currency translation adjustments | | 15 | | | (1) | | | 14 | | | (12) | | | 1 | | | (11) | |
| Ending balance | Ending balance | | $ | (165) | | | $ | 4 | | | $ | (161) | | | $ | (165) | | | $ | 4 | | | $ | (161) | | Ending balance | | $ | 44 | | | $ | — | | | $ | 44 | | | $ | 44 | | | $ | — | | | $ | 44 | |
| Unrealized (losses) gains on cash flow hedges: | | | | | |
| Unrealized gains on cash flow hedges: | | Unrealized gains on cash flow hedges: | | | | |
| Beginning balance | Beginning balance | | $ | (79) | | | $ | 14 | | | $ | (65) | | | $ | 31 | | | $ | (5) | | | $ | 26 | | Beginning balance | | $ | 63 | | | $ | (12) | | | $ | 51 | | | $ | 67 | | | $ | (12) | | | $ | 55 | |
| Unrealized gains (losses) arising during the period | | 35 | | | (6) | | | 29 | | | (78) | | | 13 | | | (65) | | |
| Reclassifications of net losses to: | | | | | |
| Unrealized (losses) gains arising during the period | | Unrealized (losses) gains arising during the period | | (3) | | | — | | | (3) | | | 14 | | | (3) | | | 11 | |
| Reclassifications of net (gains) to: | | Reclassifications of net (gains) to: | | | | |
| Cost of revenues | Cost of revenues | | 9 | | | (2) | | | 7 | | | 12 | | | (2) | | | 10 | | Cost of revenues | | (12) | | | 3 | | | (9) | | | (30) | | | 6 | | | (24) | |
| SG&A expenses | SG&A expenses | | 2 | | | 0 | | | 2 | | | 2 | | | 0 | | | 2 | | SG&A expenses | | (2) | | | 1 | | | (1) | | | (5) | | | 1 | | | (4) | |
| Net change | Net change | | 46 | | | (8) | | | 38 | | | (64) | | | 11 | | | (53) | | Net change | | (17) | | | 4 | | | (13) | | | (21) | | | 4 | | | (17) | |
| Ending balance | Ending balance | | $ | (33) | | | $ | 6 | | | $ | (27) | | | $ | (33) | | | $ | 6 | | | $ | (27) | | Ending balance | | $ | 46 | | | $ | (8) | | | $ | 38 | | | $ | 46 | | | $ | (8) | | | $ | 38 | |
| Accumulated other comprehensive income (loss): | Accumulated other comprehensive income (loss): | | | | | Accumulated other comprehensive income (loss): | | | | |
| Beginning balance | Beginning balance | | $ | (281) | | | $ | 17 | | | $ | (264) | | | $ | (32) | | | $ | (6) | | | $ | (38) | | Beginning balance | | $ | 92 | | | $ | (11) | | | $ | 81 | | | $ | 123 | | | $ | (13) | | | $ | 110 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | 83 | | | (7) | | | 76 | | | (166) | | | 16 | | | (150) | | Other comprehensive income (loss) | | (2) | | | 3 | | | 1 | | | (33) | | | 5 | | | (28) | |
| Ending balance | Ending balance | | $ | (198) | | | $ | 10 | | | $ | (188) | | | $ | (198) | | | $ | 10 | | | $ | (188) | | Ending balance | | $ | 90 | | | $ | (8) | | | $ | 82 | | | $ | 90 | | | $ | (8) | | | $ | 82 | |
| | | | | | | | |
| Cognizant Technology Solutions | 1817 | June 30, 20212022 Form 10-Q |
| | | | | | | | | | | | | | |
Note 12—10— Commitments and Contingencies |
We are involved in various claims and legal proceedings arising in the ordinary course of business. We accrue a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. While we do not expect that the ultimate resolution of any existing claims and proceedings (other than the specific matters described below, if decided adversely), individually or in the aggregate, will have a material adverse effect on our financial position, an unfavorable outcome in some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on our current understanding of relevant facts and circumstances. As such, our view of these matters is subject to inherent uncertainties and may change in the future.
On January 15, 2015, Syntel sued TriZetto and Cognizant in the USDC-SDNY. Syntel’s complaint alleged breach of contract against TriZetto, and tortious interference and misappropriation of trade secrets against Cognizant and TriZetto, stemming from Cognizant’s hiring of certain former Syntel employees. Cognizant and TriZetto countersued on March 23, 2015, for breach of contract, misappropriation of trade secrets and tortious interference, based on Syntel’s misuse of TriZetto confidential information and abandonment of contractual obligations. Cognizant and TriZetto subsequently added federal Defend Trade Secrets Act and copyright infringement claims for Syntel’s misuse of TriZetto’s proprietary technology. The parties’ claims were narrowed by the court and the case was tried before a jury, which on October 27, 2020 returned a verdict in favor of Cognizant in the amount of $855 million, including $570 million in punitive damages. On April 20, 2021, the USDC-SDNY issued a post-trial order that, among other things, affirmed the jury’s award of $285 million in actual damages, but reducedreduced the award of punitive damages from $570 million to $285 million, thereby reducing the overall damages award from $855 million to $570 million. The USDC-SDNY subsequently issued a final judgment consistent with the April 20th order. On May 26, 2021, Syntel filed a notice of appeal to the United States Court of Appeals for the Second Circuit, and on June 3, 2021 the USDC-SDNY stayed execution of judgment pending appeal. We will not record the gain in our financial statements until it becomes realizable.
On February 28, 2019, a ruling of the SCI interpreting the India Defined Contribution Obligation altered historical understandings of the obligation, extending it to cover additional portions of the employee’s income. As a result, the ongoing contributions of our affected employees and the Company were required to be increased. In the first quarter of 2019, we accrued $117$117 million with respect to prior periods, assuming retroactive application of the Supreme Court’sSCI’s ruling, in "Selling, general and administrative expenses" in our unaudited consolidated statement of operations. There is significant uncertainty as to how the liability should be calculated as it is impacted by multiple variables, including the period of assessment, the application with respect to certain current and former employees and whether interest and penalties may be assessed. Since the ruling, a variety of trade associations and industry groups have advocated to the Indian government, highlighting the harm to the information technology sector, other industries and job growth in India that would result from a retroactive application of the ruling. It is possible the Indian government will review the matter and there is a substantial question as to whether the Indian government will apply the SCI’s ruling on a retroactive basis. As such, the ultimate amount of our obligation may be materially different from the amount accrued.
On October 5, 2016, October 27, 2016 and November 18, 2016, three putative securities class action complaints were filed in the United States District Court for the District of New Jersey naming us and certain of our current and former officers at that time as defendants. These complaints were consolidated into a single action and on April 7, 2017, the lead plaintiffs filed a consolidated amended complaint on behalf of a putative class of persons and entities who purchased our common stock during the period between February 27, 2015 and September 29, 2016, naming us and certain of our current and former officers at that time as defendants and alleging violations of the Exchange Act, based on allegedly false or misleading statements related to potential violations of the Foreign Corrupt Practices Act, our business, prospects and operations, and the effectiveness of our internal controls over financial reporting and our disclosure controls and procedures. The lead plaintiffs seek an award of compensatory damages, among other relief, and their reasonable costs and expenses, including attorneys’ fees. Defendants filed motions to dismiss the consolidated amended complaint on June 6, 2017. On August 8, 2018, the USDC-NJ issued an order which granted the motions to dismiss in part, including dismissal of all claims against current officers of the Company, and denied them in part. On September 7, 2018, we filed a motion in the USDC-NJ to certify the August 8, 2018 order for immediate appeal to the United States Court of Appeals for the Third Circuit pursuant to 28 U.S.C. § 1292(b). On October 18, 2018, the USDC-NJ issued an order granting our motion, and staying the action pending the outcome of our appeal petition to the Third Circuit. On October 29, 2018, we filed a petition for permission to appeal with the Third Circuit. On March 6, 2019, the Third Circuit denied our petition without prejudice. In an order dated March 19, 2019, the USDC-NJ directed the lead plaintiffs to provide the defendants with a proposed amended complaint. On April 26, 2019, lead plaintiffs filed their second
| | | | | | | | |
Cognizant | 19 | June 30, 2021 Form 10-Q |
amended complaint. We filed a motion to dismiss the second amended complaint on June 10, 2019. On June 7, 2020, the USDC-NJ issued an order denying our motion to dismiss the second amended complaint. On July 10, 2020, we filed our answer to the second amended complaint. On July 23, 2020, the DOJ filed a motion on consent for leave to intervene and to stay all discovery through the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), except for documents produced by us to the DOJ in connection with those criminal proceedings. On July 24, 2020, the USDC-NJ granted the DOJ’s motion; and on that same day, we filed a motion in the USDC-NJ to certify the June 7, 2020 order for immediate appeal to the Third Circuit pursuant to 28 U.S.C. § 1292(b). On March 17, 2021, the USDC-NJ issued an order denying our motion.
On October 31, 2016, November 15, 2016 and November 18, 2016, three putative shareholder derivative complaints were filed in New Jersey Superior Court, Bergen County, naming us, all of our then current directors and certain of our current and former officers at that time as defendants. These actions were consolidated in an order dated January 24, 2017. The complaints assert claims for breach of fiduciary duty, corporate waste, unjust enrichment, abuse of control, mismanagement, and/or insider selling by defendants. On March 16, 2017, the parties filed a stipulation deferring all further proceedings pending a final, non-appealable ruling on the then anticipated motion to dismiss the consolidated putative securities class action. On April 26, 2017, in lieu of ordering the stipulation filed by the parties, the New Jersey Superior Court deferred further proceedings by dismissing the consolidated putative shareholder derivative litigation without prejudice but permitting the parties to file a motion to vacate the dismissal in the future.
On February 22, 2017, April 7, 2017 and May 10, 2017, three additional putative shareholder derivative complaints alleging similar claims were filed in the USDC-NJ, naming us and certain of our current and former directors and officers at that time as defendants. These complaints asserted claims similar to those in the previously-filed putative shareholder derivative actions. In an order dated June 20, 2017, the USDC-NJ consolidated these actions into a single action, appointed lead plaintiff and lead counsel, and stayed all further proceedings pending a final, non-appealable ruling on the motions to dismiss a consolidated putative securities class action that was resolved on December 21, 2021, when the USDC-NJ granted final approval of the settlement of the consolidated putative securities class action.action and entered a judgment dismissing the consolidated putative securities class action with prejudice. On October 30, 2018, lead plaintiff filed a consolidated verified derivative complaint.
On March 11, 2019, a seventh putative shareholder derivative complaint was filed in the USDC-NJ, naming us and certain of our current and former directors and certain of our current and former officers at that time as defendants. The complaint in that action asserts claims similar to
| | | | | | | | |
| Cognizant Technology Solutions | 18 | June 30, 2022 Form 10-Q |
those in the previously-filed putative shareholder derivative actions. On May 14, 2019, the USDC-NJ approved a stipulation that (i) consolidated this action with the putative shareholder derivative suits that were previously filed in the USDC-NJ; and (ii) stayed all of these suits pending an order on the motion to dismiss the second amended complaint in the above-referenced consolidated putative securities class action.action that was resolved on December 21, 2021. On August 3, 2020, lead plaintiffs filed an amended complaint. The USDC-NJ extended the stay through February 14, 2022. On October 19, 2020,February 14, 2022, we and certain of our current and former directors and officers moved to dismiss the USDC-NJ approved a stipulation that stayed all of these suits throughamended complaint. Those motions are now fully briefed and pending before the earlier of the conclusion of the criminal proceedings in United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (KM), or November 1, 2021.USDC-NJ.
On June 1, 2021, an eighth putative shareholdershareholder derivative complaint was filed in the USDC-NJ, naming us and certain of our current and former directors and officers and directors, asat that time as defendants. The complaint asserts claims similar to those in the previously-filed putative shareholder derivative actions. On August 2, 2021, the USDC-NJ approved a stipulation that stayed this action. The stay ended on February 14, 2022. On March 31, 2022, we and certain of our current and former directors and officers moved to dismiss the complaint. Those motions are now fully briefed and pending before the USDC-NJ.
We are presently unable to predict the duration, scope or result of the consolidated putative securities class action, the putative shareholder derivative actions or any other related lawsuits. As such, we are presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, and thus have not recorded any accruals related to these matters.actions. Although the Company continues to defend the lawsuitsputative shareholder derivative actions vigorously, thesethese lawsuits are subject to inherent uncertainties, the actual cost of such litigation will depend upon many unknown factors and the outcome of the litigation is necessarily uncertain.
We have indemnification and expense advancement obligations pursuant to our bylaws and indemnification agreements with respect to certain current and former members of senior management and the Company’s board of directors. In connection with the matters that were the subject of our previously disclosed internal investigation, the DOJ and SEC investigations and the related litigation, we have received and expect to continue to receive requests under such indemnification agreements and our bylaws to provide funds for legal fees and other expenses. We have expensed such costs incurred through June 30, 2021.
We have maintainedThere are no amounts remaining available to us under applicable insurance policies for our ongoing indemnification and advancement obligations with respect to certain of our current and former officers and directors or incremental legal fees and officers insurance and have recorded an insurance receivable of $10 million and $7 million as of June 30, 2021 and December 31, 2020, respectively, in "Other current assets," on our unaudited consolidated statements of financial positionother expenses related to the recovery of a portion of the indemnification expenses and costs related to the putative securities class action complaints. We are unable to make a reliable estimate of the eventual cash flows by period related to the indemnification and expense advancement obligations described here.
