COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION Executive Summary
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 become an
increasingly important part of our portfolio, aligning with our clients' focus
on becoming data-enabled, customer-centric and differentiated businesses. We are
focused on continued investment in four key areas of digital: IoT, AI,
experience-driven software engineering 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.
Q2 2021 Financial Results
[[Image Removed: ctsh-20210630_g2.jpg]]
During the quarter ended June 30, 2021 , revenues increased by $585 million as
compared to the quarter ended June 30, 2020 , representing growth of 14.6%, or
12.0% on a constant currency basis1. Our recently completed acquisitions
contributed 390 basis points to our revenue growth. Our revenue growth 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. 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 and Adjusted Operating Margin1 were both 15.2% for the
quarter ended June 30, 2021 , as there were no adjustments 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 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 Margin1 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
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 23 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents margin was also negatively impacted by costs related to 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 exit a large customer engagement in Financial Services in Continental Europe. The offer included, among other terms, a proposed payment and the forgiveness of certain receivables. In the second quarter of 2021, we reached a settlement agreement with two of the three customers that were part of 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 provision for the continuation of certain of our services to the two customers. Our negotiations with the third customer are ongoing 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. Business Outlook As we seek to increase our commercial momentum and accelerate growth, our four strategic priorities are: •Repositioning our brand - improving our global brand recognition and becoming better known as a global digital partner to the entire 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 continue to adopt and integrate digital technologies. Demand for our digital operations services and solutions has increased since the beginning of the COVID-19 pandemic. At the same time, as our clients seek to optimize the cost of supporting their legacy systems and operations, our non-digital services has been and may continue to be subject to pricing pressure. Our 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 policies 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 inIndia , 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. For the three months endedJune 30, 2021 , our annualized attrition, including both voluntary and involuntary, was 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 inJuly 2021 . Challenges attracting and retaining highly qualified personnel have negatively impacted, and we expect will continue to impact, our ability to satisfy client demand and achieve our full revenue potential. Further, our ongoing and anticipated future efforts with respect to recruitment, talent management and employee engagement may not be successful and will result in increased delivery costs during the remainder of 2021. In addition, our future results may be affected by potential tax law changes and other potential regulatory changes, including potentially increased costs for employment and post-employment benefits inIndia as a result of the Code onSocial 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 24 June 30, 2021 Form 10-Q
--------------------------------------------------------------------------------
Table of Contents Results of Operations
Three Months Ended
The following table sets forth, for the periods indicated, certain financial
data for the three months ended
% of % of Increase / Decrease
(Dollars in millions, except per share data) 2021 Revenues 2020 Revenues $ % Revenues$ 4,585 100.0$ 4,000 100.0$ 585 14.6 Cost of revenues(a) 2,863 62.4 2,615 65.4 248 9.5 Selling, general and administrative expenses(a) 881 19.2 711 17.8 170 23.9 Restructuring charges - - 71 1.8 (71) (100.0) Depreciation and amortization expense 145 3.2 136 3.4 9 6.6 Income from operations 696 15.2 467 11.7 229 49.0 Other income (expense), net (2) 28 (30)
(107.1)
Income before provision for income taxes 694 15.1 495 12.4 199
40.2
Provision for income taxes (184) (134) (50)
37.3
Income (loss) from equity method investments 2 - 2 * Net income$ 512 11.2$ 361 9.0$ 151 41.8 Diluted earnings per share$ 0.97 $ 0.67 $ 0.30 44.8 Other Financial Information2 Adjusted Income from Operations and Adjusted Operating Margin$ 696 15.2$ 563 14.1$ 133 23.6 Adjusted Diluted EPS$ 0.99 $ 0.82 $ 0.17 20.7
(a)Exclusive of depreciation and amortization expense. *Not meaningful
