Cognizant Technology Solutions Corporation (Nasdaq: CTSH), one of the world’s leading professional services companies, has announced its second quarter 2018 financial results.

Highlights - Second Quarter 2018¹

• Quarterly revenue rose to $4.01 billion, up 9.2% from the year-ago quarter.

• Quarterly GAAP diluted EPS was $0.78, compared to $0.80 in the year-ago quarter.

• Quarterly non-GAAP diluted EPS2 was $1.19, compared to $0.93 in the year-ago quarter.

Revenue for the second quarter of 2018 rose to $4.01 billion, up 9.2% from $3.67 billion in the second quarter of 2017. GAAP operating margin was 16.7% and non-GAAP operating margin2 was 22.0% for the second quarter of 2018. GAAP net income was $456 million, or $0.78 per diluted share, compared to $470 million, or $0.80 per diluted share, in the second quarter of 2017. The decrease in GAAP net income was primarily due to net non-operating foreign exchange losses driven by the depreciation of the Indian rupee versus the prior year period and the initial funding of the Cognizant U.S. Foundation. Non-GAAP diluted EPS was $1.19, compared to $0.93 in the second quarter of 2017.

“As our second-quarter results confirm, we’re making solid progress on our plan to accelerate our shift to digital services and solutions,” said Francisco D'Souza, Chief Executive Officer and Vice Chairman of the Board. “We’ve been methodical in developing, aligning, and applying our portfolio of skills, services, and solutions to clients’ needs, so they can become fully digital organisations. And we remain confident in our ability to invest for growth and achieve our financial targets.”

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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 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. For the three months ended June 30, 2018, adoption of the New Revenue Standard had a positive impact on revenue of $31 million, income from operations of $38 million and diluted earnings per share of $0.05 per share.

2 Non-GAAP diluted EPS and non-GAAP operating margin exclude stock-based compensation costs and acquisition-related charges, realignment charges (for the three months ended June 30, 2017 only), the initial funding of Cognizant U.S. Foundation (for the three months ended June 30, 2018 only) and, in the case of non-GAAP diluted EPS, net non-operating foreign currency exchange gains or losses and the tax effect of the above adjustments. Reconciliations of non-GAAP diluted EPS and non-GAAP operating margin to the corresponding GAAP measures are included at the end of this release.

Third Quarter & Full Year 2018 Outlook

The Company is providing the following guidance:

▪ Third quarter 2018 revenue expected to be in the range of $4.06 billion to $4.10 billion.

▪ Third quarter 2018 non-GAAP diluted EPS3 expected to be at least $1.13.

▪ Full year 2018 revenue expected to be in the range of $16.05 billion to $16.30 billion.

▪ Full year 2018 non-GAAP diluted EPS expected to be at least $4.50.

“Year-over-year non-GAAP operating margin expansion reflects strong operational execution and positions us well to absorb planned investments in the second half of the year," said Karen McLoughlin, Chief Financial Officer. "As a result of this solid performance we are pleased to raise our full year non-GAAP EPS guidance. Our strong balance sheet and cash flows continue to support both our capital return program and our investments in the business designed to create long term value.”

Return of Capital Program

The Company has declared a quarterly cash dividend of $0.20 per share on Cognizant Class A common stock for shareholders of record at the close of business on August 22, 2018. This dividend will be payable on August 31, 2018.

In February 2017, the Company announced a plan to return $3.4 billion to stockholders by the end of 2018 through a combination of $2.7 billion in stock repurchases and $0.7 billion in dividends. With the anticipated settlement of the accelerated share repurchase program during the third quarter of 2018, the Company will have completed its committed stock repurchases.

Conference Call

Cognizant hosted a conference call on August 2, 2018 at 8:00 a.m. (Eastern) to discuss the Company’s second quarter 2018 results. To listen to the conference call, please dial (877) 810-9510 (domestically) or (201) 493-6778 (internationally) and provide the following conference passcode: “Cognizant Call.”

The conference call will also be available live on the Investor Relations section of the Cognizant website at http://investors.cognizant.com. Please go to the website at least 15 minutes prior to the call to register and to download and install any necessary audio software. An earnings supplement will also be available on the Cognizant website at the time of the conference call.

