Cognizant Technology Solutions Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021, compared primarily with fiscal 2020. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide clear Q4 financial results.
Business context and performance
Cognizant provides consulting, technology, digital, infrastructure and business-process services across Financial Services, Healthcare, Products and Resources, and Communications, Media and Technology. Its strategy emphasizes digital capabilities in IoT, digital engineering, data and cloud, alongside international growth, brand repositioning and greater client relevance.
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $18.507 billion | $16.652 billion | +11.1%; +10.0% constant currency |
| Operating income (GAAP) | $2.826 billion | $2.114 billion | +33.7% |
| Operating margin (GAAP) | 15.3% | 12.7% | +260 basis points |
| Adjusted operating income / margin (non-GAAP) | $2.846 billion / 15.4% | $2.394 billion / 14.4% | Income +18.9%; margin +100 basis points |
| Net income | $2.137 billion | $1.392 billion | +53.5% |
| Diluted EPS (GAAP) | $4.05 | $2.57 | +57.6% |
| Adjusted diluted EPS (non-GAAP) | $4.12 | $3.42 | +20.5% |
| Cash from operations | $2.495 billion | $3.299 billion | Down $804 million |
| Free cash flow (non-GAAP) | $2.216 billion | $2.901 billion | Down $685 million |
Revenue growth reflected stronger demand for digital services, acquisitions, and comparison with pandemic-affected 2020 results. Acquisitions contributed approximately 320 basis points to total revenue growth. Segment revenue growth was 7.6% in Financial Services, 10.0% in Healthcare, 15.7% in Products and Resources, and 14.5% in Communications, Media and Technology. North America represented 73.7% of revenue.
Financial position, liquidity and capital allocation
- At year-end, cash and cash equivalents were $1.792 billion and short-term investments were $927 million, totaling $2.719 billion. Current assets were $7.342 billion versus current liabilities of $3.529 billion.
- Debt carrying value was $664 million: $38 million current and $626 million long-term. The term loan and $1.75 billion revolving facility mature in November 2023; the revolver had no outstanding balance. Available credit capacity was approximately $1.925 billion. The company reported compliance with debt covenants.
- Operating cash flow declined largely due to tax payments deferred in 2020 and remitted in 2021, and higher incentive compensation payments. Days sales outstanding improved to 69 from 70.
- FY 2021 dividends were $0.96 per share; the board approved a $0.27 per-share dividend for payment in March 2022. The stated capital allocation framework targets approximately 50% of free cash flow for acquisitions, 25% for repurchases and 25% for dividends.
- The company repurchased $771 million of shares during 2021. Approximately $2.119 billion remained available under the repurchase authorization at December 31, 2021.
Material changes and unusual items
- Margins improved as Fit for Growth cost-optimization savings and lower travel costs more than offset investments in growth and brand, acquisition impacts, higher subcontractor and compensation costs, and core IT modernization expenses. Elevated attrition increased delivery costs.
- GAAP 2021 results included a $20 million securities class-action settlement loss. Adjusted results exclude this item. In 2020, restructuring charges were $215 million, COVID-19-related charges were $65 million, and the Samlink settlement impact reduced revenue by $118 million and increased expenses by $33 million.
- The 2020 effective tax rate included $140 million of expense from reversing the indefinite reinvestment assertion on accumulated Indian earnings. The 2021 effective tax rate was 24.5%, compared with 33.6% in 2020; 2021 benefited in part from a discrete IRS settlement benefit.
- Cognizant completed seven acquisitions in 2021 for aggregate purchase price of approximately $1.049 billion, including contingent consideration. Their reported post-acquisition revenue was $301 million.
- The Samlink subsidiary sale closed February 1, 2022, following customer settlement agreements; the effect of the final agreements on 2021 results was immaterial.
Outlook, management commentary and risks
Management expects client demand to remain focused on digital transformation, with the pandemic having accelerated modernization needs. The filing provides no specific numerical revenue, EPS or margin guidance in the supplied text. Management expects employee attrition to remain elevated through 2022 and possibly beyond, and says staffing challenges may constrain revenue potential and increase delivery costs during 2022. Pricing pressure on non-digital services, particularly legacy work in Financial Services, is also expected to continue.
- Workforce: approximately 330,600 employees at year-end, up 41,100 year over year. Annual attrition was 30.8%, versus 20.6% in 2020; fourth-quarter annualized attrition was 34.6%, versus 19.0%.
- Key risks include competition for skilled labor and wage inflation, client demand and pricing pressure, acquisition integration, COVID-19 disruption, foreign exchange exposure, visa and immigration restrictions, cybersecurity and data privacy, and regulatory and tax changes.
- The company disclosed an April 2020 Maze ransomware incident that disrupted operations and resulted in unauthorized access to certain data.
- Indian tax authorities assert an additional tax claim of approximately $443 million related to a 2016 subsidiary share repurchase; Cognizant is litigating and has not recorded a reserve. A separate 2013 transaction dispute is also in litigation, without a specific demand disclosed. Certain deposits and restricted time deposits were associated with the 2016 dispute.
- A $570 million jury award in Cognizant’s favor in the Syntel trade-secrets litigation was on appeal; execution of the judgment was stayed. Cognizant stated it would not recognize the gain until realizable.
- The company had accrued $117 million for potential retroactive Indian defined-contribution obligations; it warns the ultimate amount may differ materially. Shareholder derivative litigation related to prior matters remained ongoing.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion and identified revenue recognition estimates for certain fixed-price contracts as a critical audit matter.
Most important facts for investors to verify
- Whether elevated attrition, hiring and wage costs persist in 2022 and affect growth or margins.
- How much reported growth is organic versus acquisition-driven and how acquisitions contribute to profitability.
- Whether operating cash flow and free cash flow recover, given their declines despite higher earnings.
- Developments in the Indian tax disputes, defined-contribution obligation, Syntel appeal and derivative litigation, including potential cash exposure.
- Progress on digital growth, continued non-digital pricing pressure, and the company’s ability to fund acquisitions and shareholder returns while maintaining liquidity.