Revenues - Overall During the quarter endedJune 30, 2021 , revenues increased by$585 million as compared to the quarter endedJune 30, 2020 , representing growth of 14.6%, or 12.0% on a constant currency basis2. Our recently completed acquisitions contributed 390 basis points to our revenue growth. Our revenue growth 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 theApril 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. We continue to experience pricing pressure on our non-digital services as our clients optimize the cost of supporting their legacy systems and operations. Revenues from clients added sinceJune 30, 2020 , including those related to acquisitions, were$167 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 25 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents Revenues - Reportable Business Segments
The following charts set forth revenues and change in revenues by business
segment and geography for the three months ended
Financial Services Healthcare
Increase / (Decrease) Increase / (Decrease)
Dollars in millions Revenues $ % CC %3 Revenues $ % CC %3
North America $ 1,049 71 7.3 6.7 $ 1,131 132 13.2 13.2
United Kingdom 130 20 18.2 8.6 45 9 25.0 14.7
Continental Europe 186 4 2.2 (5.9) 120 18 17.6 10.2
Europe - Total 316 24 8.2 (0.5) 165 27 19.6 11.3
Rest of World 137 11 8.7 2.6 29 9 45.0 41.8
Total $ 1,502 106 7.6 4.8 $ 1,325 168 14.5 13.4
Products and Resources Communications, Media and Technology
Increase / (Decrease) Increase / (Decrease)
Dollars in millions Revenues $ % CC %3 Revenues $ % CC %3
North America $ 723 103 16.6 16.1 $ 469 60 14.7 14.6
United Kingdom 116 27 30.3 16.3 112 33 41.8 28.0
Continental Europe 132 38 40.4 26.5 44 3 7.3 (2.3)
Europe - Total 248 65 35.5 21.5 156 36 30.0 17.7
Rest of World 84 20 31.3 23.4 78 27 52.9 45.5
Total $ 1,055 188 21.7 17.8 $ 703 123 21.2 17.9
Financial Services - revenues increased 7.6%, or 4.8% on a constant currency basis3
[[Image Removed: ctsh-20210630_g3.jpg]]
Banking é $51M
Insurance é $55M
Revenue growth reflected the negative impact to our 2020 revenues of the
COVID-19 pandemic and the April 2020 ransomware attack. Additionally, 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. Revenues from clients added,
including those related to acquisitions, since June 30, 2020 were $32 million .3
Healthcare - revenues increased 14.5%, or 13.4% on a constant currency basis3
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 clients was driven by increased demand
for our services among pharmaceutical companies. Additionally, revenue growth
reflected the negative impact to our 2020 revenues of the COVID-19 pandemic and
the April 2020 ransomware attack. Revenues from clients added, including those
related to acquisitions, since June 30, 2020 were $29 million .
[[Image Removed: ctsh-20210630_g4.jpg]]
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 26 June 30, 2021 Form 10-Q
--------------------------------------------------------------------------------
Table of Contents
Products and Resources - revenues increased 21.7%, or 17.8% on a constant currency
basis4
[[Image Removed: ctsh-20210630_g5.jpg]]
Manufacturing, Logistics, Energy and Utilities é $106M
Retail and Consumer Goods é $61M
Travel and Hospitality é $21M
Revenue growth in this segment included approximately 600 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, 2020 were $57 million .4
Communications, Media and Technology - revenues increased 21.2%, or 17.9% on a constant
currency basis4
Revenue growth 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 our largest clients in this segment. Revenues from clients
added, including those related to acquisitions, since June 30, 2020 were $49
million .
[[Image Removed: ctsh-20210630_g6.jpg]]
Communications and Media é $69M
Technology é $54M Revenues - Geographic Markets
Revenues of
[[Image Removed: ctsh-20210630_g7.jpg]]
Q2 2021 as compared to Q2 2020 Increase / (Decrease)
(Dollars in millions) $ % CC %4
North America $ 366 12.2 11.8
United Kingdom 89 28.3 16.4
Continental Europe 63 15.0 5.6
Europe - Total 152 20.7 10.2
Rest of World 67 25.7 19.1
Total revenues $ 585 14.6 12.0
North America continues to be our largest market, representing 73.5% of total
revenues and 62.6% of total revenue growth. Revenue growth across all regions
included the negative impact on 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.
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 27 June 30, 2021 Form 10-Q
--------------------------------------------------------------------------------
Table of Contents
Cost of Revenues (Exclusive of Depreciation and Amortization Expense)
[[Image Removed: ctsh-20210630_g8.jpg]]
é $248M
ê 3.0% 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, as a percentage of revenues, was due primarily to
investments intended to drive and support organic revenue growth, including
additions to our sales organization and initiatives to reposition our brand, as
well as increased costs as a result 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.