See Note 86 for information relating to the ITD Dispute.
| | | | | | | | |
Cognizant | 20 | June 30, 2021 Form 10-Q |
Many of our engagements involve projects that are critical to the operations of our clients’ business and provide benefits that are difficult to quantify. Any failure in a client’s systems or our failure to meet our contractual obligations to our clients, including any breach involving a client’s confidential information or sensitive data, or our obligations under applicable laws or regulations could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to contractually limit our liability for damages arising from negligent acts, errors, mistakes, or omissions in rendering our services, there can be no assurance that the limitations of liability set forth in our contracts will be enforceable in all instances or will otherwise protect us from liability for damages. Although we have general liability insurance coverage, including coverage for errors or omissions, thereomissions, we retain a significant portion of risk through our insurance deductibles and there can be no assurance that such coverage will cover all types of claims, continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.
In the normal course of business and in conjunction with certain client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients or other parties with whom we conduct business with respect to certain matters. These arrangements can include provisions whereby we agree to hold the indemnified party and certain of their affiliated entities harmless with respect to third-party claims related to such matters as our breach of certain representations or covenants, our intellectual property infringement, our gross negligence or willful misconduct or certain other claims made against certain parties. Payments by us under any of these arrangements are generally conditioned on the client making a claim and providing us with full control over the defense and settlement of such claim. It is not possible to determine the maximum potential liability under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Historically, we have not made material payments under these indemnification agreements and therefore they have not had a material impact on our operating results, financial position, or cash flows. However, if events arise requiring us to make payment for indemnification claims under our indemnification obligations in contracts we have entered, such payments could have a material adverse effect on our business, results of operations, financial position and cash flows for a particular period.
| | | | | | | | |
| Cognizant Technology Solutions | 19 | June 30, 2022 Form 10-Q |
| | | | | | | | | | | | | | |
Note 1311 — Segment Information |
Our reportable segments are:
•Financial Services, which consists of ourthe banking and insurance operating segments;
•Healthcare, which consists of our healthcare and life sciences operating segments;Health Sciences (previously referred to as Healthcare);
•Products and Resources, which consists of ourthe retail and consumer goods; manufacturing, logistics, energy, and utilities; and travel and hospitality operating segments; and
•Communications, Media and Technology
Our segments are industry-based, and as such, we report revenue from clients in the segment with which includes our communications and media operating segment and our technology operating segment.
clients are most closely aligned. Our client partners, account executives and client relationship managers are aligned in accordance with the specific industries they serve. Our chief operating decision maker evaluates the Company's performance and allocates resources based on segment revenues and operating profit. Segment operating profit is defined as income from operations before unallocated costs. Generally, operating expenses for each operating segment have similar characteristics and are subject to the same factors, pressures and challenges. However, the economic environment and its effects on industries served by ourthe operating segments may affect revenues and operating expenses to differing degrees.
In 2022, we made certain changes to the internal measurement of segment operating profits for the purpose of evaluating
segment performance and resource allocation. The primary reason for the change was to charge costs to the business segments that are directly managed and controlled by them. Specifically, segment operating profit now includes costs related to non-delivery personnel that support consulting services, which were previously included in "unallocated costs." We have reported 2022 segment operating profits using the new allocation methodology and have recast the 2021 results to conform to the new methodology.
Additionally, we made the following changes:
•We renamed the Healthcare reportable segment as Health Sciences. This segment, which was previously comprised of two operating segments, (i) healthcare and (ii) life sciences, is now comprised of one operating segment - health sciences.
•The Communications, Media and Technology segment, which was previously comprised of two operating segments, (i) communications and media and (ii) technology, is now comprised of one operating segment - communications, media and technology.
These changes reflect how these operating segments are currently managed and reported to the chief operating decision maker but did not affect the reportable segments' financial results.
Expenses included in segment operating profit consist principally of direct selling and delivery costs (including stock-based compensation expense) as well as a per employee charge for use of our global delivery centers and infrastructure. Certain SG&A expenses, the excess or shortfall of incentive-based compensation for commercial and delivery personnelemployees as compared to target, restructuring and COVID-19 Charges, a portion of depreciation and amortization and the impact of the settlements of ourthe cash flow hedges are not allocated to individual segments in internal management reports used by the chief operating decision maker. Accordingly, such expenses are excluded from segment operating profit and are included below as “unallocated costs” and adjusted against our total income from operations. Additionally, management has determined that it is not practical to allocate identifiable assets by segment, since such assets are used interchangeably among the segments.
For revenues by reportable segment and geographic area, see Note 2.
| | | | | | | | |
| Cognizant Technology Solutions | 2120 | June 30, 20212022 Form 10-Q |
For revenues by reportable segment and geographic area, see Note 2.Segment operating profits by reportable segment were as follows:follows for the three and six months ended June 30:
| | | Three Months Ended
June 30, | | Six Months Ended
June 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | 2021 | | 2020 | | 2021 | | 2020 | (in millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Financial Services | Financial Services | $ | 439 | | | $ | 365 | | | $ | 845 | | | $ | 746 | | Financial Services | $ | 454 | | | $ | 430 | | | $ | 875 | | | $ | 828 | |
| Healthcare | 388 | | | 305 | | | 799 | | | 626 | | |
| Health Sciences | | Health Sciences | 388 | | | 382 | | | 756 | | | 787 | |
| Products and Resources | Products and Resources | 329 | | | 237 | | | 637 | | | 498 | | Products and Resources | 359 | | | 323 | | | 691 | | | 625 | |
| Communications, Media and Technology | Communications, Media and Technology | 235 | | | 174 | | | 450 | | | 364 | | Communications, Media and Technology | 271 | | | 231 | | | 516 | | | 443 | |
| Total segment operating profit | Total segment operating profit | 1,391 | | | 1,081 | | | 2,731 | | | 2,234 | | Total segment operating profit | 1,472 | | | 1,366 | | | 2,838 | | | 2,683 | |
| Less: unallocated costs | Less: unallocated costs | 695 | | | 614 | | | 1,366 | | | 1,188 | | Less: unallocated costs | 712 | | | 670 | | | 1,354 | | | 1,318 | |
| Income from operations | Income from operations | $ | 696 | | | $ | 467 | | | $ | 1,365 | | | $ | 1,046 | | Income from operations | $ | 760 | | | $ | 696 | | | $ | 1,484 | | | $ | 1,365 | |
Geographic Area Information
Long-lived assets by geographic area are as follows:
| | | As of | | As of |
| (in millions) | (in millions) | June 30, 2021 | | December 31, 2020 | (in millions) | June 30, 2022 | | December 31, 2021 |
Long-lived Assets: (1) | Long-lived Assets: (1) | | Long-lived Assets: (1) | |
North America(2) | North America(2) | $ | 389 | | | $ | 399 | | North America(2) | $ | 366 | | | $ | 377 | |
| Europe | Europe | 84 | | | 88 | | Europe | 65 | | | 75 | |
Rest of World (3) | Rest of World (3) | 752 | | | 764 | | Rest of World (3) | 690 | | | 719 | |
| Total | Total | $ | 1,225 | | | $ | 1,251 | | Total | $ | 1,121 | | | $ | 1,171 | |
(1)Long-lived assets include property and equipment, net of accumulated depreciation and amortization.
(2)Substantially all relates to the United States.
(3)Substantially all relates to India.
| | | | | | | | | | | | | | |
Note 1412 — Subsequent Events |
Dividend
OOn July 26, 2022, thn July 25, 2021, oure Board of DirectorsDirectors approved the Company's declaration of a $0.24$0.27 per share dividend with a record date of August 20, 202119, 2022 and a payment date of August 31, 2021.
| | | | | | | | |
| Cognizant Technology Solutions | 2221 | June 30, 20212022 Form 10-Q |
| | | | | | | | | | | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Cognizant is one of the world’s leading professional services companies, engineering modern business for the digital era. Our services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Digital services have becomeare an increasingly important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and differentiated businesses. We are focusedcontinuing to invest in digital services with a focus on continued investment in four key areas of digital:areas: IoT, AI, experience-driven softwaredigital engineering, data and cloud. We tailor our services and solutions to specific industries with an integrated global delivery model that employs client service and delivery teams based at client locations and dedicated global and regional delivery centers. We help clients modernize technology, reimagine processes and transform experiences so they can stay ahead in a fast-changing world.
On July 6, 2022, we announced that we will be simplifying our internal operating structure around practice areas and delivery operations by merging our Digital Business & Technology and Digital Business Operations practice areas with their respective delivery organizations to create four new integrated practices: Software & Platform Engineering, Core Technologies & Insights, Enterprise Platform Services, and Intuitive Operations & Automation. This change will not impact our reportable business segments.
Q2 20212022 Financial Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Revenue up $321 million or 7.0% from Q2 2021; 9.5% in constant currency1 | | Income from Operations up $64 million or 9.2% from Q2 2021 | | | | Operating margin up 30 bps from Q2 2021 | | | | GAAP | | Adjusted1 |
| | | | | | | Diluted EPS up $0.14 or 14.4% from Q2 2021 | | Diluted EPS up $0.15 or 15.2% from Q2 2021 |
| | | | | |
| | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
During the quarter ended June 30, 2021,2022, revenues increased by $585$321 million as compared to the quarter ended June 30, 2020,2021, representing growth of 14.6%7.0%, or 12.0%9.5% on a constant currency basis1. Our recently completed acquisitions contributed 390110 basis points to our revenue growth. Our revenue Revenue growth also reflected our clients' continued adoption and integration of digital technologies and the accelerationtechnologies. Revenues in the demand for cloud, mobile workplace solutions, e-commerce, automation and AI and was aided by the negative impact on 2020 revenues of the COVID-19 pandemic and the April 2020 ransomware attack. We continue to experience pricing pressure on our non-digital services as our clients, particularly those in our Financial Services segment, optimize the cost of supporting their legacy systems and operations. Revenue growth in our Healthcare segment was driven by increased demand for our services from our pharmaceutical and health insurance clients. Revenue growth was strong among our manufacturing, logistics, energy and utilities clients in our Products and Resources segment due to their continued adoption and integration of digital technologies. At the same time, while revenues from our retail, consumer goods, travel and hospitality clients increased year over year, these clients continue to be negatively impacted by the pandemic, although to a lesser extent than they were in the second quarter of 2020. Revenues in our Communications, Media and Technology segment benefited from our technology clients' growing demand for services related to digital content.
Our operating margin Products and Adjusted Operating MarginResources revenue growth was driven by increasing client interest in delivering cloud-based, data-driven enhanced customer experiences, the automotive industry’s shift toward electric and connected vehicles, and client investment in supply chain modernization and smart factory so1lutions. were both 15.2%Revenue growth in the Health Sciences (previously referred to as Healthcare) segment was driven by increased demand for digital services among pharmaceutical companies. Financial services revenue growth reflects the quarter ended June 30, 2021, as there were no adjustmentsgrowing demand for unusual items to report in our calculation of Adjusted Operating Margin1 for that period. Our operating margin and Adjusted Operating Margin1 were 11.7% and 14.1%, respectively, for the quarter ended June 30, 2020. Our 2021 operating marginbenefited from savings resulting from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan. These benefits weredigital services, partially offset by investments intended to drive and support organic revenue growth, including additions to our sales organization and initiatives to reposition our brand, as well as the negative impact on margin of our recently completed acquisitions and costs related to the modernization of our core IT systems. Our 2020 operating margin and Adjusted Operating Margin1 were adversely impacted by the decline in revenues brought on by the COVID-19 pandemic and the effect of the April 2020 ransomware attackpreviously disclosed sale of the Samlink subsidiary, which was completed on both revenuesFebruary 1, 2022. We continue to experience pricing pressure on our non-digital services as our clients optimize the cost of supporting their legacy systems and costs. Our 2020 operatingoperations.
1 Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.
| | | | | | | | |
| Cognizant Technology Solutions | 2322 | June 30, 20212022 Form 10-Q |
Operating margin increased to15.5% for the quarter ended June 30, 2022, from 15.2% for the quarter ended June 30, 2021. Our 2022 operating margin was also negativelypositively impacted by costs relateddelivery efficiencies, economies of scale that allowed us to leverage our restructuring program that concluded at the end of 2020 and COVID-19 Charges.
In the fourth quarter of 2020, we made an offer to settle and exitcost structure over a large customer engagement in Financial Services in Continental Europe. The offer included, among other terms, a proposed paymentlarger organization and the forgiveness of certain receivables. In the second quarter of 2021, we reached a settlement agreement with twodepreciation of the three customers that were part ofIndian rupee against the engagement. The payment made to the two customers in the second quarter as part of the settlement agreement was consistent with the payment that had been proposed in the offer to such customers. Additionally, the settlement includes a provisionU.S. dollar, partially offset by increased compensation costs for the continuation of certain of our services to the two customers. Our negotiations with the third customer are ongoingdelivery personnel (including employees and as such, we may not reach an agreement or the final terms of the agreement that is reached may materially differ from those contemplated in our accounting. In either instance, there could be additional impacts to our statement of operations, financial condition and our cash flows.subcontractors).
Business Outlook
As we seek to increase our commercial momentum and accelerate growth, our four strategic priorities are:
•Accelerating digital - growing our digital business organically and inorganically;
•Globalizing Cognizant - accelerating the growth of our business in key international markets and diversifying our leadership, capabilities and delivery footprint;
•Increasing our relevance to our clients - ensuring industry-aligned thought leadership and capabilities to address clients' business needs; and
•Repositioning our brand - improving our global brand recognition and becoming better known as a global digital partner to the entire C-suite;C-suite.