For those who cannot access the live broadcast, a replay will be available. To listen to the replay, please dial (877) 660-6853 (domestically) or (201) 612-7415 (internationally) and enter 13681678 from two hours after the end of the call until 11:59 p.m. (Eastern) on Thursday, August 16, 2018. The replay will also be available at Cognizant’s website www.cognizant.com for 60 days following the call.

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3 A full reconciliation of non-GAAP 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 acquisition-related charges, realignment charges and net non-operating foreign currency exchange gains or losses, and the tax effects of these adjustments, as well as the tax effects of stock-based compensation expense, all of which are adjustments to non-GAAP diluted EPS. The reconciling information for non-GAAP diluted EPS guidance to GAAP EPS guidance that is available without unreasonable efforts is included at the end of this release.

About Cognizant

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 195 on the Fortune 500 and is consistently listed among the most admired companies in the world. Learn how Cognizant helps clients lead with digital at www.cognizant.com or follow us @Cognizant.

Forward-Looking Statements

This press release includes statements which may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, 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 include, but are not limited to, express or implied forward-looking statements relating to our expectations regarding opportunities in the marketplace, investment in and growth of our business, our shift to digital solutions and services, our anticipated financial performance and our capital return program. 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.

About Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP, this press release includes references to the following measures defined by the Securities and Exchange Commission as non-GAAP financial measures: non-GAAP operating margin and non-GAAP diluted earnings per share (“non-GAAP diluted EPS”). These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of Cognizant’s non-GAAP financial measures to the corresponding GAAP measures should be carefully evaluated.

We seek to manage the Company to a non-GAAP operating margin, which excludes stock-based compensation costs, acquisition-related charges, realignment charges, and for the three and six months ended June 30, 2018, the initial funding of Cognizant U.S. Foundation. Acquisition-related charges include, when applicable, amortisation of purchased intangible assets included in the depreciation and amortisation expense line on our 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. Realignment charges include severance costs, lease termination costs and advisory fees related to non-routine shareholder matters and to the development of our realignment and return of capital programs, when applicable. In addition to excluding stock-based compensation costs, acquisition-related charges, realignment charges, and the initial funding of Cognizant U.S. Foundation, our non-GAAP diluted EPS also excludes net non-operating foreign currency exchange gains or losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, and, for the six months ended June 30, 2017, the effect of recognition of an income tax benefit previously unrecognised in our consolidated financial statements. In all periods presented, our non-GAAP diluted EPS is additionally adjusted for the income tax impact of the above items, as applicable. The income tax impact of each item is calculated by applying the statutory rate and local tax regulations in the jurisdiction in which the item was incurred.

Management believes providing investors with an operating view consistent with how it manages the Company provides enhanced transparency into the operating results of the Company. For our internal management reporting and budgeting purposes, we use various GAAP and non-GAAP financial measures for financial and operational decision making, to evaluate period-to-period comparisons, to determine portions of the compensation for our executive officers and for making comparisons of our operating results to those of our competitors. In addition, due to a variety of award types, valuation methodologies and subjective assumptions that affect the calculations of stock-based compensation expense, we believe that the exclusion of stock-based compensation expense allows for more accurate comparisons of our operating results to those of our competitors. Therefore, it is our belief that the use of non-GAAP financial measures provides a meaningful supplemental measure for investors to evaluate our financial performance. Accordingly, we believe that the presentation of our non-GAAP measures, when read in conjunction with our reported GAAP results, can provide useful supplemental information to our management and investors regarding financial and business trends relating to our financial condition and results of operations.

A limitation of using non-GAAP measures versus financial measures calculated in accordance with GAAP is that non-GAAP measures do not reflect all of the amounts associated with our operating results as determined in accordance with GAAP and exclude costs that are recurring, namely stock-based compensation, acquisition-related charges, including amortisation of purchased intangibles, and net non-operating foreign currency exchange gains or losses. In addition, other companies may calculate non-GAAP financial measures differently than us, thereby limiting the usefulness of these non-GAAP financial measures as a comparative tool. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating margin and non-GAAP diluted EPS to allow investors to evaluate such non-GAAP financial measures.