[[Image Removed: ctsh-20210630_g9.jpg]]
é $170M
é 1.4% as a % of revenue
¡ % of Revenues
Depreciation and Amortization Expense
Depreciation and amortization expense increased by 6.6% but remained flat as a percentage of revenue during the second quarter of 2021 as compared to the second quarter of 2020 primarily as a result of the amortization of intangible assets from recently completed acquisitions. Operating Margin and Adjusted Operating Margin5 - Overall
[[Image Removed: ctsh-20210630_g10.jpg]][[Image Removed: ctsh-20210630_g11.jpg]]
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 Margin5 were adversely impacted by the decline in revenues brought on by the COVID-19 pandemic and the effect of theApril 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.
Cognizant 28 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents Excluding the impact of applicable designated cash flow hedges, the appreciation of the Indian rupee against theU.S. dollar negatively impacted our operating margin by 49 basis points during the three months endedJune 30, 2021 . Each additional 1.0% change in exchange rate between the Indian rupee and theU.S. dollar will have the effect of moving our operating margin by 17 basis points. We enter into foreign exchange derivative contracts to hedge certain Indian rupee denominated payments inIndia . These hedges are intended to mitigate the volatility of the changes in the exchange rate between theU.S. dollar and the Indian rupee. The settlement of our cash flow hedges positively impacted our operating margin by 31 basis points during the three months endedJune 30, 2021 , while it negatively impacted our operating margin by 28 basis points during the three months endedJune 30, 2020 . We finished the second quarter of 2021 with approximately 301,200 employees. Annualized attrition, including both voluntary and involuntary, was approximately 31.4% for the three months endedJune 30, 2021 . In 2021, 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. [[Image Removed: ctsh-20210630_g12.jpg]] ¡ Annualized attrition Segment Operating Profit
Segment operating profit and operating margin percentage were as follows:
[[Image Removed: ctsh-20210630_g13.jpg]]
[[Image Removed: ctsh-20210630_g14.jpg]]
[[Image Removed: ctsh-20210630_g15.jpg]]
[[Image Removed: ctsh-20210630_g16.jpg]]
Across all our business segments, operating margins benefited from savings
resulting from the implementation of the delivery cost optimization initiatives
of our 2020 Fit for Growth Plan and the negative impact on our 2020 results of
the COVID-19 pandemic and the April 2020 ransomware attack.
Total segment operating profit was as follows for the three months ended June
30 :
Increase /
(Dollars in millions) 2021 % of Revenues 2020 % of Revenues (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 $81 million increase in unallocated costs for the three months ended June
30, 2021 as compared to the three months ended June 30, 2020 was primarily due
to increased costs as a result of our recently completed acquisitions and costs
related to initiatives to reposition our brand and the modernization of our core
IT systems. Unallocated costs in 2020 included restructuring costs, COVID-19
Charges and costs related to the April 2020 ransomware attack.
Cognizant 29 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents Other Income (Expense), Net The following table sets forth total other income (expense), net for the three months endedJune 30 : Increase/ (in millions) 2021 2020 Decrease Foreign currency exchange (losses) gains$ (10) $ 1 $ (11)
Gains (losses) on foreign exchange forward contracts not designated as hedging instruments
3 (3) 6
Foreign currency exchange gains (losses), net (7) (2) (5)
Interest income 7 37 (30)
Interest expense (2) (9) 7
Other, net - 2 (2)
Total other income (expense), net $ (2) $ 28 $ (30)
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 foreign currency exposure to non-U.S.
dollar denominated net monetary assets and liabilities. As of June 30, 2021 , the
notional value of our undesignated hedges was $796 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
[[Image Removed: ctsh-20210630_g17.jpg]]
é $50M
¡ Effective Income Tax Rate ê 0.6%
The effective income tax rate decreased as a result of significantly lower
non-deductible foreign currency exchange losses in our unaudited consolidated
statement of operations in 2021.
Net Income
The increase in net income was driven by higher income from operations,
partially offset by lower interest income and a higher provision for income
taxes.