•Accelerating digital - growing our digital business organically and inorganically;
•Globalizing Cognizant - growing our business in key international markets and diversifying leadership, capabilities and delivery footprint; and
•Increasing our relevance to our clients - leading with thought leadership and capabilities to address clients' business needs.
During the second quarter of 2021, we acquired Servian and ESG Mobility to strengthen our digital capabilities. We intend to continue to pursue strategic acquisitions, investments and alliances to expand our talent, experience and capabilities in key digital areas or in particular geographies or industries.
We continue to expect the long-term focus of our clients to be on their digital transformation into software-driven, data-enabled, customer-centric and differentiated businesses. Clients continueThe COVID-19 pandemic accelerated our clients' need to adopt and integratemodernize their business, which has led to increased demand for digital technologies. Demand for our digital operations services and solutions has increased since the beginning of the COVID-19 pandemic. At the same time, ascapabilities.
As our clients seek to optimize the cost of supporting their legacy systems and operations, our non-digital services hashave been, and may continue to be, subject to pricing pressure.
Our In addition, clients will likely continue to contend with industry-specific changes driven by evolving digital technologies, uncertainty in the regulatory environment, industry consolidation and convergence as well as international trade policiespolicies and other macroeconomic factors, which could affect their demand for our services.The COVID-19 pandemic may continue to negatively impact demand, particularly among our retail, consumer goods, travel and hospitality clients within our Products and Resources segment as well as communications and media clients in our Communications, Media and Technology segment. The evolving nature of the pandemic makes it difficult to estimate its future impact on our ongoing business, results of operations and overall financial performance. For example, India saw a considerable and sudden increase in new COVID-19 cases in the spring of 2021. A significant worsening of the pandemic, particularly in India, where a significant majority of our operations and technical personnel are located, could present challenges to our ability to deliver services to clients. We remain focused on protecting our employees’ health, safety and well-being.
As a global professional services company, we compete on the basis of the knowledge, experience, insights, skills and talent of our employees and the value they can provide to our clients. Our success is dependent, in large part, on our ability to keep our supply of skilled employees, in particular those with experience in key digital areas, in balance with client demand. Competition for skilled employees in the current labor market is intense, and we continue to experience significantly elevated voluntary attrition. For the three months ended June 30, 2021,2022, our annualized attrition, including both voluntary and involuntary, was 35.6% as compared to 31.4%. Competition for skilled employees in the current labor market is intense, and we experienced significantly elevated voluntary attrition during the second quarter and in Julythree months ended June 30, 2021. Challenges attracting and retaining highly qualified personnel have resulted in increased cost of delivery and have negatively impacted and we expect will continue to impact, our ability to satisfy client demand and achieve our full revenue potential. Further,We expect these impacts to continue for at least the remainder of 2022. Further, our ongoing and anticipated futurefuture efforts with respect to recruitment, talent management and employee engagement may not be successful and willare likely to continue to result in increased delivery costs duringcompensation costs. While we strive to adjust pricing to reduce the remainderimpact of 2021.compensation increases on our operating margin, we may not be successful in fully recovering these increases, which could adversely affect our profitability.
In addition,The invasion of Ukraine by Russia and the sanctions and other measures being imposed in response to this conflict have increased the level of economic and political uncertainty worldwide. We do not have employees, facilities or significant operations in either Russia or Ukraine and revenues generated from clients in both countries were immaterial in both 2021 and the first half of 2022. However, the continuation of the hostilities or the expansion of the current conflict’s scope into surrounding geographic areas could directly impact us, our clients, vendors or subcontractors, which could impact our operations and financial performance. We continue to monitor the situation closely to ensure business continuity plans are in place for neighboring countries where we have a presence.
Our future results may be affected by potential tax law changes and other potential regulatory changes, including potentiallypossible U.S. corporate income tax reform and potentially increased costs for employment and post-employment benefits in India as a result of the Code on Social Security, 2020. We may also incur costs related to the potential resolution of legal and regulatory matters discussed in
Note 12 to our unaudited consolidated financial statements.
| | | | | | | | |
| Cognizant Technology Solutions | 2423 | June 30, 20212022 Form 10-Q |
Three Months Ended June 30, 20212022 Compared to Three Months Ended June 30, 20202021
The following table sets forth, for the periods indicated, certain financial data for the three months ended June 30:
| | | | | | % of | | | | | % of | | | Increase / Decrease | | | | % of | | | | | % of | | | Increase |
| (Dollars in millions, except per share data) | (Dollars in millions, except per share data) | 2021 | | Revenues | | | 2020 | | Revenues | | | $ | | % | (Dollars in millions, except per share data) | 2022 | | Revenues | | | 2021 | | Revenues | | | $ | | % |
| Revenues | Revenues | $ | 4,585 | | | 100.0 | | | | $ | 4,000 | | | 100.0 | | | | $ | 585 | | | 14.6 | | Revenues | $ | 4,906 | | | 100.0 | | | | $ | 4,585 | | | 100.0 | | | | $ | 321 | | | 7.0 | |
Cost of revenues(a) | Cost of revenues(a) | 2,863 | | | 62.4 | | | | 2,615 | | | 65.4 | | | | 248 | | | 9.5 | | Cost of revenues(a) | 3,119 | | | 63.6 | | | | 2,863 | | | 62.4 | | | | 256 | | | 8.9 | |
Selling, general and administrative expenses(a) | Selling, general and administrative expenses(a) | 881 | | | 19.2 | | | | 711 | | | 17.8 | | | | 170 | | | 23.9 | | Selling, general and administrative expenses(a) | 883 | | | 18.0 | | | | 881 | | | 19.2 | | | | 2 | | | 0.2 | |
| Restructuring charges | — | | | — | | | | 71 | | | 1.8 | | | | (71) | | | (100.0) | | |
| | Depreciation and amortization expense | Depreciation and amortization expense | 145 | | | 3.2 | | | | 136 | | | 3.4 | | | | 9 | | | 6.6 | | Depreciation and amortization expense | 144 | | | 2.9 | | | | 145 | | | 3.2 | | | | (1) | | | (0.7) | |
| Income from operations | Income from operations | 696 | | | 15.2 | | | | 467 | | | 11.7 | | | | 229 | | | 49.0 | | Income from operations | 760 | | | 15.5 | | | | 696 | | | 15.2 | | | | 64 | | | 9.2 | |
| Other income (expense), net | Other income (expense), net | (2) | | | | | 28 | | | | | (30) | | | (107.1) | | Other income (expense), net | 1 | | | | | (2) | | | | | 3 | | | * |
| Income before provision for income taxes | Income before provision for income taxes | 694 | | | 15.1 | | | | 495 | | | 12.4 | | | | 199 | | | 40.2 | | Income before provision for income taxes | 761 | | | 15.5 | | | | 694 | | | 15.1 | | | | 67 | | | 9.7 | |
| Provision for income taxes | Provision for income taxes | (184) | | | | | (134) | | | | | (50) | | | 37.3 | | Provision for income taxes | (184) | | | | | (184) | | | | | — | | | — | |
| Income (loss) from equity method investments | Income (loss) from equity method investments | 2 | | | | | — | | | | | 2 | | | * | Income (loss) from equity method investments | — | | | | | 2 | | | | | (2) | | | (100.0) | |
| Net income | Net income | $ | 512 | | | 11.2 | | | | $ | 361 | | | 9.0 | | | | $ | 151 | | | 41.8 | | Net income | $ | 577 | | | 11.8 | | | | $ | 512 | | | 11.2 | | | | $ | 65 | | | 12.7 | |
| Diluted earnings per share | Diluted earnings per share | $ | 0.97 | | | | | $ | 0.67 | | | | | $ | 0.30 | | | 44.8 | | Diluted earnings per share | $ | 1.11 | | | | | $ | 0.97 | | | | | $ | 0.14 | | | 14.4 | |
| Other Financial Information2 | Other Financial Information2 | | | | | | Other Financial Information2 | | | | | |
| Adjusted Income from Operations and Adjusted Operating Margin | $ | 696 | | | 15.2 | | | | $ | 563 | | | 14.1 | | | | $ | 133 | | | 23.6 | | |
| | Adjusted Diluted EPS | Adjusted Diluted EPS | $ | 0.99 | | | | | $ | 0.82 | | | | | $ | 0.17 | | | 20.7 | | Adjusted Diluted EPS | $ | 1.14 | | | | | $ | 0.99 | | | | | $ | 0.15 | | | 15.2 | |
(a)Exclusive of depreciation and amortization expense.expense
*Not meaningful
During the quarter ended June 30, 2021,2022, revenues increased by $585$321 million as compared to the quarter ended June 30, 2020,2021, representing growth of 14.6%7.0%, or 12.0% on9.5% on a constant currency basis2. Our recently completed acquisitions contributed 390110 basis points to our revenue growth. ROur revenueevenue growth also reflected our clients' continued adoption and integration of digital technologies and the acceleration in the demand for cloud, mobile workplace solutions, e-commerce, automation and AI and was aided by the negative impact on 2020 revenues of the COVID-19 pandemic and the April 2020 ransomware attack. At the same time, while revenues from our retail, consumer goods, travel and hospitality clients increased year over year, these clients continue to be negatively impacted by the pandemic, although to a lesser extent than they were in the second quarter of 2020.technologies. We continue to experience pricing pressure on our non-digital services as our clients optimize the cost of supporting their legacy systems and operations. RevenuesRevenues from clients added since June 30, 2020,2021, including those related to acquisitions, were $167$107 million.
2 Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.
| | | | | | | | |
| Cognizant Technology Solutions | 2524 | June 30, 20212022 Form 10-Q |
| | |
| Revenues - Reportable Business Segments |
The following charts set forth revenues and change in revenues by business segment and geography for the three months ended June 30, 20212022 as compared to the three months ended June 30, 2020:2021:
| | | | Financial Services | | Healthcare | | | Financial Services | | Health Sciences | |
| | Increase / (Decrease) | | Increase / (Decrease) | | | Increase / (Decrease) | | Increase / (Decrease) | |
| Dollars in millions | Dollars in millions | | Revenues | | $ | | % | | CC %3 | | Revenues | | $ | | % | | CC %3 | | Dollars in millions | | Revenues | | $ | | % | | CC 3 | | Revenues | | $ | | % | | CC %3 | |
| North America | North America | | $ | 1,049 | | | 71 | | | 7.3 | | | 6.7 | | | $ | 1,131 | | | 132 | | | 13.2 | | | 13.2 | | | North America | | $ | 1,104 | | | 55 | | | 5.2 | | | 5.5 | | | $ | 1,210 | | | 79 | | | 7.0 | | | 7.0 | | |
| United Kingdom | United Kingdom | | 130 | | | 20 | | | 18.2 | | | 8.6 | | | 45 | | | 9 | | | 25.0 | | | 14.7 | | | United Kingdom | | 147 | | | 17 | | | 13.1 | | | 22.3 | | | 44 | | | (1) | | | (2.2) | | | 6.1 | | |
| Continental Europe | Continental Europe | | 186 | | | 4 | | | 2.2 | | | (5.9) | | | 120 | | | 18 | | | 17.6 | | | 10.2 | | | Continental Europe | | 143 | | | (43) | | | (23.1) | | | (15.1) | | | 126 | | | 6 | | | 5.0 | | | 14.6 | | |
| Europe - Total | Europe - Total | | 316 | | | 24 | | | 8.2 | | | (0.5) | | | 165 | | | 27 | | | 19.6 | | | 11.3 | | | Europe - Total | | 290 | | | (26) | | | (8.2) | | | 0.3 | | | 170 | | | 5 | | | 3.0 | | | 12.3 | | |
| Rest of World | Rest of World | | 137 | | | 11 | | | 8.7 | | | 2.6 | | | 29 | | | 9 | | | 45.0 | | | 41.8 | | | Rest of World | | 148 | | | 11 | | | 8.0 | | | 13.5 | | | 28 | | | (1) | | | (3.4) | | | 4.8 | | |
| Total | Total | | $ | 1,502 | | | 106 | | | 7.6 | | | 4.8 | | | $ | 1,325 | | | 168 | | | 14.5 | | | 13.4 | | | Total | | $ | 1,542 | | | 40 | | | 2.7 | | | 5.1 | | | $ | 1,408 | | | 83 | | | 6.3 | | | 7.6 | | |
| | | Products and Resources | | Communications, Media and Technology | | | Products and Resources | | Communications, Media and Technology | |
| | Increase / (Decrease) | | Increase / (Decrease) | | | Increase / (Decrease) | | Increase / (Decrease) | |
| Dollars in millions | Dollars in millions | | Revenues | | $ | | % | | CC %3 | | Revenues | | $ | | % | | CC %3 | | Dollars in millions | | Revenues | | $ | | % | | CC %3 | | Revenues | | $ | | % | | CC %3 | |
| North America | North America | | $ | 723 | | | 103 | | | 16.6 | | | 16.1 | | | $ | 469 | | | 60 | | | 14.7 | | | 14.6 | | | North America | | $ | 770 | | | 47 | | | 6.5 | | | 6.8 | | | $ | 572 | | | 103 | | | 22.0 | | | 22.1 | | |
| United Kingdom | United Kingdom | | 116 | | | 27 | | | 30.3 | | | 16.3 | | | 112 | | | 33 | | | 41.8 | | | 28.0 | | | United Kingdom | | 134 | | | 18 | | | 15.5 | | | 28.0 | | | 133 | | | 21 | | | 18.8 | | | 31.4 | | |
| Continental Europe | Continental Europe | | 132 | | | 38 | | | 40.4 | | | 26.5 | | | 44 | | | 3 | | | 7.3 | | | (2.3) | | | Continental Europe | | 143 | | | 11 | | | 8.3 | | | 21.7 | | | 33 | | | (11) | | | (25.0) | | | (14.0) | | |
| Europe - Total | Europe - Total | | 248 | | | 65 | | | 35.5 | | | 21.5 | | | 156 | | | 36 | | | 30.0 | | | 17.7 | | | Europe - Total | | 277 | | | 29 | | | 11.7 | | | 24.6 | | | 166 | | | 10 | | | 6.4 | | | 18.6 | | |
| Rest of World | Rest of World | | 84 | | | 20 | | | 31.3 | | | 23.4 | | | 78 | | | 27 | | | 52.9 | | | 45.5 | | | Rest of World | | 93 | | | 9 | | | 10.7 | | | 14.5 | | | 78 | | | — | | | — | | | 6.0 | | |
| Total | Total | | $ | 1,055 | | | 188 | | | 21.7 | | | 17.8 | | | $ | 703 | | | 123 | | | 21.2 | | | 17.9 | | | Total | | $ | 1,140 | | | 85 | | | 8.1 | | | 11.6 | | | $ | 816 | | | 113 | | | 16.1 | | | 19.5 | | |
| | |
Financial Services - revenues increased 7.6%2.7%, or 4.8%5.1% on a constant currency basis3 |
| | | | | | | | | |
| | | |
| Banking | é | $51M8M | |
| | | |
| Insurance | é | $55M32M | |
| | | |
| | | |
Revenue growth reflectedreflects the negative impact to our 2020 revenuesgrowing demand for digital services among U.S. regional banks, public sector clients in the United Kingdom and insurance companies. The previously disclosed sale of the COVID-19 pandemic and the April 2020 ransomware attack. Additionally,Samlink subsidiary, which was completed on February 1, 2022, negatively impacted revenue growth in this segment benefited from recently completed acquisitions. Moderate revenue growth generated by our digital services did not fully offset revenue declines related to our non-digital services as our clients optimize the cost of supporting their legacy systems and operations.190 basis points. Revenues from clients added including those related to acquisitions, since June 30, 2020 2021were $32 million. $22 million.3
| | |
HealthcareHealth Sciences - revenues increased 14.5%6.3%, or 13.4%7.6% on a constant currency basis3
|
Revenue growth among ourEffective in the second quarter of 2022, we combined the healthcare customers benefited from increased demand by health insurance customers for our integrated payer software solutions while revenue growth among ouroperating segment with the life sciences clientsoperating segment and renamed our Healthcare reportable segment as Health Sciences. See Note 11 to our unaudited consolidated financial statements for additional information.Revenue growth was driven by increased demand for ourdigital services among pharmaceutical companies. Additionally, revenue Regrowth reflected the negative impact to our 2020 revenues of the COVID-19 pandemic and the April 2020 ransomware attack. Revenuesvenues from clients added including those related to acquisitions, since June 30, 2020 were $292021 were $11 million.
