Cognizant Technology Solutions Corporation Net Income surged on 39.7% and EBITDA Margin increased slightly on 0.72 pp from 19.7% to 20.5%
02/06/2019 • About Cognizant Technology Solutions Corporation (
$CTSH) • By InTwits
Cognizant Technology Solutions Corporation reported 2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Cognizant Technology Solutions Corporation is a growth stock: 2018 revenue growth was 8.9%, 5 year revenue CAGR was 12.8% at 2018 ROIC 23.8%
- EBITDA Margin is relatively stable: 20.5% in 2018 vs. 19.7% in 2017 vs. 20.4% in 2014
- Cognizant Technology Solutions Corporation has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.1%. At the same time it's in pair with industry average of 7.6%
- CAPEX is quite volatile: $124m in FY2018, $230m in FY2017, $522m in FY2016, $261m in FY2015, $186m in FY2014
- In the last 5 years the company invested considerably less than D&A: $1,446m vs. $1,858m. In 2018 this situation was still the same: CAPEX was 377 while D&A was 498
- The company has highly profitable business model: ROIC is 23.8%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Cognizant Technology Solutions Corporation's Revenue increased on 8.9%. Revenue growth showed slowdown in 18Q4 - it was 7.9% YoY. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 2.3 pp from 14.9% to 12.5% in FY2018. During the last 5 years EBITDA Margin bottomed in 2017 at 19.7%.
Gross Margin increased slightly on 0.79 pp from 38.2% to 39.0% in 2018. During 2014-2018 Gross Margin bottomed in 2017 at 38.2%. SG&A as a % of Revenue showed almost no change in 2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018.
Net Income margin increased on 2.9 pp from 10.2% to 13.0% in 2018. During the last 5 years Net Income margin bottomed in 2017 at 10.2%. The efficient tax rate was 24.9% in 2018 while the average for the last five years was 30.9%.
Investments (CAPEX, working capital and M&A)
In 2018 the company had CAPEX/Revenue of 2.3%. Cognizant Technology Solutions Corporation showed almost no change in CAPEX/Revenue from 2015 to 2018. It's average CAPEX/Revenue for the last three years was 2.2%.
Accounts receivable as a % of Revenue increased slightly on 0.85 pp from 19.3% to 20.2% in 2018. Accounts payable as a % of Revenue showed almost no change in 2018.
Cognizant Technology Solutions Corporation has spent
$1,111m on M&A in 2018 which accounts for 6.9% of revenue.
Return on investment
The company operates at high and attractive ROIC (23.8%) while ROE is a bit lower (19.0%). ROIC increased slightly on 1.9 pp from 21.9% to 23.8% in 2018. ROE increased on 5.0 pp from 14.1% to 19.0% in 2018. During the last 5 years ROIC bottomed in 2016 at 21.3% and was growing since that time. During 2014-2018 ROE bottomed in 2017 at 14.1%.
Leverage (Debt)
Company's Net Debt / EBITDA is -0.1x and Debt / EBITDA is 0.2x. Debt dropped on 14.7% while cash dropped on 39.7%.
Cognizant Technology Solutions Corporation has good short term financial stability: Interest coverage ratio (ICR) is 103.7x. Cognizant Technology Solutions Corporation has no short term refinancing risk: cash is higher than short term debt (12,900.0%).
Average interest expence paid by the company was 3.6% in 2018.
Valuation and dividends
The company's trades at EV/EBITDA 12.7x and P/E 20.2x.
The company paid 22.3% of Net Income as dividends in 2018.
Management team
CEO total compensation was
$14,094,531 in 2018 which included
$750,000 salary. The company's CFO Karen A Mcloughlin has spent 7 years with the company.
At the end of financial year the company had 0.35% shares owned by insiders. Insider ownership didn't change in 2018.
The company has 281,600 employees. The number of employees increased on 8.3%. Average revenue per employee in 2018 was
$57,262 and it increased slightly on 0.53%.