[[Image Removed: ctsh-20210630_g18.jpg]]
é $151M
¡ % of Revenues
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 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
-------------------------------------------------------------------------------- Table of Contents 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 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 endedJune 30 : % of % of (Dollars in millions, except per share amounts) 2021 Revenues 2020 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 (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 endedJune 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 endedJune 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 bothIndia andthe 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)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) Cognizant 31 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 30, 2020
The following table sets forth, for the periods indicated, certain financial
data for the six months ended
% of % of Increase / Decrease
(Dollars in millions, except per share
data) 2021 Revenues 2020 Revenues $ %
Revenues $ 8,986 100.0 $ 8,225 100.0 $ 761 9.3
Cost of revenues(a) 5,627 62.6 5,362 65.2 265 4.9
Selling, general and administrative
expenses(a) 1,708 19.0 1,422 17.3 286 20.1
Restructuring charges - - 126 1.5 (126) (100.0)
Depreciation and amortization expense 286 3.2 269 3.3 17 6.3
Income from operations 1,365 15.2 1,046 12.7 319 30.5
Other income (expense), net (6) (41) 35 (85.4)
Income before provision for income taxes 1,359 15.1 1,005 12.2 354 35.2 Provision for income taxes (344) (276) (68) 24.6 Income from equity method investments 2 (1) 3 (300.0) Net income$ 1,017 11.3$ 728 8.9$ 289 39.7 Diluted EPS$ 1.92 $ 1.34 $ 0.58 43.3 Other Financial Information6 Adjusted Income From Operations and Adjusted Operating Margin$ 1,365 15.2$ 1,203 14.6$ 162 13.5 Adjusted Diluted EPS$ 1.96 $ 1.78 $ 0.18 10.1
(a)Exclusive of depreciation and amortization expense. Revenues - Overall
During the six months endedJune 30, 2021 , revenues increased by$761 million as compared to the six months endedJune 30, 2020 , representing growth of 9.3%, or 7.1% on a constant currency basis. Our recently completed acquisitions contributed 350 basis points to our revenue growth. Our revenue growth 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 theApril 2020 ransomware attack. Our retail, consumer goods, travel and hospitality clients continue to be negatively impacted by the pandemic. We continue to experience 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. In addition, our revenues from clients added sinceJune 30, 2020 , including those related to acquisitions, were$275 million .6
6 Adjusted Income From Operations, Adjusted Operating Margin and Adjusted Diluted EPS 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 32 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents Revenues - Reportable Business Segments The following charts set forth revenues and change in revenues by business segment and geography for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 : Financial Services Healthcare Increase / (Decrease) Increase / (Decrease) Dollars in millions Revenues $ % CC %7 Revenues $ % CC %7 North America$ 2,062 72 3.6 3.1$ 2,232 195 9.6 9.5 United Kingdom 255 25 10.9 3.3 85 9 11.8 3.9 Continental Europe 378 5 1.3 (6.6) 238 37 18.4 10.8 Europe - Total 633 30 5.0 (2.8) 323 46 16.6 8.9 Rest of World 265 11 4.3 (0.6) 58 21 56.8 53.9 Total$ 2,960 113 4.0 1.5$ 2,613 262 11.1 10.1 Products and Resources
Communications, Media and Technology
Increase / (Decrease) Increase / (Decrease)
Dollars in millions Revenues $ % CC %7 Revenues $ % CC %7
North America $ 1,441 132 10.1 9.6 $ 920 60 7.0 6.9
United Kingdom 222 40 22.0 11.0 211 48 29.4 18.4
Continental Europe 235 32 15.8 4.9 87 8 10.1 0.5
Europe - Total 457 72 18.7 7.8 298 56 23.1 12.6
Rest of World 155 28 22.0 16.7 142 38 36.5 32.0
Total $ 2,053 232 12.7 9.7 $ 1,360 154 12.8 10.2
Financial Services - revenues increased 4.0%, or 1.5% on a constant currency basis7
[[Image Removed: ctsh-20210630_g19.jpg]]
Banking é $65M
Insurance é $48M
Revenue growth reflected the negative impact on 2020 revenues of the COVID-19
pandemic and the April 2020 ransomware attack. Additionally, revenues 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.7Revenues from clients added, including those
related to acquisitions, since June 30, 2020 were $55 million .