| | | | | | | | |
| é | $83M | |
Healthcare | é | $90M |
| | |
Life Sciences | é | $78M |
| | |
| | | |
| | | |
| | | |
| | | |
3 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
| | | | | | | | |
| Cognizant Technology Solutions | 2625 | June 30, 20212022 Form 10-Q |
| | |
Products and Resources - revenues increased 21.7%8.1%, or 17.8%11.6% on a constant currency basis4 |
| | | | | | | | | | | | | | | |
| Manufacturing, Logistics, Energy and Utilities | é | $106M40M | |
| | | | | |
| Retail and Consumer Goods | é $61M | $30M | |
| | | | | |
| Travel and Hospitality | é $21M | $15M | |
| | | | | |
ReRevenue growth in this segment was primarily driven by increased client interest in delivering cloud-based, data-driven enhanced customer experiences, the automotive industry’s shift toward electric and connected vehicles, and client investment in supply chain modernization and smart factory solutions. Rvenueevenue growth in this segment included approximately 600260 basis points related to recently completed acquisitions. Revenues from our manufacturing, logistics, energy and utilities clients benefited from our clients' adoption and integration of digital technologies. Additionally, revenue growth reflected the negative impact to our 2020 revenues of the COVID-19 pandemic. While revenues from our retail, consumer goods, travel and hospitality clients increased year over year, these clients continued to be negatively impacted by the pandemic, although to a lesser extent than they were in the second quarter of 2020. Revenues from clients added including those related to acquisitions, since June 30, 20202021 were $57$36 million.4
| | |
Communications, Media and Technology - revenues increased 21.2%16.1%, or 17.9%19.5% on a constant currency basis4 |
Revenue gIn 2022, we combined the communications and media operating segment with the technology operating segment. See rowthNote 11 to our unaudited consolidated financial statements for additional information.Revenues in this segment included approximately 900 basis points related to recently completed acquisitions, driven by acquisitions we completed in the second and third quarter of 2020. Revenue growth in this segment also reflected the negative impact to our 2020 revenue of the COVID-19 pandemic and growing demand from our technology clients for services related to digital content, primarily driven by ourthe largest clients in this segment.segment, as well as demand for personalized user experiences and data modernization. Revenues from clients added including those related to acquisitions, since June 30, 20202021 were $49$38 million.
| | | | | | | | | | | | | | |
Communications and Media | | | é | $69M113M | |
| | | |
| | | | | |
Technology | é | $54M | |
| | | | | |
| | | |
| | |
| Revenues - Geographic Markets |
Revenues of $4,585$4,906 million by geographic market were as follows for the three months ended June 30, 2021:2022:
| | Q2 2021 as compared to Q2 2020 | | | | Increase / (Decrease) | |
| Q2 2022 as compared to Q2 2021 | | Q2 2022 as compared to Q2 2021 | | | | Increase |
| (Dollars in millions) | (Dollars in millions) | | $ | | % | | CC %4 | | (Dollars in millions) | | $ | | % | | CC %4 | |
| North America | North America | | | | $ | 366 | | | 12.2 | | | 11.8 | | | North America | | | | $ | 284 | | | 8.4 | | | 8.6 | | |
| United Kingdom | United Kingdom | | | | 89 | | | 28.3 | | | 16.4 | | | United Kingdom | | | | 55 | | | 13.6 | | | 24.7 | | |
| Continental Europe | Continental Europe | | | | 63 | | | 15.0 | | | 5.6 | | | Continental Europe | | | | (37) | | | (7.7) | | | 2.5 | | |
| Europe - Total | Europe - Total | | | | 152 | | | 20.7 | | | 10.2 | | | Europe - Total | | | | 18 | | | 2.0 | | | 12.6 | | |
| Rest of World | Rest of World | | | | 67 | | | 25.7 | | | 19.1 | | | Rest of World | | | | 19 | | | 5.8 | | | 11.2 | | |
| Total revenues | Total revenues | | | | $ | 585 | | | 14.6 | | | 12.0 | | | Total revenues | | | | $ | 321 | | | 7.0 | | | 9.5 | | |
North America continues to be our largest market, representing 73.5%74.5% of total revenues and 62.6% of total revenue growth. Revenue growth across all regions included the negative impact on our 2020 revenuesrevenues. Outside of the COVID-19 pandemic and the April 2020 ransomware attack and additionally benefited from our recently completed acquisitions. All regions also benefited from favorableNorth America region, revenues were negatively impacted by foreign currency exchange rate movements. A significant portion of revenueRevenue growth in ourthe United Kingdom was strong among Financial Services clients, including certain public sector clients, Products and Resources clients, and Communications, Media and Technology clients. Revenue decline in the Continental Europe region includes a negative 600 basis points impact from the previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022, and Rest of World regions is related to clients, including thosewas partially offset by growth in the German market, which benefited from recent acquisitions,acquisitions.
| | |
| Cost of Revenues (Exclusive of Depreciation and Amortization Expense) |
| | | | | | | | | | | | |
| é | $256M | | |
| é | 1.2% as a % of revenues | |
| ¡ | % of Revenues | |
| | | | |
Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, project-related immigration and travel for technical personnel, subcontracting and equipment costs relating to revenues. The increase, as a percentage of revenues, was due to higher compensation costs for delivery personnel (including employees and subcontractors), partially offset by delivery efficiencies and the depreciation of the Indian rupee against the U.S. dollar. Challenges attracting and retaining highly qualified personnel have resulted and are likely to continue to result in Germany and Australia, respectively.
4 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
| | | | | | | | |
| Cognizant Technology Solutions | 2726 | June 30, 20212022 Form 10-Q |
| | |
Cost of Revenues (Exclusive of Depreciation and Amortization Expense) |
| | | | | | | | | | | |
é$248M
|
ê3.0% as a % of revenue
|
¡% of Revenues
|
| | | |
Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, project-related immigration and travel for technical personnel, subcontracting and equipment costs relating to revenues. The decrease in cost of revenues, as a percentage of revenues, was due primarily to savings resulting from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan as well as the negative impact on our 2020 results of the COVID-19 pandemic and the April 2020 ransomware attack.
| | |
| SG&A Expenses (Exclusive of Depreciation and Amortization Expense) |
SG&A expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. The increase,decrease, as a percentage of revenues, was primarily due primarily to investments intendedeconomies of scale that allowed us to drive and support organic revenue growth, including additions toleverage our salescost structure over a larger organization, and initiatives to reposition our brand, as well as increased costs as a resultthe beneficial impact of our recently completed acquisitions and costs related to the modernization of our core IT systems, partially offset by a reduction in expenses attributable to the COVID-19 pandemicforeign currency exchange rate movements and the April 2020 ransomware attack.optimization of non-strategic SG&A expenses.
| | | | | | | | | | | | |
é | $170M2M | | |
éê1.4%
| 1.2% as a % of revenuerevenues | |
¡ | % of Revenues | |
| | | | |
| | |
| Depreciation and Amortization Expense |
Depreciation and amortization expense increaseddecreased by 6.6% but remained flat0.7%, or 0.3% as a percentagepercentage of revenuerevenues, during the second quarter of 20212022 as compared to the second quarter of 2020 primarily as a result of the amortization of intangible assets from recently completed acquisitions.2021.
| | |
Operating Margin and Adjusted Operating Margin5- Overall |
Our 2021 operating marginbenefited from savings resulting from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan. These benefits were partially offset by investments intended to drive and support organic revenue growth, including additions to our sales organization and initiatives to reposition our brand, as well as the negative impact on margin of our recently completed acquisitions and costs related to the modernization of our core IT systems. Our 2020 operating margin and Adjusted Operating Margin5 were adversely impacted by the decline in revenues brought on by the COVID-19 pandemic and the effect of the April 2020 ransomware attack on both revenues and costs. Our 2020 operating margin was also negatively impacted by costs related to our restructuring program that concluded at the end of 2020 and COVID-19 Charges.5
5 Adjusted Income from Operations and Adjusted Operating Margin are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.
| | | | | | | | | | | | |
Cognizanté | 28$64M | |
| é | 0.3% as a % of revenues | |
| ¡ | June 30, 2021 Form 10-Q% of Revenues | |
| | | | |
The 2022 operating margin was positively impacted by delivery efficiencies, economies of Contentsscale that allowed us to leverage our cost structure over a larger organization and the depreciation of the Indian rupee against the U.S. dollar partially offset by increased compensation costs for our delivery personnel (including employees and subcontractors).
Excluding the impact of applicable designated cash flow hedges, the appreciationdepreciation of the Indian rupee against the U.S. dollar negativelypositively impacted our operating margin bby approximately 80 y 49 basis points during the three months ended June 30, 2021.2022. Each additional 1.0% change in exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by 17 basis18 basis points.
We enter into foreign exchange derivative contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. The settlement of our cash flow hedgeshedges positively impacted our operating margin by 12 basis points during the three months ended June 30, 2022 and by 31 basis points during the three months ended June 30, 2021, while it negatively impacted our operating margin by 28 basis points during the three months ended June 30, 2020.2021.
We finished the second quarter of 20212022 with approximately 301,200341,300 employees. Annualized attrition, including both voluntary and involuntary, was approximately 31.4%35.6% for the three months ended June 30, 2021.2022. In both 2021 and 2022, voluntary attrition was significantly elevated and constituted the vast majority of our attrition for the period. In comparison, voluntary attrition in the second quarter 2020 represented only approximately half of our attrition for the period as our personnel actions taken under our Fit for Growth Plan increased involuntary attrition while voluntary attrition was suppressed due to the COVID-19 pandemic. Attrition in all periods presented is weighted towards our more junior employees.
SegmentIn 2022, we made certain changes to the internal measurement of segment operating profitprofits for the purpose of evaluating segment performance and operating margin percentage were as follows:
Across all ourresource allocation. The primary reason for the change was to charge to the business segments operating margins benefited from savings resulting from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plancosts that are directly managed and the negative impact on our 2020 results of the COVID-19 pandemic and the April 2020 ransomware attack.
Totalcontrolled by them. Specifically, segment operating profit was as follows for the three months ended June 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | 2021 | | % of Revenues | | 2020 | | % of Revenues | | Increase / (Decrease) |
| Total segment operating profit | $ | 1,391 | | | 30.3 | | | $ | 1,081 | | | 27.0 | | | $ | 310 | |
| Less: unallocated costs | 695 | | | | | 614 | | | | | 81 | |
| Income from operations | $ | 696 | | | 15.2 | | | $ | 467 | | | 11.7 | | | $ | 229 | |
The $81 million increase in unallocated costs for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 was primarily due to increased costs as a result of our recently completed acquisitions andnow includes costs related to initiativesnon-delivery personnel that support consulting services, which were previously included in "unallocated costs." We have reported 2022 segment operating profits using the new allocation methodology and have recast the 2021 results to reposition our brand and the modernization of our core IT systems. Unallocated costs in 2020 included restructuring costs, COVID-19 Charges and costs relatedconform to the April 2020 ransomware attack.new methodology.
| | | | | | | | |
| Cognizant Technology Solutions | 2927 | June 30, 20212022 Form 10-Q |
Segment operating profit and operating margin percentage were as follows:
In 2022, segment operating margins benefited from delivery efficiencies and the depreciation of the Indian rupee against the U.S. dollar partially offset by increased compensation costs for delivery personnel (including employees and subcontractors). The 2022 Health Sciences segment operating margin was additionally negatively affected by investments to support revenue growth and elevated pricing pressure on non-digital services.
