Attached files
| file | filename |
|---|---|
| 8-K - 8-K - COGNIZANT TECHNOLOGY SOLUTIONS CORP | earningsrelease123116.htm |
| EX-99.1 - EXHIBIT 99.1 - COGNIZANT TECHNOLOGY SOLUTIONS CORP | exhibit991123116.htm |
| EX-99.2 - EXHIBIT 99.2 - COGNIZANT TECHNOLOGY SOLUTIONS CORP | exhibit992123116.htm |
| EX-10.1 - EXHIBIT 10.1 - COGNIZANT TECHNOLOGY SOLUTIONS CORP | exhibit101123116.htm |
© 2017 Cognizant
© 2017 Cognizant
Investor Presentation
Accelerating the Shift to Digital
February 8, 2017
© 2017 Cognizant
Forward Looking Statements and Non-GAAP Financial Measures
1
This investor presentation includes statements which may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, including, but not limited to, express or implied forward-looking statements relating to our expectations regarding
opportunities in the marketplace, our anticipated financial performance, our plan to return capital to shareholders, our plan to increase non-GAAP operating
margins, our expectations concerning the impact of the agreement with Elliott Management, management's plans, objectives and strategies and the
upcoming 2017 Annual Meeting of Stockholders, the accuracy of which are necessarily subject to risks, uncertainties, and assumptions as to future events
that may not prove to be accurate. These statements are neither promises nor guarantees, but are subject to a variety of risks and uncertainties, many of
which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. Existing
and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Factors
that could cause actual results to differ materially from those expressed or implied include general economic conditions, changes in the regulatory
environment, including with respect to immigration and taxes, and the other factors discussed in our most recent Annual Report on Form 10-K and other
filings with the Securities and Exchange Commission. Cognizant undertakes no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise, except as may be required under applicable securities law.
This investor presentation includes discussion of non-GAAP operating margin and U.S. free cash flow. Non-GAAP operating margin and U.S. free cash
flow are measures defined by the Securities and Exchange Commission as non-GAAP financial measures. A non-GAAP measure is not based on any
comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, a financial measure calculated in
accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, a non-GAAP measure should be read in
conjunction with our financial statements prepared in accordance with GAAP.
Our non-GAAP operating margin excludes stock-based compensation costs and acquisition-related charges. Acquisition-related charges include, when
applicable, amortization of purchased intangible assets included in the depreciation and amortization expense line on our condensed consolidated
statements of operations, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration
liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs. Investors should refer to our earnings release, dated
February 8, 2017, for a reconciliation of our non-GAAP operating margin to our GAAP operating margin.
We define U.S. free cash flow as net cash provided from operating activities of our U.S. operating subsidiaries less cash purchases of property and
equipment by our U.S. operating subsidiaries.
© 2017 Cognizant
Founded
in 1994
(CTSH,
Nasdaq)
Headquarters
Teaneck, NJ
100+ Global
Delivery Centers
260,200
Employees
Revenue
$13.49B in 2016
(8.6% YoY)
$3.46B in Q4 2016
Revenue Mix
NA: 78%
Europe: 16%
RoW: 6%
Newsweek’s
2015 World Green
Rankings
Forbes
Fast Tech 25
Fortune’s
Most Admired Companies
Years in a Row
Forbes
Global 2000
Fortune
500
Financial Times
Global 500
2
Consistent Growth Leader: Cognizant is one of only
five publicly traded companies with a market
capitalization of at least $1 billion to grow revenue and
net income by at least 5% for ten years.
Source: HBR “How the Growth Outliers Do IT”
Rita McGrath, Capital IQ.
Cognizant (NASDAQ-100: CTSH) is one of the
world’s leading professional services companies,
transforming clients’ business, operating and
technology models for the digital era. Our unique
industry-based, consultative approach helps
clients envision, build and run more innovative
and efficient businesses. Headquartered in the
U.S., Cognizant is ranked 230 on the Fortune 500
and is consistently listed among the most admired
companies in the world.