Healthcare - revenues increased 11.1%, or 10.1% on a constant currency basis7
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 clients was driven by increased demand
for our services among pharmaceutical companies. Additionally, revenue growth
reflected the negative impact on 2020 revenues of the COVID-19 pandemic and the
April 2020 ransomware attack. Revenues from clients added, including those
related to acquisitions, since June 30, 2020 were $49 million .
[[Image Removed: ctsh-20210630_g20.jpg]]
Healthcare é $139M
Life Sciences é $123M
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 33 June 30, 2021 Form 10-Q
--------------------------------------------------------------------------------
Table of Contents
Products and Resources - revenues increased 12.7%, or 9.7% on a constant currency
basis8
[[Image Removed: ctsh-20210630_g21.jpg]]
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 .
[[Image Removed: ctsh-20210630_g22.jpg]]
Communications and Media é $99M
Technology é $55M Revenues - Geographic Markets
Revenues of
[[Image Removed: ctsh-20210630_g23.jpg]]
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
--------------------------------------------------------------------------------
Table of Contents
Cost of Revenues (Exclusive of Depreciation and Amortization Expense)
[[Image Removed: ctsh-20210630_g24.jpg]]
é $265M
ê 2.6% 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 and a significant decrease 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.
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, as a percentage of revenues, was due primarily to
investments intended to drive and support organic revenue growth, including
additions to our sales organization and initiatives to reposition our brand, as
well as increased costs as a result 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.
[[Image Removed: ctsh-20210630_g25.jpg]]
é $286M
é 1.7% as a % of revenue
¡ % of Revenues
Depreciation and Amortization Expense
Depreciation and amortization expense increased by 6.3% but remained flat as a percentage of revenue during the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . The increase is due to amortization of intangibles from recently completed acquisitions. Operating Margin and Adjusted Operating Margin9 - Overall
[[Image Removed: ctsh-20210630_g26.jpg]][[Image Removed: ctsh-20210630_g27.jpg]]
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 theApril 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 35 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents Excluding the impact of applicable designated cash flow hedges, the appreciation of the Indian rupee against theU.S. dollar negatively impacted our operating margin by approximately 19 basis points during the six months endedJune 30, 2021 . Each additional 1.0% change in exchange rate between the Indian rupee and theU.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 inIndia , which are intended to mitigate the volatility of the changes in the exchange rate between theU.S. dollar and the Indian rupee. During the six months endedJune 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 endedJune 30, 2020 . Segment Operating Profit
Segment operating profit and operating margin percentage were as follows:
[[Image Removed: ctsh-20210630_g28.jpg]]
[[Image Removed: ctsh-20210630_g29.jpg]]
[[Image Removed: ctsh-20210630_g30.jpg]]
[[Image Removed: ctsh-20210630_g31.jpg]]
Across all our business segments, operating margins benefited from savings
resulting from the implementation of the delivery cost optimization initiatives
of our 2020 Fit for Growth Plan, the decrease in travel and entertainment costs
due to COVID-19 related reductions in travel and the negative impact on our 2020
results of the COVID-19 pandemic and the April 2020 ransomware attack.
Total segment operating profit was as follows for the six months ended June 30 :
Increase /
(Dollars in millions) 2021 % of Revenues 2020 % of Revenues (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.