Total segment operating profit and operating margin were as follows for the three months ended June 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | 2022 | | % of Revenues | | 2021 | | % of Revenues | | Increase / (Decrease) |
| Total segment operating profit | $ | 1,472 | | | 30.0 | | | $ | 1,366 | | | 29.8 | | | $ | 106 | |
| Less: unallocated costs | 712 | | | | | 670 | | | | | 42 | |
| Income from operations | $ | 760 | | | 15.5 | | | $ | 696 | | | 15.2 | | | $ | 64 | |
| | |
| Other Income (Expense), Net |
The following table sets forth total other income (expense), net for the three months ended June 30:
| | (in millions) | (in millions) | 2021 | | | 2020 | | Increase/
Decrease | | (in millions) | 2022 | | | 2021 | | Increase/
Decrease | |
| Foreign currency exchange (losses) gains | $ | (10) | | | | $ | 1 | | | $ | (11) | | | |
| Gains (losses) on foreign exchange forward contracts not designated as hedging instruments | 3 | | | | (3) | | | 6 | | | |
| Foreign currency exchange (losses) | | Foreign currency exchange (losses) | $ | (36) | | | | $ | (10) | | | $ | (26) | | |
| Gains on foreign exchange forward contracts not designated as hedging instruments | | Gains on foreign exchange forward contracts not designated as hedging instruments | 32 | | | | 3 | | | 29 | | |
| Foreign currency exchange gains (losses), net | Foreign currency exchange gains (losses), net | (7) | | | | (2) | | | (5) | | | Foreign currency exchange gains (losses), net | (4) | | | | (7) | | | 3 | | |
| Interest income | Interest income | 7 | | | | 37 | | | (30) | | | Interest income | 9 | | | | 7 | | | 2 | | |
| Interest expense | Interest expense | (2) | | | | (9) | | | 7 | | | Interest expense | (3) | | | | (2) | | | (1) | | |
| Other, net | Other, net | — | | | | 2 | | | (2) | | | Other, net | (1) | | | | — | | | (1) | | |
| Total other income (expense), net | Total other income (expense), net | $ | (2) | | | | $ | 28 | | | $ | (30) | | | Total other income (expense), net | $ | 1 | | | | $ | (2) | | | $ | 3 | | |
The foreign currency exchange gains and losses were attributed to the remeasurement of net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. The gains and losses on foreign exchange forward contracts not designated as hedging instruments related to the realized and unrealized gains and losses on foreign exchange forward contracts entered into to offset our foreign currency exposure to non-U.S. dollar denominated net monetary assets and liabilities.exposures. As of June 30, 2021,2022, the notional value of our undesignated hedges was $796$1,072 million. The decrease in interest income of $30 million was primarily attributable to lower invested balances in India, which generate higher yields. Our invested balances in India are lower in 2021 as a result of our repatriation of cash from India in the fourth quarter of 2020.
| | |
| Provision for Income Taxes |
| | | | | | | | | | | | |
é$50M
| | | | |
| |
¡ Effective Income Tax Rate ê 0.6%2.3% | |
| | |
| | | | |
The effective income tax rate decreased as a result of significantly lower non-deductiblehigher discrete income tax benefits, primarily related to our undistributed foreign currency exchange lossesearnings, in our unaudited consolidated statementthe second quarter of operations in2022 as compared to the second quarter of 2021.
The increase in net income was driven by higher income from operations partially offset by lower interest income and a higher provision forlower effective income taxes.
| | | | | | | | | | | |
é | $151M65M | | | |
| | |
¡ %é 0.6% of RevenuesRevenues | | |
| | |
| | | | | | | | |
| Cognizant Technology Solutions | 28 | June 30, 2022 Form 10-Q |
Non-GAAP Financial Measures
Portions of our disclosure include non-GAAP financial measures. These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of our non-GAAP financial measures to the corresponding GAAP measures, set forth below, should be carefully evaluated.
Our non-GAAP financial measures, Adjusted Operating Margin, Adjusted Income From Operations and Adjusted Diluted EPS exclude unusual items. Additionally, Adjusted Diluted EPS excludes unusual items, net non-operating foreign currency exchange gains or losses and the tax impact of all the applicable adjustments. The income tax impact of each item is calculated by applying the statutory rate and local tax regulations in the jurisdiction in which the item was incurred. Constant currency revenue growth is defined as revenues for a given period restated at the comparative period’s foreign currency exchange rates measured against the comparative period's reported revenues.
We believe providing investors with an operating view consistent with how we manage the Company provides enhanced transparency into our operating results. For our internal management reporting and budgeting purposes, we use various GAAP and non-GAAP financial measures for financial and operational decision-making, to evaluate period-to-period comparisons, to
| | | | | | | | |
Cognizant | 30 | June 30, 2021 Form 10-Q |
determine portions of the compensation for our executive officers and for making comparisons of our operating results to those of our competitors. Therefore, it is our belief that the use of non-GAAP financial measures excluding certain costs provides a meaningful supplemental measure for investors to evaluate our financial performance. We believe that the presentation of our non-GAAP financial measures, which exclude certain costs, along with reconciliations to the most comparable GAAP measure, as applicable, can provide useful supplemental information to our management and investors regarding financial and business trends relating to our financial condition and results of operations.
A limitation of using non-GAAP financial measures versus financial measures calculated in accordance with GAAP is that non-GAAP financial measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and may exclude costs that are recurring such as our net non-operating foreign currency exchange gains or losses. In addition, other companies may calculate non-GAAP financial measures differently than us, thereby limiting the usefulness of these non-GAAP financial measures as a comparative tool. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from our non-GAAP financial measures to allow investors to evaluate such non-GAAP financial measures.
The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three months ended June 30:
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | 2021 | | % of
Revenues | | 2020 | | % of
Revenues |
| GAAP income from operations and operating margin | $ | 696 | | | 15.2 | | | $ | 467 | | | 11.7 | |
Realignment charges (1) | — | | | — | | | 12 | | | 0.3 | |
2020 Fit for Growth Plan restructuring charges (2) | — | | | — | | | 59 | | | 1.5 | |
COVID-19 Charges (3) | — | | | — | | | 25 | | | 0.6 | |
| Adjusted Income from Operations and Adjusted Operating Margin | $ | 696 | | | 15.2 | | | $ | 563 | | | 14.1 | |
| | | | | | | |
| GAAP diluted EPS | $ | 0.97 | | | | | $ | 0.67 | | | |
| Effect of above adjustments, pre-tax | — | | | | | 0.18 | | | |
Non-operating foreign currency exchange (gains) losses, pre-tax (4) | 0.01 | | | | | — | | | |
Tax effect of above adjustments (5) | 0.01 | | | | | (0.03) | | | |
| | | | | | | |
| Adjusted Diluted EPS | $ | 0.99 | | | | | $ | 0.82 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | |
| 2022 | | | | 2021 | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| GAAP diluted EPS | $ | 1.11 | | | | | $ | 0.97 | | | |
| | | | | | | |
Non-operating foreign currency exchange (gains) losses, pre-tax (1) | 0.01 | | | | | 0.01 | | | |
Tax effect of non-operating foreign currency exchange (gains) losses (2) | 0.02 | | | | | 0.01 | | | |
| | | | | | | |
| Adjusted Diluted EPS | $ | 1.14 | | | | | $ | 0.99 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1)As part of the realignment program, during the three months ended June 30, 2020, we incurred certain retention costs and professional fees. See Note 4 to our unaudited consolidated financial statements for additional information. (2)As part of our 2020 Fit for Growth plan, during the three months ended June 30, 2020, we incurred certain employee separation, employee retention and facility exit costs and other charges. See Note 4 to our unaudited consolidated financial statements for additional information.(3)During the three months ended June 30, 2020, we incurred costs in response to the COVID-19 pandemic, including a one-time bonus to our employees at the designation of associate and below in both India and the Philippines, certain costs to enable our employees to work remotely and costs to provide medical staff and extra cleaning services for our facilities. Substantially all of the costs related to the pandemic are reported in "Cost of revenues" in our unaudited consolidated statement of operations.
(4)Non-operating foreign currency exchange gains and losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency exchange gains (losses), net" in our unaudited consolidated statements of operations.
(5)(2)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
| | | | | | | | | | | |
| Three Months Ended
June 30, |
| (in millions) | 2021 | | 2020 |
| Non-GAAP income tax benefit (expense) related to: | | | |
| Realignment charges | $ | — | | | $ | 3 | |
| 2020 Fit for Growth Plan restructuring charges | — | | | 16 | |
| COVID-19 Charges | — | | | 6 | |
| Foreign currency exchange gains and losses | (6) | | | (8) | |
| | | | | | | | | | | |
| Three Months Ended
June 30, |
| (in millions) | 2022 | | 2021 |
| Non-GAAP income tax (expense) related to: | | | |
| | | |
| | | |
| | | |
| | | |
| Foreign currency exchange gains and losses | $ | (14) | | | $ | (6) | |
| | | | | | | | |
| Cognizant Technology Solutions | 3129 | June 30, 20212022 Form 10-Q |
Six Months Ended June 30, 20212022 Compared to Six Months Ended June 30, 20202021
The following table sets forth, for the periods indicated, certain financial data for the six months ended June 30:
| | | | | | % of | | | | % of | | | Increase / Decrease | | | | % of | | | | % of | | Increase / Decrease |
| (Dollars in millions, except per share data) | (Dollars in millions, except per share data) | 2021 | | Revenues | | 2020 | | Revenues | | | $ | | % | (Dollars in millions, except per share data) | 2022 | | Revenues | | 2021 | | Revenues | | $ | | % |
| | Revenues | Revenues | $ | 8,986 | | | 100.0 | | | $ | 8,225 | | | 100.0 | | | | $ | 761 | | | 9.3 | | Revenues | $ | 9,732 | | | 100.0 | | | $ | 8,986 | | | 100.0 | | | $ | 746 | | | 8.3 | |
Cost of revenues(a) | Cost of revenues(a) | 5,627 | | | 62.6 | | | 5,362 | | | 65.2 | | | | 265 | | | 4.9 | | Cost of revenues(a) | 6,216 | | | 63.9 | | | 5,627 | | | 62.6 | | | 589 | | | 10.5 | |
Selling, general and administrative expenses(a) | Selling, general and administrative expenses(a) | 1,708 | | | 19.0 | | | 1,422 | | | 17.3 | | | | 286 | | | 20.1 | | Selling, general and administrative expenses(a) | 1,745 | | | 17.9 | | | 1,708 | | | 19.0 | | | 37 | | | 2.2 | |
| Restructuring charges | — | | | — | | | 126 | | | 1.5 | | | | (126) | | | (100.0) | | |
| | Depreciation and amortization expense | Depreciation and amortization expense | 286 | | | 3.2 | | | 269 | | | 3.3 | | | | 17 | | | 6.3 | | Depreciation and amortization expense | 287 | | | 2.9 | | | 286 | | | 3.2 | | | 1 | | | 0.3 | |
| Income from operations | Income from operations | 1,365 | | | 15.2 | | | 1,046 | | | 12.7 | | | | 319 | | | 30.5 | | Income from operations | 1,484 | | | 15.2 | | | 1,365 | | | 15.2 | | | 119 | | | 8.7 | |
| Other income (expense), net | Other income (expense), net | (6) | | | (41) | | | | | 35 | | | (85.4) | | Other income (expense), net | 6 | | | (6) | | | | 12 | | | * |
| Income before provision for income taxes | Income before provision for income taxes | 1,359 | | | 15.1 | | | 1,005 | | | 12.2 | | | | 354 | | | 35.2 | | Income before provision for income taxes | 1,490 | | | 15.3 | | | 1,359 | | | 15.1 | | | 131 | | | 9.6 | |
| Provision for income taxes | Provision for income taxes | (344) | | | (276) | | | | | (68) | | | 24.6 | | Provision for income taxes | (354) | | | (344) | | | | (10) | | | 2.9 | |
| Income from equity method investments | 2 | | | (1) | | | | | 3 | | | (300.0) | | |
| Income (loss) from equity method investments | | Income (loss) from equity method investments | 4 | | | 2 | | | | 2 | | | 100.0 | |
| Net income | Net income | $ | 1,017 | | | 11.3 | | | $ | 728 | | | 8.9 | | | | $ | 289 | | | 39.7 | | Net income | $ | 1,140 | | | 11.7 | | | $ | 1,017 | | | 11.3 | | | $ | 123 | | | 12.1 | |
| Diluted EPS | Diluted EPS | $ | 1.92 | | | $ | 1.34 | | | | | $ | 0.58 | | | 43.3 | | Diluted EPS | $ | 2.18 | | | $ | 1.92 | | | | $ | 0.26 | | | 13.5 | |
Other Financial Information6 | | | | |
| Adjusted Income From Operations and Adjusted Operating Margin | $ | 1,365 | | | 15.2 | | | $ | 1,203 | | | 14.6 | | | | $ | 162 | | | 13.5 | | |
Other Financial Information5 | | Other Financial Information5 | | | |
| | Adjusted Diluted EPS | Adjusted Diluted EPS | $ | 1.96 | | | $ | 1.78 | | | | | $ | 0.18 | | | 10.1 | | Adjusted Diluted EPS | $ | 2.23 | | | $ | 1.96 | | | | $ | 0.27 | | | 13.8 | |
(a)Exclusive of depreciation and amortization expense.
