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Cognizant Technology Solutions Corp. 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for the period ended June 30, 2026. Cognizant Technology Solutions Corporation is a leading global professional services company providing consulting, application development, systems integration, and business process services. The company operates across four reportable segments: Health Sciences, Financial Services, Products & Resources, and Communications, Media and Technology.

Key Financial Metrics

Note: Total Debt includes $33 million short-term and $1,527 million long-term debt as of June 30, 2026.

Material Changes vs. Prior Period

• Revenue Growth: Q2 2026 revenue increased 4.5% ($236 million) year-over-year, driven by large deal ramp-ups, demand for AI and automation services, and third-party product sales. Constant currency growth was 4.1%.
• Restructuring Charges: The company initiated "Project Leap" in Q2 2026, incurring $84 million in restructuring charges (severance and facility costs). No such charges were recorded in Q2 2025.
• Acquisitions: Cognizant completed the acquisition of Astreya Partners (AI-first IT managed services) in June 2026 and 3Cloud (Microsoft Azure services) in January 2026. Total purchase price for these two acquisitions was approximately $1.39 billion.
• India Defined Contribution Obligation: A $81 million benefit was recorded in Q2 2026 due to the partial reversal of a liability related to the 2019 India Defined Contribution Obligation, following new Indian labor law reforms.
• Capital Allocation: The company repurchased $1,153 million of common stock in Q2 2026 (including $500 million via Accelerated Share Repurchase agreements). Additionally, $1,000 million was borrowed under the revolving credit facility.

Guidance, Outlook, and Risks

• Project Leap Outlook: Total expected costs for Project Leap are estimated between $230 million and $320 million, with substantially all costs expected to be incurred in 2026. The program aims to generate in-year savings of $200 million to $300 million.
• AI Strategy: Management emphasizes continued investment in AI capabilities to meet client demand, though notes that AI evolution may reduce demand for certain legacy services.
• Regulatory Risks: Ongoing uncertainty regarding Indian labor law reforms and potential changes to the India-Mauritius Income Tax Treaty could impact future compensation costs and effective tax rates.
• Legal Contingencies: Significant ongoing litigation includes a dispute with the Indian Income Tax Department (ITD) regarding share repurchase transactions (potential exposure of ~$349 million) and a class action lawsuit regarding employment discrimination (second phase of trial pending).
• Goodwill Impairment: Management performed a qualitative assessment regarding a recent decline in share price and concluded no impairment was necessary as of June 30, 2026, though further declines could trigger a quantitative test.

Key Facts for Investor Verification

• Project Leap Execution: Verify the timing and magnitude of the remaining $146 million to $236 million in expected restructuring costs and the realization of projected savings.
• India Tax Dispute: Monitor the status of the High Court appeal regarding the 2016 share repurchase tax dispute, which involves a significant deposit of $365 million.
• Acquisition Integration: Assess the revenue contribution and integration progress of the 3Cloud and Astreya acquisitions.
• Attrition Rates: Voluntary attrition in Tech Services was 13.0% for the trailing twelve months ended June 30, 2026, up from 12.6% in the prior year; monitor if this trend impacts delivery capacity.
• Debt Utilization: Confirm the company's ability to service the increased debt load following the $1 billion draw on the revolving credit facility used to fund acquisitions.