Cognizant Technology Solutions Corporation announced its fourth quarter and full year 2018 financial results.
- Quarterly revenue rose to $4.13 billion, up 7.9% (8.8% in constant currency2) from the year-ago quarter.
- Quarterly GAAP diluted EPS was $1.12, compared to $(0.03) in the year-ago quarter.
- Quarterly non-GAAP diluted EPS2 was $1.13, compared to $1.03 in the year-ago quarter.
- Quarterly Adjusted Diluted EPS2 was $0.98, compared to $0.96 in the year-ago quarter.
Revenue for the fourth quarter of 2018 rose to $4.13 billion, up 7.9% from $3.83 billion in the fourth quarter of 2017. GAAP operating margin was 16.8%, non-GAAP operating margin2 was 19.5%, and Adjusted Operating Margin2 was 17.0% for the fourth quarter of 2018. Net income was $648 million, or $1.12 per diluted share, compared to a net loss of $(18) million, or $(0.03) per diluted share, in the fourth quarter of 2017. Fourth quarter 2017 GAAP net loss included the one-time incremental income tax expense of $617 million related to the implementation of the U.S. Tax Cuts and Jobs Act. Non-GAAP diluted EPS was $1.13, compared to $1.03 in the fourth quarter of 2017. Adjusted Diluted EPS was $0.98, compared to $0.96 in the fourth quarter of 2017.
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1 On January 1, 2018, we adopted ASC Topic 606, "Revenue from Contracts with Customers," or the New Revenue Standard, using the modified retrospective method. Results for reporting periods beginning on or after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies. For the three months ended December 31, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $11 million, income from operations of $30 million and diluted earnings per share of $0.04 per share.
2 Non-GAAP diluted EPS and non-GAAP operating margin exclude stock-based compensation expense, acquisition-related charges and unusual items, and non-GAAP diluted EPS additionally excludes net non-operating foreign currency exchange gains or losses and the tax effect of the applicable adjustments. Adjusted Diluted EPS and Adjusted Operating Margin exclude only unusual items, and Adjusted Diluted EPS additionally excludes net non-operating foreign currency exchange gains or losses and the tax impact of all the applicable adjustments. 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. Reconciliations of non-GAAP diluted EPS, Adjusted Diluted EPS, non-GAAP operating margin and Adjusted Operating Margin to the corresponding GAAP measures are included at the end of this release.
"Cognizant executed well in 2018, diversifying our revenue base and client roster, and investing to build distinctive leadership in six advanced digital capabilities," said Francisco D'Souza, Vice Chairman and Chief Executive Officer. "Forming the core of our digital strategy, these capabilities are instrumental in helping clients digitize and transform their entire enterprises, which we call being digital at scale. Digital continues to permeate and power every industry, creating a substantial market opportunity for us across the industries, geographies, and buyer groups we serve. With a disciplined plan for executing our digital strategy, we've set Cognizant up for the next stage of sustainable strong growth and value creation."
Highlights - Full Year 20183
- Revenue increased to $16.13 billion, up 8.9% (8.5% in constant currency) from 2017.
- GAAP diluted EPS was $3.60, compared to $2.53 in 2017.
- Non-GAAP diluted EPS was $4.57, compared to $3.77 in 2017.
- Adjusted Diluted EPS was $4.02, compared to $3.42 in 2017.
Revenue for 2018 increased to $16.13 billion, up 8.9% from $14.81 billion for 2017. GAAP net income for 2018 was $2.10 billion, or $3.60 per diluted share, compared to $1.50 billion, or $2.53 per diluted share, for 2017. Non-GAAP diluted EPS was $4.57 in 2018, compared to $3.77 in 2017. Adjusted Diluted EPS was $4.02 in 2018, compared to $3.42 in 2017. GAAP operating margin was 17.4%, non-GAAP operating margin was 20.7% and Adjusted Operating Margin was 18.1% for 2018.
First Quarter & Full Year 2019 Outlook
The Company is providing the following guidance:
- First quarter 2019 year-over-year revenue growth of 7.5-8.5% in constant currency.4
- Full year 2019 year-over-year revenue growth of 7.0-9.0% in constant currency.4
- Full year 2019 Adjusted Diluted EPS5 expected to be at least $4.40.
"Our full year 2018 results reflect the on-going execution of our long-term strategy, which is expected to drive sustainable revenue and earnings growth," said Karen McLoughlin, Chief Financial Officer. "In 2018, we continued to focus on operational excellence to drive margin enhancement, while continuing to invest in the business. In addition, we introduced a more balanced capital return program to start in 2019."
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3 For the year ended December 31, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $96 million, income from operations of $134 million and diluted earnings per share of $0.19 per share.
4 Based on current foreign exchange rates, we expect first quarter and full year 2019 revenue growth to be negatively impacted by 170 basis points and 70 basis points, respectively.
5 A full reconciliation of Adjusted Diluted EPS guidance to GAAP diluted EPS guidance on a forward-looking basis cannot be provided without unreasonable efforts, as we are unable to provide reconciling information with respect to unusual items, net non-operating foreign currency exchange gains or losses, and the tax effects of these adjustments, all of which are adjustments to Adjusted Diluted EPS.
Executive Changes
The Company announced today that its Board of Directors has appointed Brian Humphries, currently the CEO of Vodafone Business, as its CEO and a member of the Board of Directors, in each case effective April 1, 2019. Following Humphries' appointment, Francisco D'Souza, who co-founded Cognizant and has served as CEO since 2007, will serve as full-time Executive Vice Chairman to facilitate the transition through June 30, 2019. Thereafter, he will remain on the Board as Vice Chairman. The Company also announced that Rajeev Mehta will step down as the Company's President, effective April 1, 2019. Additional information can be found http://www.cognizant.com/investors/sec-filings.
"Raj has provided Cognizant with his leadership, operational skills, and passion for clients for more than two decades in a variety of operating roles and has served as our president for the past two and a half years," said D'Souza. "We're grateful to Raj for his countless contributions to the growth and success of Cognizant. On behalf of the Board, I wish Raj well in his future endeavors."
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