*Not meaningful
During the six months ended June 30, 2021,2022, revenues increased by $761$746 million as compared to the six months ended June 30, 2020,2021, representing growth of 9.3%8.3%, or 7.1%10.2% on a constant currency basis. basis5. Our recently completed acquisitions contributed 350160 basis points to our revenue growth. R Our revenueevenue growth also reflected our clients' continued adoption and integration of digital technologies and the acceleration in the demand for cloud, mobile workplace solutions, e-commerce, automation and was aided by the negative impact on 2020 revenues of the COVID-19 pandemic and the April 2020 ransomware attack. Our retail, consumer goods, travel and hospitality clients continue to be negatively impacted by the pandemic.technologies. We continue to experienceexperience pricing pressure on our non-digital services as our clients optimize the cost of supporting their legacy systems and operations. Overall revenue growth was negatively impacted by 60 basis points by our exit from certain content-related services. InIn addition, our revenues from clients added since June 30, 2020,2021, including those related to acquisitions, were $275$179 million.6
65 Adjusted Income From Operations, Adjusted Operating MarginDiluted EPS and Adjusted Diluted EPSconstant currency revenue growth are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures.
| | | | | | | | |
| Cognizant Technology Solutions | 3230 | June 30, 20212022 Form 10-Q |
Revenues - Reportable Business Segments
The following charts set forth revenues and change in revenues by business segment and geography for the six months ended June 30, 20212022 as compared to the six months ended June 30, 2020:2021:
| | | | Financial Services | | Healthcare | | | Financial Services | | Health Sciences | |
| | Increase / (Decrease) | | Increase / (Decrease) | | | Increase / (Decrease) | | Increase / (Decrease) | |
| Dollars in millions | Dollars in millions | | Revenues | | $ | | % | | CC %7 | | Revenues | | $ | | % | | CC %7 | | Dollars in millions | | Revenues | | $ | | % | | CC %6 | | Revenues | | $ | | % | | CC %6 | |
| North America | North America | | $ | 2,062 | | | 72 | | | 3.6 | | | 3.1 | | | $ | 2,232 | | | 195 | | | 9.6 | | | 9.5 | | | North America | | $ | 2,184 | | | 122 | | | 5.9 | | | 6.0 | | | $ | 2,405 | | | 173 | | | 7.8 | | | 7.8 | | |
| United Kingdom | United Kingdom | | 255 | | | 25 | | | 10.9 | | | 3.3 | | | 85 | | | 9 | | | 11.8 | | | 3.9 | | | United Kingdom | | 298 | | | 43 | | | 16.9 | | | 22.9 | | | 88 | | | 3 | | | 3.5 | | | 9.8 | | |
| Continental Europe | Continental Europe | | 378 | | | 5 | | | 1.3 | | | (6.6) | | | 238 | | | 37 | | | 18.4 | | | 10.8 | | | Continental Europe | | 300 | | | (78) | | | (20.6) | | | (14.2) | | | 246 | | | 8 | | | 3.4 | | | 10.8 | | |
| Europe - Total | Europe - Total | | 633 | | | 30 | | | 5.0 | | | (2.8) | | | 323 | | | 46 | | | 16.6 | | | 8.9 | | | Europe - Total | | 598 | | | (35) | | | (5.5) | | | 0.7 | | | 334 | | | 11 | | | 3.4 | | | 10.6 | | |
| Rest of World | Rest of World | | 265 | | | 11 | | | 4.3 | | | (0.6) | | | 58 | | | 21 | | | 56.8 | | | 53.9 | | | Rest of World | | 288 | | | 23 | | | 8.7 | | | 13.4 | | | 61 | | | 3 | | | 5.2 | | | 11.5 | | |
| Total | Total | | $ | 2,960 | | | 113 | | | 4.0 | | | 1.5 | | | $ | 2,613 | | | 262 | | | 11.1 | | | 10.1 | | | Total | | $ | 3,070 | | | 110 | | | 3.7 | | | 5.5 | | | $ | 2,800 | | | 187 | | | 7.2 | | | 8.2 | | |
| | | Products and Resources | | Communications, Media and Technology | | | Products and Resources | | Communications, Media and Technology | |
| | Increase / (Decrease) | | Increase / (Decrease) | | | Increase / (Decrease) | | Increase / (Decrease) | |
| Dollars in millions | Dollars in millions | | Revenues | | $ | | % | | CC %7 | | Revenues | | $ | | % | | CC %7 | | Dollars in millions | | Revenues | | $ | | % | | CC %6 | | Revenues | | $ | | % | | CC %6 | |
| North America | North America | | $ | 1,441 | | | 132 | | | 10.1 | | | 9.6 | | | $ | 920 | | | 60 | | | 7.0 | | | 6.9 | | | North America | | $ | 1,531 | | | 90 | | | 6.2 | | | 6.4 | | | $ | 1,105 | | | 185 | | | 20.1 | | | 20.2 | | |
| United Kingdom | United Kingdom | | 222 | | | 40 | | | 22.0 | | | 11.0 | | | 211 | | | 48 | | | 29.4 | | | 18.4 | | | United Kingdom | | 266 | | | 44 | | | 19.8 | | | 28.1 | | | 259 | | | 48 | | | 22.7 | | | 32.2 | | |
| Continental Europe | Continental Europe | | 235 | | | 32 | | | 15.8 | | | 4.9 | | | 87 | | | 8 | | | 10.1 | | | 0.5 | | | Continental Europe | | 288 | | | 53 | | | 22.6 | | | 34.2 | | | 70 | | | (17) | | | (19.5) | | | (10.8) | | |
| Europe - Total | Europe - Total | | 457 | | | 72 | | | 18.7 | | | 7.8 | | | 298 | | | 56 | | | 23.1 | | | 12.6 | | | Europe - Total | | 554 | | | 97 | | | 21.2 | | | 31.2 | | | 329 | | | 31 | | | 10.4 | | | 19.7 | | |
| Rest of World | Rest of World | | 155 | | | 28 | | | 22.0 | | | 16.7 | | | 142 | | | 38 | | | 36.5 | | | 32.0 | | | Rest of World | | 185 | | | 30 | | | 19.4 | | | 22.8 | | | 158 | | | 16 | | | 11.3 | | | 16.7 | | |
| Total | Total | | $ | 2,053 | | | 232 | | | 12.7 | | | 9.7 | | | $ | 1,360 | | | 154 | | | 12.8 | | | 10.2 | | | Total | | $ | 2,270 | | | 217 | | | 10.6 | | | 13.2 | | | $ | 1,592 | | | 232 | | | 17.1 | | | 19.7 | | |
| | |
Financial Services - revenues increased 4.0%3.7%, or 1.5%5.5% on a constant currency basis76 |
| | | | | | | | | |
| Banking | é | $65M27M | |
| | | |
| Insurance | é | $48M83M | |
| | | |
| | | |
Revenue growth reflectedreflects the negative impact on 2020 revenuesgrowing demand for digital services among U.S. regional banks, public sector clients in the United Kingdom and insurance companies. The previously disclosed sale of the COVID-19 pandemic and the April 2020 ransomware attack. Additionally, revenuesSamlink subsidiary, which was completed on February 1, 2022, negatively impacted revenue growth in this segment benefited from recently completed acquisitions. Moderate revenue growth generated by our digital services did not fully offset revenue declines related to our non-digital services as our clients optimize the cost of supporting their legacy systems and operations.160 basis points.76Revenues from clients added including those related to acquisitions, since June 30, 20202021 were $55$39 million.
| | |
HealthcareHealth Sciences - revenues increased 11.1%7.2%, or 10.1%8.2% on a constant currency basis6
|
Effective in the second quarter of 2022, we combined the healthcare operating segment with the life sciences operating segment and renamed our Healthcare reportable segment to Health Sciences. See Note 11 to our unaudited consolidated financial statements for additional information. Revenue growth was driven by increased demand for digital services among pharmaceutical companies. Revenues from clients added since June 30, 2021 were $19 million.
6 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
| | | | | | | | |
| Cognizant Technology Solutions | 31 | June 30, 2022 Form 10-Q |
| | |
Products and Resources - revenues increased 10.6%, or 13.2% on a constant currency basis7 |
| | | | | | | | | | | | |
| Manufacturing, Logistics, Energy and Utilities | é | $113M | |
| | | | |
| Retail and Consumer Goods | é | $72M | |
| | | | |
| Travel and Hospitality | é | $32M | |
| | | | |
Revenue growth among our healthcare customers benefited from increased demand by health insurance customers for our integrated payer software solutions while revenue growth among our life sciences clientsin this segment was primarily driven by increased demand for our services among pharmaceutical companies. Additionally, revenue client interest in delivering cloud-based, data-driven enhanced customer experiences, the automotive industry’s shift toward electric and connected vehicles, and client investment in supply chain modernization and smart factory solutions. Revenue growth reflected the negative impact on 2020 revenues of the COVID-19 pandemic and the April 2020 ransomware attack.in this segment included approximately 370 basis points related to recently completed acquisitions. Revenues from clients added including those related to acquisitions, since June 30, 20202021 were $57 million.7
| | |
Communications, Media and Technology - revenues increased 17.1%, or 19.7% on a constant currency basis7 |
In 2022, we combined the communications and media operating segment with the technology operating segment. See Note 11 to our unaudited consolidated financial statements for additional information. Revenues in this segment reflected growing demand from our technology clients for services related to digital content, primarily driven by the largest clients in this segment, as well as demand for personalized user experiences and data modernization. Revenues from clients added since June 30, 2021 were $49$64 million.
| | | | | | | | | |
| | |
Healthcare | é | $139M |
| | |
Life Sciences | é | $123M |
| | |
| | | |
| | | | | |
| é | $232M | |
| | | | | |
| | |
| Revenues - Geographic Markets |
Revenues of $9,732 million by geographic market were as follows for the six months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD 2022 as compared to YTD 2021 | | | | | | Increase / (Decrease) |
| (Dollars in millions) | | | $ | | % | | CC %7 | |
| North America | | | | | | $ | 570 | | | 8.6 | | | 8.7 | | |
| United Kingdom | | | | | | 138 | | | 17.9 | | | 25.5 | | |
| Continental Europe | | | | | | (34) | | | (3.6) | | | 4.6 | | |
| Europe - Total | | | | | | 104 | | | 6.1 | | | 14.0 | | |
| Rest of World | | | | | | 72 | | | 11.6 | | | 16.3 | | |
| Total revenues | | | | | | $ | 746 | | | 8.3 | | | 10.2 | | |
North America continues to be our largest market, representing 74.2% of total revenues for the six months ended June 30, 2022. Outside of our North America region, revenues were negatively impacted by foreign currency exchange rate movements. Revenue growth in the United Kingdom was strong among Financial Services clients, including certain public sector clients, Products and Resources clients, and Communications, Media and Technology clients. Revenue decline in the Continental Europe region includes a negative 510 basis points impact from the previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022, and was partially offset by growth in the German market, which benefited from recent acquisitions. Revenue growth in the Rest of World region was primarily driven by the Australian market, which benefited from an acquisition that closed in the first half of 2021.
7 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
| | | | | | | | |
| Cognizant Technology Solutions | 3332 | June 30, 20212022 Form 10-Q |
| | |
Products and Resources - revenues increased 12.7%, or 9.7% on a constant currency basis8
|
| | | | | | | | | | | |
Manufacturing, Logistics, Energy and Utilities | é | $188M |
| | | |
Retail and Consumer Goods | é | $45M |
| | | |
Travel and Hospitality | ê | $1M |
| | | |
Revenue growth in this segment included approximately 500 basis points related to recently completed acquisitions. Revenues from our manufacturing, logistics, energy and utilities clients benefited from our clients' adoption and integration of digital technologies. Additionally, revenue growth reflected the negative impact of the COVID-19 pandemic had on our 2020 revenue in this segment. Revenues from our retail, consumer goods, travel and hospitality clients continued to be negatively impacted by the pandemic.Revenues from clients added, including those related to acquisitions, since June 30, 2020 were $93 million.8
| | |
Communications, Media and Technology - revenues increased 12.8%, or 10.2% on a constant currency basis8
|
Revenue growth in this segment included approximately 850 basis points related to recently completed acquisitions, driven by acquisitions we completed during the second and third quarter of 2020. Revenues among our technology clients in this segment were negatively impacted by approximately 400 basis points due to our exit from certain content-related services, offset by growing demand from our technology clients for services related to digital content, primarily driven by our largest clients in this segment. Revenue growth in this segment also reflected the negative impact to our 2020 revenue of the COVID-19 pandemic. Revenues from clients added, including those related to acquisitions, since June 30, 2020 were $78 million.
| | | | | | | | | | | | | | |
Communications and Media | é | $99M |
| | | | |
Technology | é | $55M |
| | | | |
| | |
| | | | |
| | |
Revenues - Geographic Markets |
Revenues of $8,986 million by geographic market were as follows for the six months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| YTD 2021 as compared to YTD 2020 | | | | | | Increase / (Decrease) |
| (Dollars in millions) | | $ | | % | | CC %8 | |
| North America | | | | | | $ | 459 | | | 7.4 | | | 7.1 | | |
| United Kingdom | | | | | | 122 | | | 18.7 | | | 9.3 | | |
| Continental Europe | | | | | | 82 | | | 9.6 | | | 0.9 | | |
| Europe - Total | | | | | | 204 | | | 13.5 | | | 4.5 | | |
| Rest of World | | | | | | 98 | | | 18.8 | | | 14.0 | | |
| Total revenues | | | | | | $ | 761 | | | 9.3 | | | 7.1 | | |
North America continues to be our largest market, representing 74.1% of total revenues and 60.3% of total growth for the six months ended June 30, 2021. Revenue growth across all regions included the negative impact to our 2020 revenues of the COVID-19 pandemic and the April 2020 ransomware attack and additionally benefited from our recently completed acquisitions. All regions also benefited from favorable foreign currency exchange rate movements. A significant portion of revenue growth in our Continental Europe and Rest of World regions is related to clients, including those from recent acquisitions, in Germany and Australia, respectively.
