•Annual revenue of $13.49 billion up 8.6% over 2015
•Announces plan to accelerate shift to digital services and solutions
•Fund investment through ongoing improvement in operating margins and
•Return $3.4 billion of capital through dividends and share repurchases over next two years...
Cognizant Technology Solutions Corporation (NASDAQ: CTSH), one of the world’s leading professional services companies, today announced its fourth quarter and full year 2016 financial results.
Highlights – Fourth Quarter 2016
• Quarterly revenue rose to $3.46 billion, up 7.1% from the year-ago quarter and 0.3% sequentially.
• Quarterly GAAP diluted EPS was $0.68, compared to $0.69 in the year-ago quarter.
• Quarterly non-GAAP diluted EPS was $0.87, compared to $0.80 in the year-ago quarter.
Revenue for the fourth quarter of 2016 rose to $3.46 billion, up 7.1% from $3.23 billion in the fourth quarter of 2015. GAAP net income was $416 million, or $0.68 per diluted share, compared to $424 million, or $0.69 per diluted share, in the fourth quarter of 2015. Non-GAAP diluted EPS was $0.87, compared to $0.80 in the fourth quarter of 2015. GAAP operating margin was 16.2% and non-GAAP operating margin1 was 18.7% for the fourth quarter of 2016.
“As we enter 2017, the time is right for us to accelerate the shift to digital services and solutions to meet the growing demands from our clients to transform their business models in the face of the rapid business and technology shifts disrupting their industries,” said Francisco D’Souza, Chief Executive Officer. “To meet this opportunity, we are evolving our business model to focus on aggressively scaling our digital capabilities, driving efficiencies in our core business, and launching a robust capital return program. We believe these changes will enable us to deploy our world-class team to best serve our clients and enhance value for our shareholders.”
Highlights – Full Year 2016
• Revenue increased to $13.49 billion, up 8.6% from 2015.
• GAAP diluted EPS was $2.55, compared to $2.65 in 2015.
• Non-GAAP diluted EPS was $3.39, compared to $3.07 in 2015.
Revenue for 2016 increased to $13.49 billion, up 8.6% from $12.42 billion for 2015. GAAP net income for 2016 was $1.55 billion, or $2.55 per diluted share, compared to $1.62 billion, or $2.65 per diluted share, for 2015. Non-GAAP diluted EPS was $3.39 in 2016, compared to $3.07 in 2015. GAAP operating margin was 17.0% and non-GAAP operating margin was 19.5% for 2016.
First Quarter & Full Year 2017 Outlook
The Company is providing the following guidance:
• First quarter 2017 revenue expected to be in the range of $3.51 billion to $3.55 billion.
• First quarter 2017 non-GAAP diluted EPS2 expected to be at least $0.83.
• Full year 2017 revenue expected to be in the range of $14.56 billion to $14.84 billion.
• Full year 2017 non-GAAP diluted EPS expected to be at least $3.63.
Plan to Accelerate Shift to Digital Services and Solutions and Enhance Shareholder Value
Today the Company announced a comprehensive plan to accelerate the shift to digital services and solutions, execute on operational opportunities to drive leverage in its cost structure and return significant capital to shareholders. Faced with business and technology shifts disrupting their industries, clients are both accelerating their adoption of digital services and solutions and, at the same time, optimizing their core systems and processes. This plan will allow the Company to leverage its position as a leader in the services sector and accelerate its shift to be a leading provider of digital services and solutions. The elements of this plan will drive a shift in the Company’s operating model and include the following:
• Accelerating Investments to Build Digital Capabilities:
To stay relevant to evolving client demand, the Company will aggressively scale its digital capabilities across geographies and industry segments through both organic investments, in areas such as re-skilling and new technology practices, and through acquisitions. The Company is intensifying its M&A efforts to expand intellectual property, industry expertise, and platform and technology capabilities, by focusing primarily on strategic tuck-in acquisitions.
• Improving Non-GAAP Operating Margins to Protect Investment:
As a result of the Company’s strategic planning process and after reviewing its operational and corporate cost structures with a top-tier consulting firm, the Company will accelerate the pursuit of high-value digital transformation work, drive leverage in its cost structure, execute on opportunities to improve operational efficiency and aggressively employ automation to optimize traditional services. The Company believes that these actions are necessary in order to preserve the ability to invest for growth while enhancing shareholder value. The Company’s plan is to expand its non-GAAP operating margins as it continues to invest and scale its operations, with a non-GAAP operating margin target of 22% in 2019.
• Returning Capital to Shareholders:
The Board has approved a plan to return $3.4 billion to shareholders over the next two years through a combination of share repurchases and dividends. As part of this plan, the Company expects to commence a $1.5 billion accelerated share repurchase program (ASR) in the first quarter of 2017, initiate a regular quarterly cash dividend of $0.15 per share commencing in the second quarter of 2017, and repurchase shares of $1.2 billion in the open market during 2017 and 2018. Beginning in 2019, the Company plans to return approximately 75% of its U.S. free cash flow3 on an ongoing basis to shareholders through a combination of dividends and share repurchases. The capital return plan will be funded by current U.S. cash balances, future cash flows from U.S. operations and incremental debt financing and is designed to preserve the Company’s financial flexibility to invest in future growth opportunities. The Board of Directors intends to continue to review the capital return plan for potential future increases, including the quarterly dividend, subject to Company financial performance, economic outlook and any other relevant considerations.
“We are pleased to announce a comprehensive program that will enhance total shareholder return for Cognizant,” said Karen McLoughlin, Chief Financial Officer. “Today’s actions reflect the Board’s confidence in the Company’s long-term strategy, which will drive sustainable revenue and earnings growth and greatly accelerate capital return, while ensuring that Cognizant maintains the ability to invest in the business and financial strength and flexibility.”