Financial and operational results
FY ended 12/31/2018
Cognizant Technology Solutions Corporation ($CTSH) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 10,263 | 12,416 | 13,487 | 14,810 | 16,125 | 8.9% |
| Gross Profit | 4,122 | 4,976 | 5,379 | 5,658 | 6,287 | 11.1% |
| SG&A | 2,037 | 2,509 | 2,731 | 2,769 | 3,026 | 9.3% |
| EBITDA | 2,093 | 2,472 | 2,668 | 2,924 | 3,299 | 12.8% |
| EBIT | 1,885 | 2,142 | 2,289 | 2,481 | 2,801 | 12.9% |
| Interest expence | 3 | 18 | 19 | 23 | 27 | 17.4% |
| Tax | 485 | 540 | 805 | 1,153 | 698 | -39.5% |
| Net Income | 1,439 | 1,624 | 1,553 | 1,504 | 2,101 | 39.7% |
| Stock Based Compensation | 111 | 192 | 217 | 221 | 267 | 20.8% |
Balance Sheet
|
|---|
| Cash | 2,010 | 2,125 | 2,034 | 1,925 | 1,161 | -39.7% |
| Accounts Receivable | 1,969 | 2,253 | 2,556 | 2,865 | 3,257 | 13.7% |
| Accounts Payable | 146 | 165 | 175 | 210 | 215 | 2.4% |
| Short Term Debt | 700 | 406 | 81 | 175 | 9 | -94.9% |
| Long Term Debt | 938 | 877 | 797 | 698 | 736 | 5.4% |
Cash flow
|
|---|
| Capex | 212 | 273 | 300 | 284 | 377 | 32.7% |
| Dividends | | | | 265 | 468 | 76.6% |
| Acquisitions | 2,691 | 2 | 334 | 216 | 1,111 | 414.4% |
Ratios
|
|---|
| Revenue growth | 16.1% | 21.0% | 8.6% | 9.8% | 8.9% | |
| EBITDA growth | 12.7% | 18.1% | 7.9% | 9.6% | 12.8% | |
|
|---|
| Gross Margin | 40.2% | 40.1% | 39.9% | 38.2% | 39.0% | 0.8% |
| EBITDA Margin | 20.4% | 19.9% | 19.8% | 19.7% | 20.5% | 0.7% |
| EBIT Margin | 18.4% | 17.3% | 17.0% | 16.8% | 17.4% | 0.6% |
| SG&A, % of revenue | 19.8% | 20.2% | 20.2% | 18.7% | 18.8% | 0.1% |
| SBC, % of revenue | 1.1% | 1.5% | 1.6% | 1.5% | 1.7% | 0.2% |
| Net Income Margin | 14.0% | 13.1% | 11.5% | 10.2% | 13.0% | 2.9% |
| CAPEX, % of revenue | 2.1% | 2.2% | 2.2% | 1.9% | 2.3% | 0.4% |
|
|---|
| ROIC | 24.7% | 22.0% | 21.3% | 21.9% | 23.8% | 1.9% |
| ROE | 20.7% | 19.1% | 15.5% | 14.1% | 19.0% | 5.0% |
| Net Debt/EBITDA | -0.2x | -0.3x | -0.4x | -0.4x | -0.1x | 0.2x |
| Interest expence / Average debt | 0.2% | 1.2% | 1.8% | 2.6% | 3.6% | 1.0% |
People
|
|---|
| Insider ownership | 0.3% | 0.3% | 0.3% | 0.3% | 0.3% | 0.0% |
| Employees | 211,500 | 221,700 | 260,200 | 260,000 | 281,600 | 8.3% |
| Revenue/Employee, th. $ | 49 | 56 | 52 | 57 | 57 | 0.5% |
Cognizant Technology Solutions Corporation ($CTSH) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 3,912 | 4,006 | 4,078 | 4,129 | | 10.3% | 9.2% | 8.3% | 7.9% |
| EBITDA | 810 | 793 | 872 | 824 | | 20.2% | 11.8% | 14.4% | 5.8% |
| Net Income | 520 | 456 | 477 | 648 | | -6.6% | -3.0% | -3.6% | |
Balance Sheet
|
|---|
| Cash | 1,440 | 901 | 1,339 | 1,161 | | 10.1% | -22.1% | -15.1% | -39.7% |
| Short Term Debt | 100 | 100 | 100 | 9 | | -77.1% | -59.0% | 0.0% | -94.9% |
| Long Term Debt | 673 | 649 | 624 | 736 | | -12.8% | -13.1% | -13.7% | 5.4% |
Ratios
|
|---|
| Gross Margin | 38.6% | 39.7% | 39.2% | 38.5% | | 0.5% | 1.3% | 1.2% | 0.1% |
| EBITDA Margin | 20.7% | 19.8% | 21.4% | 20.0% | | 1.7% | 0.5% | 1.1% | -0.4% |
| Net Income Margin | 13.3% | 11.4% | 11.7% | 15.7% | | -2.4% | -1.4% | -1.4% | 16.2% |
Peers in IT Consulting & Other Services
Below we provide Cognizant Technology Solutions Corporation benchmarking against other companies in IT Consulting & Other Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Gopher Protocol Inc ($GOPH) | | -25.0% | 83.3% | 5,471.1% | 461.0% |