8 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.
| | | | | | | | |
Cognizant | 34 | June 30, 2021 Form 10-Q |
| | |
| Cost of Revenues (Exclusive of Depreciation and Amortization Expense) |
| | | | | | | | | | | | |
é | $265M589M | | |
êé2.6%
| 1.3% as a % of revenuerevenues | |
¡ | % of Revenues | |
| | | | |
Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, project-related immigration and travel for technical personnel, subcontracting and equipment costs relating to revenues. The decrease in cost of revenues,increase, as a percentage of revenues, was due primarily to savings resulting fromhigher compensation costs for delivery personnel (including employees and subcontractors), partially offset by delivery efficiencies and the implementationdepreciation of the delivery cost optimization initiatives of our 2020 Fit for Growth PlanIndian rupee against the U.S. dollar. Challenges attracting and a significant decreaseretaining highly qualified personnel have resulted and are likely to continue to result in travel and entertainment costs as a result of a reduction in travel due to the COVID-19 pandemic as well as the negative impact on our 2020 results from the pandemic and the April 2020 ransomware attack.higher compensation costs.
| | |
| SG&A Expenses (Exclusive of Depreciation and Amortization Expense) |
SG&A expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. The increase,decrease, as a percentage of revenues, was primarily due primarily to investments intendedeconomies of scale that allowed us to drive and support organic revenue growth, including additions toleverage our salescost structure over a larger organization and initiatives to reposition our brand, as well as increased costs as a resultthe optimization of our recently completed acquisitions and costs related to the modernization of our core IT systems, partially offset by a reduction in expenses attributable to the COVID-19 pandemic and the April 2020 ransomware attack.non-strategic SG&A expenses.
| | | | | | | | | | | | |
| é | $37M | | |
| ê | é1.1% $286M
|
é1.7% as a % of revenuerevenues
| |
¡ | % of Revenues | |
| | | | |
| | |
| Depreciation and Amortization Expense |
Depreciation and amortization expenseexpense increased by 6.3% but remained flat 0.3%, or decreased 0.3% as a percentage of revenuerevenues, during the six months ended June 30, 20212022 as compared to the 2021 period.
| | |
| Operating Margin - Overall |
| | | | | | | | | | | | |
| é | $119 million | |
| Flat as a % of revenue | |
| ¡ | % of Revenues | |
| | | | |
The 2022 operating margin was positively impacted by delivery efficiencies, economies of scale that allowed us to leverage our cost structure over a larger organization and the depreciation of the Indian rupee against the U.S. dollar, offset by increased compensation costs for our delivery personnel (including employees and subcontractors).
Excluding the impact of applicable designated cash flow hedges, the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 70 basis points during the six months ended June 30, 2020.2022. Each additional 1.0% change in exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by approximately 18 basis points.
We enter into foreign exchange derivative contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. The increase is due to amortizationsettlement of intangibles from recently completed acquisitions.
| | |
Operating Margin and Adjusted Operating Marginour cash flow hedges positively impacted our operating margin by 20 basis points during the six months ended June 30, 2022 and by 39 basis points during the 2021 period.9 - Overall
|
Our 2021 operating margin
benefited from savings resulting from the implementation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan. These benefits were partially offset by investments intended to drive and support organic revenue growth, including additions to our sales organization and initiatives to reposition our brand, as well as the negative impact on margin of our recently completed acquisitions and costs related to the modernization of our core IT systems. Our 2020 operating margin and Adjusted Operating Margin9 were adversely impacted by the decline in revenues brought on by the COVID-19 pandemic and the effect of the April 2020 ransomware attack on both revenues and costs. Our 2020 operating margin was negatively impacted by costs related to our restructuring program that concluded at the end of 2020 and COVID-19 Charges.9
9
Adjusted Income from Operations and Adjusted Operating Margin are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.
| | | | | | | | |
| Cognizant Technology Solutions | 3533 | June 30, 20212022 Form 10-Q |
Excluding the impact of applicable designated cash flow hedges, the appreciation of the Indian rupee against the U.S. dollar negatively impacted our operating margin by approximately 19 basis points during the six months ended June 30, 2021. Each additional 1.0% change in exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by approximately 17 basis points.
We enter into hedges of certain Indian rupee denominated payments in India, which are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. During the six months ended June 30, 2021 the settlement of our cash flow hedges positively impacted our operating margin by approximately 39 basis points as compared to a negative impact of approximately 17 basis points during the six months ended June 30, 2020.
In 2022, we made certain changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to charge to the business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes costs related to non-delivery personnel that support consulting services, which were previously included in "unallocated costs." We have reported 2022 segment operating profits using the new allocation methodology and have recast the 2021 results to conform to the new methodology. Segment operating profit and operating margin percentage were as follows:
Across all our business segments,In 2022, segment operating margins benefited from savings resulting fromwere negatively impacted by increased compensation costs for delivery personnel (including employees and subcontractors), partially offset by delivery efficiencies and the implementationdepreciation of the delivery cost optimization initiatives of our 2020 Fit for Growth Plan,Indian rupee against the decrease in travel and entertainment costs due to COVID-19 related reductions in travel andU.S. dollar. The 2022 Financial Services segment operating margin reflects the negative impactgain on our 2020 resultssale of the COVID-19 pandemicSamlink subsidiary while the 2022 Health Sciences segment operating margin was negatively affected by investments to support revenue growth and the April 2020 ransomware attack.elevated pricing pressure on non-digital services.
Total segment operating profit wasand margin were as follows for the six months ended June 30:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | 2021 | | % of Revenues | | 2020 | | % of Revenues | | Increase / (Decrease) |
| Total segment operating profit | $ | 2,731 | | | 30.4 | | | $ | 2,234 | | | 27.2 | | | $ | 497 | |
| Less: unallocated costs | 1,366 | | | | | 1,188 | | | | | 178 | |
| Income from operations | $ | 1,365 | | | 15.2 | | | $ | 1,046 | | | 12.7 | | | $ | 319 | |
The increase of $178 million in unallocated costs for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was primarily due to increased costs as a result of our recently completed acquisitions and costs related to initiatives to reposition our brand and the modernization of our core IT systems. Unallocated costs in 2020 included higher restructuring costs, COVID-19 Charges and costs related to the April 2020 ransomware attack. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | 2022 | | % of Revenues | | 2021 | | % of Revenues | | Increase / (Decrease) |
| Total segment operating profit | $ | 2,838 | | | 29.2 | | | $ | 2,683 | | | 29.9 | | | $ | 155 | |
| Less: unallocated costs | 1,354 | | | | | 1,318 | | | | | 36 | |
| Income from operations | $ | 1,484 | | | 15.2 | | | $ | 1,365 | | | 15.2 | | | $ | 119 | |
| | |
| Other Income (Expense), Net |
The following table sets forth total other income (expense), net for the six months ended June 30:
| | (in millions) | (in millions) | 2021 | | | 2020 | | Increase/
Decrease | | (in millions) | 2022 | | | 2021 | | Increase/
Decrease | |
| Foreign currency exchange (losses) | Foreign currency exchange (losses) | $ | (22) | | | | $ | (107) | | | $ | 85 | | | Foreign currency exchange (losses) | $ | (49) | | | | $ | (22) | | | $ | (27) | | |
| Gains on foreign exchange forward contracts not designated as hedging instruments | Gains on foreign exchange forward contracts not designated as hedging instruments | 6 | | | | 3 | | | 3 | | | Gains on foreign exchange forward contracts not designated as hedging instruments | 45 | | | | 6 | | | 39 | | |
| Foreign currency exchange gains (losses), net | Foreign currency exchange gains (losses), net | (16) | | | | (104) | | | 88 | | | Foreign currency exchange gains (losses), net | (4) | | | | (16) | | | 12 | | |
| Interest income | Interest income | 16 | | | | 78 | | | (62) | | | Interest income | 15 | | | | 16 | | | (1) | | |
| Interest expense | Interest expense | (4) | | | | (15) | | | 11 | | | Interest expense | (5) | | | | (4) | | | (1) | | |
| Other, net | Other, net | (2) | | | | — | | | (2) | | | Other, net | — | | | | (2) | | | 2 | | |
| Total other income (expense), net | Total other income (expense), net | $ | (6) | | | | $ | (41) | | | $ | 35 | | | Total other income (expense), net | $ | 6 | | | | $ | (6) | | | $ | 12 | | |
The foreign currency exchange gains and losses were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets and liabilities in our U.S. dollar functional currency India subsidiaries and, to a lesser extent, the remeasurement of other net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries.The gains and losses on foreign exchange forward contracts not designated as hedging instruments related to the realized and unrealized gains and losses on contracts entered into to offset our foreign currency exposures.
| | | | | | | | |
| Cognizant Technology Solutions | 3634 | June 30, 20212022 Form 10-Q |
the realized and unrealized gains and losses on foreign exchange forward contracts entered into to offset foreign currency exposure to non-U.S. dollar denominated net monetary assets and liabilities. The decrease in interest income of $62 million was primarily attributable to lower invested balances in India, which generate higher yields. Our invested balances in India are lower in 2021 as a result of our repatriation of cash from India in the fourth quarter of 2020.
| | |
| Provision for Income Taxes |
| | | | | | | | | | | | |
é | $68M10M | | | |
| | |
¡ Effective Income Tax Rate ê 2.2%1.5% | |
| | |
The effective income tax rate decreased primarily as a result of significantly lower non-deductible foreign currency exchange losses in our unaudited consolidated statement of operations in 2021, and thehigher discrete benefit of the effective settlement of the IRS examination for tax years 2012 through 2016 as described in Note 8benefits, primarily related to our unaudited consolidated financial statements.undistributed foreign earnings, in the six months ended June 30, 2022 as compared to the 2021 period. The increase in net income was driven by higher income from operations and a lower foreign currency exchange losses, partially offset by lower interesteffective income and a higher provision for income taxes.
| | | | | | | | | | | |
é | $289M123M | | | |
| | | |
¡ %é0.4% of Revenues | | | |
| | | |
Non-GAAP Financial Measures
See “Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021 – Non-GAAP Financial Measures” above for additional information about our use of non-GAAP financial measures.
The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the six months ended June 30:
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | 2021 | | % of
Revenues | | 2020 | | % of
Revenues |
| GAAP income from operations and operating margin | $ | 1,365 | | | 15.2 | | | $ | 1,046 | | | 12.7 | |
Realignment charges (1) | — | | | — | | | 32 | | | 0.4 | |
2020 Fit for Growth plan restructuring charges (2) | — | | | — | | | 94 | | | 1.1 | |
COVID-19 Charges (3) | — | | | — | | | 31 | | | 0.4 | |
| | | | | | | |
| | | | | | | |
| Adjusted Income from Operations and Adjusted Operating Margin | $ | 1,365 | | | 15.2 | | | $ | 1,203 | | | 14.6 | |
| | | | | | | |
| GAAP diluted EPS | $ | 1.92 | | | | | $ | 1.34 | | | |
| Effect of above adjustments, pre-tax | — | | | | | 0.29 | | | |
Non-operating foreign currency exchange (gains) losses, pre-tax (4) | 0.03 | | | | | 0.19 | | | |
Tax effect of above adjustments (5) | 0.01 | | | | | (0.04) | | | |
| | | | | | | |
| Adjusted Diluted EPS | $ | 1.96 | | | | | $ | 1.78 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | 2022 | | | | 2021 | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| GAAP diluted EPS | $ | 2.18 | | | | | $ | 1.92 | | | |
| | | | | | | |
Non-operating foreign currency exchange (gains) losses, pre-tax (1) | 0.01 | | | | | 0.03 | | | |
Tax effect of non-operating foreign currency exchange (gains) losses (2) | 0.04 | | | | | 0.01 | | | |
| | | | | | | |
| Adjusted Diluted EPS | $ | 2.23 | | | | | $ | 1.96 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1)As part of the realignment program, during the six months ended June 30, 2020, we incurred employee retention costs and professional fees. See Note 4 to our unaudited consolidated financial statements for additional information. (2)As part of our 2020 Fit for Growth plan, during the six months ended June 30, 2020, we incurred certain employee separation, employee retention, facility exit costs and other charges. See Note 4 to our unaudited consolidated financial statements for additional information.(3)During the six months ended June 30, 2020, we incurred costs in response to the COVID-19 pandemic, including a one-time bonus to our employees at the designation of associate and below in both India and the Philippines, certain costs to enable our employees to work remotely and costs to provide medical staff and extra cleaning services for our facilities. Substantially all of the costs related to the pandemic are reported in "Cost of revenues" in our unaudited consolidated statement of operations.
(4)Non-operating foreign currency exchange gains and losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency exchange gains (losses), net" in our unaudited consolidated statements of operations.
