Cognizant Technology Solutions Corporation (NASDAQ: CTSH). Its stock has been steadily increasing in price since February 2016.
Cognizant Technology Solutions Corporation (NASDAQ: CTSH). Its stock has been steadily increasing in price since February 2016.

Second quarter revenue up 5.2% sequentially;

Adds 11,300 net new staff during quarter

TEANECK, N.J., August 5, 2016—Cognizant Technology Solutions Corporation (NASDAQ: CTSH), a leading provider of information technology (IT), consulting, and business process services, today announced its second quarter 2016 financial results.

Highlights—Second Quarter 2016 

  • Second quarter revenue of $3.37 billion was up 9.2% from the year-ago period and up 5.2% sequentially.
  • GAAP diluted EPS was $0.41 vs. $0.68 in the year-ago period. Q2 2016 GAAP diluted EPS was negatively impacted by $0.31 per share of incremental taxes associated with a one-time remittance of cash from India to the U.S.
  • Non-GAAP diluted EPS[1] was $0.87, up from $0.79 in the year-ago period.
  • Net headcount addition for the quarter was approximately 11,300.
Cognizant Technology Solutions Corporation (NASDAQ: CTSH). Its stock has been steadily increasing in price since February 2016.
Cognizant Technology Solutions Corporation (NASDAQ: CTSH). Its stock has been steadily increasing in price since February 2016.

Revenue for the second quarter of 2016 was $3.37 billion, up 9.2% from $3.09 billion in the second quarter of 2015. GAAP net income was $252.4 million, or $0.41 per diluted share, compared to $420.1 million, or $0.68 per diluted share, in the second quarter of 2015. Non-GAAP diluted EPS1was $0.87 compared to $0.79 in the second quarter of 2015. GAAP operating margin for the quarter was 17.5%. Non-GAAP operating margin1 for the quarter was 20.3%, slightly higher than the Company’s target range of 19-20%.

In May 2016, Cognizant’s principal operating subsidiary in India repurchased shares from its shareholders, which are non-Indian Cognizant entities, resulting in a one-time remittance of $2.8 billion of cash from India. $1.2 billion, or $1.0 billion net of taxes, was transferred to the U.S. with the other $1.6 billion remaining overseas. As a result of this transaction, it will incur an incremental 2016 income tax expense of $237.5 million, of which $190.0 million was recognized in the quarter ended June 30, 2016 and approximately $23.7 million will be recognized in each of the quarters ending September 30, 2016 and December 31, 2016.

“Our second quarter performance, as anticipated, represented broad-based revenue growth across service lines, geographies and industries, including healthcare and financial services,” said Francisco D’Souza, Chief Executive Officer. “While our revised guidance reflects the impact of near-term macroeconomic headwinds, our longer term outlook and underlying business fundamentals remain strong. We continue to see an expanding market opportunity ahead and are well positioned to capitalize on the digital transformations taking place among enterprises around the world.”

“The shift to digital continues to intensify and accelerate,” said Gordon Coburn, President. “Our strong second quarter revenue growth, adding incremental quarterly revenue of nearly $170 million, is the result of clients turning to Cognizant to help them define strategy and infuse new technologies to address key challenges and implement new business models. Our robust strategy and implementation capabilities have made us a key partner to clients as they fundamentally transform their businesses and navigate the shift to the digital economy.”

“During the second quarter, we were pleased to execute a one-time remittance of $2.8 billion from India, which increased our cash in the U.S. by $1.0 billion, net of taxes, and in other international markets by $1.6 billion,” said Karen McLoughlin, Chief Financial Officer. “This provides additional financial flexibility in funding our strategic investments to drive long term growth for Cognizant.”

2016 Outlook—Third Quarter and Full Year

The Company is providing the following guidance:

  • Third quarter 2016 revenue expected to be in the range of $3.43 billion to $3.47 billion.
  • Third quarter 2016 non-GAAP diluted EPS[2] expected to be in the range of $0.82 to $0.85.
  • Fiscal 2016 revenue expected to be in the range of $13.47 billion to $13.60 billion.
  • Fiscal 2016 non-GAAP diluted EPS2 remains unchanged and is expected to be in the range of $3.32 to $3.44.

Expansion of Stock Repurchase Program

Company’s Board of Directors approved an increase of the Company’s stock repurchase program by $1.0 billion, from $2.0 billion to $3.0 billion, and extended the term of the program by one year to December 31, 2018. Since inception of the program, the Company has repurchased $1.9 billion of its shares under this program.

The Company is authorized to repurchase shares under the program through open market purchases, including under a trading plan adopted pursuant to Rule 10b5-1, or through privately negotiated transactions, in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased will be determined by the Company’s management, in its discretion, or pursuant to a Rule 10b5-1 trading plan, and will depend upon market conditions and other factors. The repurchases are expected to be funded using the Company’s working capital.

Estrade View

Companies are normally sitting on a pile of cash, which they can use to go for acquisitions, raise dividends or invest back into their business. Apart from these, there is many a times pressure on the board of publicly listed companies to return the value back to the shareholders. A repurchase program has both advantages as well as disadvantages, some are listed as follows,

Boosts share prices by reducing the outstanding shares and increasing the shareprice, that further help strengthen the EPS number. A better EPS number, helps the company beat market expectations with a higher stock price. This may be temporary, but long enough to give a breather to the company management for a couple of quarters.

Helps Raising dividends, because now, the company has to pay a dividend on fewer shares.

Removing excess cash, if the cash is simply sitting on the company’s books, then it is not doing much, may be earning a very low interest rate.

Creates Positive perception, market usually sees this in a positive light and such a program can help swing the stock price upwards.