| CLPS Incorporation ($CLPS) | | | | 8.1% | 56.0% |
| EPAM Systems, Inc. ($EPAM) | | 25.2% | 26.9% | 25.0% | 27.1% |
| Gartner, Inc. ($IT) | | 7.0% | 13.0% | 35.5% | 20.1% |
| Computer Task Group, Incorporated ($CTG) | | -6.0% | -12.1% | -7.3% | 19.1% |
| |
|---|
| Median (35 companies) | | 3.3% | 7.7% | 3.8% | 3.4% |
|---|
| Cognizant Technology Solutions Corporation ($CTSH) | | 21.0% | 8.6% | 9.8% | 8.9% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Inpixon ($INPX) | 29.8% | 28.9% | 28.1% | 68.7% | 71.4% |
| Gartner, Inc. ($IT) | 60.5% | 61.2% | 61.3% | 60.1% | 63.1% |
| InterXion Holding N.V. ($INXN) | 59.2% | 60.8% | 61.5% | 61.1% | 60.9% |
| LiveRamp Holdings, Inc. ($RAMP) | 25.1% | 38.6% | 42.5% | 45.7% | 56.2% |
| Booz Allen Hamilton Holding Corporation ($BAH) | 50.4% | 50.8% | 52.3% | 53.6% | 53.5% |
| |
|---|
| Median (37 companies) | 25.8% | 30.9% | 28.1% | 27.7% | 28.9% |
|---|
| Cognizant Technology Solutions Corporation ($CTSH) | 40.2% | 40.1% | 39.9% | 38.2% | 39.0% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InterXion Holding N.V. ($INXN) | 41.3% | 44.9% | 43.3% | 42.2% | 42.8% |
| Switch, Inc. ($SWCH) | | 50.7% | 37.0% | 28.5% | 39.8% |
| Taoping Inc. ($TAOP) | -54.0% | -237.5% | -117.7% | 13.2% | 18.7% |
| DXC Technology Company ($DXC) | | | | 8.0% | 16.3% |
| Accenture plc ($ACN) | 15.4% | 15.4% | 15.9% | 14.8% | 16.3% |
| |
|---|
| Median (36 companies) | 4.8% | 3.3% | 6.7% | 6.3% | 7.2% |
|---|
| Cognizant Technology Solutions Corporation ($CTSH) | 20.4% | 19.9% | 19.8% | 19.7% | 20.5% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InterXion Holding N.V. ($INXN) | 62.5% | 48.1% | 57.4% | 50.5% | 78.3% |
| Switch, Inc. ($SWCH) | | 71.5% | 90.2% | 106.4% | 67.9% |
| Taoping Inc. ($TAOP) | 1.4% | 29.2% | 34.0% | 20.8% | 8.7% |
| Teradata Corporation ($TDC) | 2.0% | 2.1% | 2.3% | 3.6% | 7.1% |
| ServiceSource International, Inc. ($SREV) | 3.4% | 4.7% | 10.4% | 7.2% | 6.5% |
| |
|---|
| Median (35 companies) | 0.9% | 0.8% | 1.1% | 1.2% | 1.5% |
|---|
| Cognizant Technology Solutions Corporation ($CTSH) | 2.1% | 2.2% | 2.2% | 1.9% | 2.3% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Accenture plc ($ACN) | 80.5% | 81.0% | 81.3% | 61.7% | 66.1% |
| The Hackett Group, Inc. ($HCKT) | 11.2% | 19.5% | 31.7% | 23.8% | 24.6% |
| Booz Allen Hamilton Holding Corporation ($BAH) | 25.3% | 26.5% | 23.1% | 22.6% | 22.5% |
| EPAM Systems, Inc. ($EPAM) | 19.7% | 18.4% | 18.2% | 18.9% | 21.2% |
| SCIENCE APPLICATIONS INTERNATIONAL CORPORATION ($SAIC) | 24.4% | 27.4% | 19.6% | 18.3% | 18.4% |
| |
|---|
| Median (44 companies) | 6.2% | 4.7% | 7.3% | 4.7% | 6.9% |
|---|
| Cognizant Technology Solutions Corporation ($CTSH) | 24.7% | 22.0% | 21.3% | 21.9% | 23.8% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Infinite Group Inc ($IMCI) | | | 169.6x | | 10.5x |
| InterXion Holding N.V. ($INXN) | 3.3x | 2.9x | 3.4x | 3.8x | 4.6x |
| Gartner, Inc. ($IT) | 0.1x | 1.3x | 0.6x | 11.7x | 4.1x |
| Switch, Inc. ($SWCH) | | 2.2x | 4.0x | 3.2x | 3.3x |
| Presidio, Inc. ($PSDO) | 0.0x | | 5.6x | 3.6x | 3.1x |
| |
|---|
| Median (28 companies) | -0.2x | -0.2x | 0.4x | 0.8x | 1.0x |
|---|
| Cognizant Technology Solutions Corporation ($CTSH) | -0.2x | -0.3x | -0.4x | -0.4x | -0.1x |