Other Income (Expense), Net
The following table sets forth total other income (expense), net for the six
months ended June 30 :
Increase/
(in millions) 2021 2020 Decrease
Foreign currency exchange (losses) $ (22) $ (107) $ 85
Gains on foreign exchange forward contracts not
designated as hedging instruments 6 3 3
Foreign currency exchange gains (losses), net (16) (104) 88
Interest income 16 78 (62)
Interest expense (4) (15) 11
Other, net (2) - (2)
Total other income (expense), net $ (6) The foreign currency exchange gains and losses were primarily attributed to the remeasurement of the Indian rupee denominated net monetary assets and liabilities in ourU.S. dollar functional currencyIndia 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 Cognizant 36 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents 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 inIndia , which generate higher yields. Our invested balances inIndia are lower in 2021 as a result of our repatriation of cash fromIndia in the fourth quarter of 2020. Provision for Income Taxes [[Image Removed: ctsh-20210630_g32.jpg]] é$68M ¡ Effective Income Tax Rate ê 2.2% 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 the discrete benefit of the effective settlement of theIRS examination for tax years 2012 through 2016 as described in Note 8 to our unaudited consolidated financial statements. Net Income The increase in net income was driven by higher income from operations and lower foreign currency exchange losses, partially offset by lower interest income and a higher provision for income taxes. [[Image Removed: ctsh-20210630_g33.jpg]] é$289M ¡ % of Revenues Non-GAAP Financial Measures The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the six months endedJune 30 : % of % of (Dollars in millions, except per share amounts) 2021 Revenues 2020 Revenues GAAP income from operations and operating margin$ 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 (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 endedJune 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 endedJune 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 bothIndia andthe 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. Cognizant 37 June 30, 2021 Form 10-Q
--------------------------------------------------------------------------------
Table of Contents
(5)Presented below are the tax impacts of each of our non-GAAP adjustments to
pre-tax income:
Six Months Ended
(in millions) 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 our primary source of liquidity to fund operations and investments to grow our business. In addition, as ofJune 30, 2021 , we had cash, cash equivalents and short-term investments of$1,850 million and available capacity under our credit facilities of approximately$1,925 million .
The following table provides a summary of our cash flows for the six months
ended
2021 2020 Increase / Decrease
Net cash provided by (used in):
Operating activities $ 722 $ 1,476 $ (754)
Investing activities (1,259) (531) (728)
Financing activities (768) 964 (1,732)
Operating activities
The decrease in cash provided by operating activities for the six months ended
June 30, 2021 compared to the same period in 2020 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.
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 71 days as June 30, 2021 , 70 days as of
December 31, 2020 , and 77 as of June 30, 2020 .
Investing activities
The increase in net cash used in investing activities for the six months ended
June 30, 2021 as compared to 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 for 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 by repurchases
of common stock.
We have a Credit Agreement providing 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 , we had no outstanding
balance on our revolving credit facility. See Note 7 to our unaudited
consolidated financial statements.
In February 2021 , our India subsidiary renewed its one-year 13 billion Indian
rupee ($175 million at the June 30, 2021 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. As of June 30, 2021 , we have not borrowed funds under this facility.
Cognizant 38 June 30, 2021 Form 10-Q
--------------------------------------------------------------------------------
Table of Contents
[[Image Removed: ctsh-20210630_g34.jpg]]
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 plan 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 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.
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 .
We expect our operating cash flows, cash and short-term investment balances,
together with our available capacity under our revolving credit facilities, to
be sufficient to meet our operating requirements and service our debt for the
next twelve months. Our 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 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 12 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 endedJune 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, valuation of goodwill and other long-lived assets and contingencies. 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 endedDecember 31, 2020 . 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 endedDecember 31, 2020 . Cognizant 39 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents 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 endedDecember 31, 2020 . 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 theSEC , 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, anticipated effective income tax rate and income tax expense, liquidity, access to capital, capital return plan, 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 regulatory and litigation matters, the incremental accrual related to the India Defined Contribution Obligation and other statements regarding matters that are not historical facts, are based on our current expectations, estimates and projections, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Actual results, performance, achievements and outcomes could differ materially from the results expressed in, or anticipated or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including: •economic and political conditions globally 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 demand 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 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 inthe United States ,United Kingdom and EU, or immigration more generally or increased costs of such visas or the wages we are required to pay associates 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 subject in the many jurisdictions in which we operate; •potential changes in tax laws, or in their interpretation or enforcement, failure by us to adapt our corporate structure and intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or proceedings; Cognizant 40 June 30, 2021 Form 10-Q
-------------------------------------------------------------------------------- Table of Contents •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 endedDecember 31, 2020 . You are advised to consult any further disclosures we make on related subjects in the reports we file with theSEC , 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 endedDecember 31, 2020 . 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 endedDecember 31, 2020 , filed with theSEC onFebruary 12, 2021 . 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 ofJune 30, 2021 . Based on this evaluation, our chief executive officer and our chief financial officer concluded that, as ofJune 30, 2021 , 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 endedJune 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Cognizant 41 June 30, 2021 Form 10-Q
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