(2)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
| | | | | | | | | | | |
| (in millions) | Six Months Ended
June 30, |
| 2022 | | 2021 |
| Non-GAAP income tax benefit (expense) related to: | | | |
| | | |
| | | |
| | | |
| | | |
| Foreign currency exchange gains and losses | (20) | | | (6) | |
The effective tax rate related to non-operating foreign currency exchange gains and losses varies depending on the jurisdictions in which such income and expenses are generated and the statutory rates applicable in those jurisdictions. As such, the income tax effect of non-operating foreign currency exchange gains and losses shown in the above table may not appear proportionate to the net pre-tax foreign currency exchange gains and losses reported in our unaudited consolidated statements of operations.
| | | | | | | | |
| Cognizant Technology Solutions | 3735 | June 30, 20212022 Form 10-Q |
(5)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:
| | | | | | | | | | | |
| (in millions) | Six Months Ended
June 30, |
| 2021 | | 2020 |
| Non-GAAP income tax benefit (expense) related to: | | | |
| Realignment charges | $ | — | | | $ | 8 | |
| 2020 Fit for Growth Plan restructuring charges | — | | | 25 | |
| COVID-19 Charges | — | | | 8 | |
| Foreign currency exchange gains and losses | (6) | | | (18) | |
| | | | | | | | | | | | | | |
| Liquidity and Capital Resources |
Our cash generated from operations has historically been ourthe primary source of liquidity to fund operations and investments to grow our business. In addition, asAs of June 30, 2021,2022, we had cash, cash equivalents and short-term investments of $1,850$2,320 million and available capacity under our credit facilities of approximately $1,925approximately $1,915 million.
The following table provides a summary of our cash flows for the six months ended June 30:
| | (in millions) | (in millions) | | 2021 | | 2020 | | Increase / Decrease | | (in millions) | | 2022 | | 2021 | | Increase / Decrease | |
| Net cash provided by (used in): | Net cash provided by (used in): | | | Net cash provided by (used in): | | |
| Operating activities | Operating activities | | $ | 722 | | | $ | 1,476 | | | $ | (754) | | | Operating activities | | $ | 834 | | | $ | 722 | | | $ | 112 | | |
| Investing activities | Investing activities | | (1,259) | | | (531) | | | (728) | | | Investing activities | | 229 | | | (1,259) | | | 1,488 | | |
| Financing activities | Financing activities | | (768) | | | 964 | | | (1,732) | | | Financing activities | | (1,050) | | | (768) | | | (282) | | |
|
Operating activities
The decreaseincrease in cash provided by operating activities for the six months ended June 30, 20212022 as compared to the same period in 2020six months ended June 30, 2021 was primarily driven by the deferrals of certain tax payments due to COVID-19 pandemic regulatory relief in the second quarter of 2020, a portion of which was remitted in 2021, and higher incentive-based compensation payouts in 2021.income from operations.
We monitor turnover, aging and the collection of accounts receivable by client. Our DSO calculation includes receivables, net of allowance for doubtful accounts, and contract assets, reduced by the uncollected portion of our deferred revenue. Our DSO was 74 days as of June 30, 2022, 71 days as of June 30, 2021, 70and 69 days as of December 31, 2020, and 772021, increasing as of June 30, 2020.revenue growth outpaced collections.
Investing activities
The increase innet cash provided by investing activities for the six months ended June 30, 2022 was primarily driven by net maturities of investments, partially offset by capital expenditures. Net cash used in investing activities for the six months ended June 30, 2021 as compared towas driven by cash used for acquisitions, net purchases of investments and capital expenditures.
Financing activities
The increase in cash used in financing activities for the six months ended June 30, 2020 was primarily driven by higher payments for acquisitions and net purchases of investments, partially offset by lower outflows for capital expenditures.
Financing activities
The cash used in financing activities for2022 as compared to the six months ended June 30, 2021 was primarily driven by repurchases of common stock. The cash provided by financing activities for the six months ended June 30, 2020 was primarily a result of our borrowing against the revolving credit facility, partially offset byhigher repurchases of common stock.
We have aThe Credit Agreement providingprovides for a $750 million Term Loan and a $1,750 million unsecured revolving credit facility, which are due to mature in November 2023. We are required under the Credit Agreement to make scheduled quarterly principal payments on the Term Loan. As of June 30, 2021,2022, we had no outstanding balance on ourthe revolving credit facility. See Note 75 to our unaudited consolidated financial statements.In February 2021,March 2022, our India subsidiary renewed its one-year 13 billion Indian rupee ($175165 million at the June 30, 20212022 exchange rate) working capital facility, which requires us to repay any balances drawn down within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made within 30 days after disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually in February.annually. As of June 30, 20212022, we have not borrowed funds under this facility.
| | | | | | | | |
Cognizant | 38 | June 30, 2021 Form 10-QAcquisitions |
| | | | | |
| |
| Share Repurchases |
| |
| Dividend payments |
| |
| |
During the six months ended June 30, 2021, we returned $815 million to our stockholders, including shares purchased in connection with our stock-based compensation plans. We review our capital return planallocation framework on an ongoing basis, considering the potential impacts of COVID-19 pandemic, our financial performance and liquidity position, investments required to execute our strategic plans and initiatives, acquisition opportunities, the economic outlook, regulatory changes, the potential impacts of the COVID-19 pandemic and other relevant factors. As these factors may change over time, the actual amounts expended on stock repurchase activity, dividends, and acquisitions, if any, during any particular period cannot be predicted and may fluctuate from time to time. While we have not completed any acquisitions in 2022, our longer-term capital allocation framework is unchanged.
| | | | | | | | |
| Cognizant Technology Solutions | 36 | June 30, 2022 Form 10-Q |
Other Liquidity and Capital Resources Information
We seek to ensure that our worldwide cash is available in the locations in which it is needed. As part of our ongoing liquidity assessments, we regularly monitor the mix of our domestic and international cash flows and cash balances. We evaluate on an ongoing basis what portion of the non-U.S. cash, cash equivalents and short-term investments is needed locally to execute our strategic plans and what amount is available for repatriation back to the United States.States.
We expect our operating cash flows, cash and short-term investment balances, together with ourthe available capacity under our revolving credit facilities, to be sufficient to meet our operating requirements, including purchase commitments, make Tax Reform Act transition tax payments and service our debt for the next twelve months. OurThe ability to expand and grow our business in accordance with current plans, make acquisitions, meet our long-term capital requirements beyond a twelve-month period and execute our capital return plan will depend on many factors, including the rate, if any, at which our cash flow increases, our ability and willingness to pay for acquisitions with capital stock and the availability of public and private debt, including the ability to extend the maturity or refinance our existing debt, and equity financing. We cannot be certain that additional financing, if required, will be available on terms and conditions acceptable to us, if at all.
| | | | | | | | | | | | | | |
| Commitments and Contingencies |
See Note 1210 to our unaudited consolidated financial statements. | | | | | | | | | | | | | | |
Off-Balance Sheet Arrangements |
Other than our foreign exchange forward and option contracts, there were no off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons in the six months ended June 30, 2021 that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
| | | | | | | | | | | | | | |
| Critical Accounting Estimates |
Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited consolidated financial statements that have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. On an ongoing basis, we evaluate our estimates. The most significant estimates relate to the recognition of revenue and profits, including the application of the cost-to-cost method of measuring progress to completion for certain fixed-price contracts, income taxes, business combinations and valuation of goodwill and other long-lived assets and contingencies.assets. We base our estimates on historical experience, current trends and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual amounts may differ from the estimates used in the preparation of the accompanying unaudited consolidated financial statements. For a discussion of our critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
| | | | | | | | |
Cognizant | 39 | June 30, 2021 Form 10-Q |
| | | | | | | | | | | | | | |
| Recently Adopted and New Accounting Pronouncements |
There have been no changes in the information provided in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
| | | | | | | | | | | | | | |
| 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 or operating margin, earnings, capital expenditures, impacts to our business, financial results and financial condition as a result of the COVID-19 pandemic, 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 plan,strategy, investment strategies, cost management, realignment program, 2020 Fit for Growth Plan, plans and objectives, including those related to our digital practice areas, investment in our business, potential acquisitions, industry trends, client behaviors and trends, the outcome of and costs associated with regulatory and litigation matters, the incrementalappropriateness of the accrual related to the India Defined Contribution Obligation and other statements regarding matters that are not historical facts, are based on our current
| | | | | | | | |
| Cognizant Technology Solutions | 37 | June 30, 2022 Form 10-Q |
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 political conditions globally, including the invasion of Ukraine by Russia, and in particular in the markets in which our clients and operations are concentrated;
•the continuing impact of the COVID-19 pandemic, or other future pandemics, on our business, results of operations, liquidity and financial condition;
•our ability to attract, train and retain skilled employees, including highly skilled technical personnel to satisfy client demandand personnel with experience in key digital areas and senior management to lead our business globally;
•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 achieve our profitability goals and maintain our capital return strategy;
•our ability to successfully execute on the investments outlined in our 2020 Fit for Growth Plan and achieve the anticipated benefits from the plan;
•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;
•legal, reputation and financial risks if we fail to protect client and/or our data from security breaches and/or cyber attacks;
•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, United Kingdom and EU, or immigration more generally or increased costs of such visas or the wages we are required to pay associatesemployees 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;
•risks and costs related to complying with numerous and evolving legal and regulatory requirements to which we are subjectand client expectations in the many jurisdictions in which we operate;operate, including the increased stakeholder emphasis on ESG matters;
•potential changes in tax laws, or in their interpretation or enforcement, failure by us to adapt our corporate structure and intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or proceedings;
| | | | | | | | |
Cognizant | 40 | June 30, 2021 Form 10-Q |
•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, 2020.2021.
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, 2020.2021. 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.
| | | | | | | | | | | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk. |
There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,2021, filed with the SEC on February 12, 2021.16, 2022.
| | | | | | | | |
| Cognizant Technology Solutions | 38 | June 30, 2022 Form 10-Q |
| | | | | | | | | | | |
| Item 4. Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer and our chief financial officer, evaluated the design and operating effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2021.2022. Based on this evaluation, our chief executive officer and our chief financial officer concluded that, as of June 30, 2021,2022, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| | | | | | | | |
| Cognizant Technology Solutions | 4139 | June 30, 20212022 Form 10-Q |
PART II. OTHER INFORMATION
| | | | | | | | | | | | | | |
| Item 1. Legal Proceedings |
See Note 1210 to our unaudited consolidated financial statements. There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 filed with the SEC on February 12, 202116, 2022.
| | | | | | | | | | | | | | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
Our stock repurchase program allows for the repurchase of up to $9.5 billion, excluding fees and expenses, of our Class A common stock through open market purchases, including under a 10b5-1 Plan or in private transactions, including through ASR agreements entered into with financial institutions, in accordance with applicable federal securities laws. The repurchase program does not have an expiration date.date and has a remaining authorized balance of $1,375 million as of June 30, 2022. The timing of repurchases and the exact number of shares to be purchased are determined by management, in its discretion, or pursuant to a 10b5-1 Plan, and will depend upon market conditions and other factors.
During the three months ended June 30, 2021,2022, we repurchased $296300 million of our Class A common stock.stock under our stock repurchase program. The stock repurchase activity under our stock repurchase program during the three months ended June 30, 20212022 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
| April 1, 2021 - April 30, 2021 | | 1,197,898 | | | $ | 79.83 | | | 1,197,898 | | | $ | 2,485 | |
| May 1, 2021 - May 31, 2021 | | 1,140,000 | | | 71.47 | | | 1,140,000 | | | 2,404 | |
| June 1, 2021 - June 30, 2021 | | 1,682,922 | | | 70.43 | | | 1,682,922 | | | 2,285 | |
| Total | | 4,020,820 | | | $ | 73.52 | | | 4,020,820 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
| April 1, 2022 - April 30, 2022 | | — | | | $ | — | | | — | | | $ | 1,675 | |
| May 1, 2022 - May 31, 2022 | | 2,157,300 | | | 72.97 | | | 2,157,300 | | | 1,518 | |
| June 1, 2022 - June 30, 2022 | | 2,053,758 | | | 69.42 | | | 2,053,758 | | | 1,375 | |
| Total | | 4,211,058 | | | $ | 71.24 | | | 4,211,058 | | | |
During the three months ended June 30, 2021,2022, we also purchased shares in connection with our stock-based compensation plans, whereby shares of our common stock were tendered by employees for payment of applicable statutory tax withholdings. For the three months ended June 30, 2021,2022, such repurchases totaled 0.30.2 million shares at an aggregate cost of $20$18 million.
| | | | | | | | |
| Cognizant Technology Solutions | 4240 | June 30, 20212022 Form 10-Q |
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 | | |
| 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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 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 | | | | | | | | | | | | Filed |
| 10.2 | | | | | | | | | | | | Filed |
| 10.3 | | | | | | | | | | | | Filed |
| 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 | 4341 | June 30, 20212022 Form 10-Q |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | | | | | | | | | | | | | | | | |
| | | Cognizant Technology Solutions Corporation |
| | | | |
| Date: | July 28, 202127, 2022 | | | By: | | /s/ BRIAN HUMPHRIES |
| | | | | | Brian Humphries, |
| | | | | | Chief Executive Officer |
| | | | | | (Principal Executive Officer) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Date: | July 28, 202127, 2022 | | | By: | | /s/ JAN SIEGMUND |
| | | | | | Jan Siegmund, |
| | | | | | Chief Financial Officer |
| | | | | | (Principal Financial Officer) |
| | | | | | | | |
| Cognizant Technology Solutions | 4442 | June 30, 20212022 Form 10-Q |