25% 10-year revenue CAGR
© 2017 Cognizant
Financial
Services
40%
Healthcare
29%
Manufacturing /
Retail / Logistics
19%
Other
12%
• Deep domain expertise across key
industry verticals
• Integrated enterprise solutions
based on knowledge of core
systems & processes
• Comprehensive digital offerings:
• Business & Technology
Consulting
• Digital Business
• Digital Operations
• Digital Systems & Technology
Digital Leader at Scale
3
2016 Revenue by Vertical
Financial Services
Healthcare
Manufacturing/Retail/Logistics
Other
Digital Revenue ~23% of total in 2016
© 2017 Cognizant
Clients shifting to digital while optimizing core systems and operations
• Shifting client needs to digital
transformation
• Client businesses becoming
increasingly technology intensive
• Clients optimizing the core and
reinvesting in digital
• …investing in three integrated digital
practice areas across our business
segments to stay at the forefront of
industry and customer expectations…
• … driving leverage in our cost structure
and non-linearity in our revenue model…
• … investing in driving efficiencies,
advanced automation, and new delivery
models
Client Trends Cognizant Response
4
© 2017 Cognizant
• Delivering insight, digital strategy and implementation
• Investing in capabilities (e.g., design, analytics, data science) to scale
across verticals and geographies
• Transforming and hosting key processes leveraging automation and
digital technologies
• Upfront investments in IP-based solutions and platforms to enhance
margins and non-linear revenue streams
• Modernizing, securing and transforming IT backbones to run the
business better and enable digital adoption
• Investing in automation, productivity enhancement, delivery efficiency
and advanced automation to maintain margin profile
Digital Business
The New Customer
Experience
Digital
Operations
Core Process
Transformation
Digital Systems
& Technology
Delivery with High
Efficiency
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Comprehensive services suite to help clients create digital enterprises
5
© 2017 Cognizant
Accelerating the shift to digital drives change in our operating model
Drive sustainable growth
• Invest to scale up our three digital practice areas across our business segments and geos
• Pursue M&A to enhance portfolio and accelerate organic growth profile
• Drive business mix shift and operating and scale leverage
Continue
industry
leadership
Enable
margin
expansion
Target 22% Non-GAAP operating margin in 2019 while ensuring sufficient
investment to maintain industry leadership
• Eliminate historic 19-20% Non-GAAP operating margin target
• Invest for growth and delivery productivity to remain an innovation leader
• Continue to streamline and leverage core business
Effectively
allocate
capital
Return capital ($3.4B over 2 years) while maintaining
sufficient capacity to support growth
• Maintain balance sheet strength to retain strategic flexibility
• Allocate capital to high-value opportunities in line with our strategy
• Return 75% of U.S. free cash flow beginning in 2019 through dividends and share
repurchases
6
Note: Current targets exclude any changes to the regulatory environment including, immigration or US tax policy
© 2017 Cognizant
Continue successful track record of inorganic investments to enhance
new capabilities and accelerate transition to digital
FY 2013
Total Revenue:
$13.5B$12.4B
FY 2015 FY 2016FY 2014
$10.3B
Digital video
solutions Digital marketing Design & prototyping
Insurance consulting
& services Cloud & virtualization
We will continue to invest in both organic and inorganic capabilities that expand
our intellectual property, industry expertise, geographic reach and platforms
Cloud migration and
integration services
Digital solutions
(Australia)Healthcare platform
Energy consulting &
services (Europe)
Marketing &
customer experience
Customer experience
& design consulting
IoT services &
solutions
7
$8.8B
© 2017 Cognizant
Enhancing margin to enable continued investment in the business
• Completed review of our business and operations with input from top-tier consulting firm
• Identified and are executing against operational improvements
• Changing mix to higher margin business areas
• Using scale to drive sustainable margin improvement
• Investments made in 2016 will continue to weigh on margins in early 2017, but identified savings
opportunities will help to drive margins higher as the year progresses
• Financial Policy Committee to oversee implementation of financial plan
• Provide shareholders quarterly updates on margin enhancement program
8
Non-GAAP operating margin: Eliminate historical 19-20% range; Target 22% in 2019
© 2017 Cognizant
Target 22% Non-GAAP operating margin in 2019 by balancing three areas
Managing
headwinds
Target 22% non-
GAAP operating
margin in 2019
• Strategic tuck-in M&A
• Mix shift to digital
• Investments in transformational
deals (e.g., BPaaS)
• Invest in automation (both for
delivery and corporate
infrastructure)
• Talent strategy
• Current industry pricing trends
• Mix shifts to higher value
services
• Selective pursuit of
business opportunities
• Operating leverage and
scale benefits
- Pyramid / shoring
- Utilization
- Automation / other
- SG&A optimization
o BU overhead
o Corporate overhead
120 to 200 bps impact
360 to 440 bps impact
9
© 2017 Cognizant
Margin enhancement over three years
• Investments made in
2016 will impact
margins in early 2017
• Benefits of cost actions
taken in Q1 2017 will
start to flow through in
Q2-Q4
2017
• Full benefit of cost
actions taken in 2017
• Benefit from permanent
efficiencies built into the
business
• Incremental actions to
be taken in 2018
2018
• 22% Non-GAAP
operating margin target
• Benefit from business
mix shift to digital, top-
line growth, cost actions
and more efficient
business processes
2019
10
+ +
© 2017 Cognizant
Capital return plan: $3.4B over two years (2017-2018)
• $1.5B ASR in 2017
• Plan to commence
in Q1*
Accelerated Share
Repurchase (ASR)
• $1.2B open market
share repurchases
in 2017-2018
Repurchases
• $0.15 / share
quarterly dividend
Dividends+ +
Return 75% U.S. free cash flow starting in 2019
ASR
Dividends ~$0.7B
~$3.4BTotal capital
return
~$1.2BRepurchases
~$1.5B
2017-2018 Capital Return
Funded through existing U.S. cash, future U.S. free cash flows and incremental debt
*Dependent on market conditions
11
© 2017 Cognizant
Best-in-class corporate governance
• Continuous improvement in corporate governance based on best-in-class industry standards
• Respond to shareholder input and concerns
• Continue to ensure executive compensation plan aligns with strategic objectives
• Ongoing board refreshment
• Two new independent directors joined the Board in the last two years
• Three new independent directors to be added in the next two years
• Two in connection with the 2017 Annual Meeting
• One in connection with the 2018 Annual Meeting
• Three existing Board members to rotate off the Board concurrently
• Cognizant’s Board will form a Financial Policy Committee
• Comprises three directors: CEO, an incumbent director with previous operational experience and one of the new
directors
• Committee charter will be to assist and advise on the Company’s operating plan and capital allocation strategy
12
© 2017 Cognizant 2017 ognizant13
Thank You