Cognizant Transfers $2.8B To The U.S. And Other Nations To Fund Acquisitions Around Next-Gen Technologies

Cognizant has remitted $2.8 billion from India to other countries - including the United States - to pursue acquisitions in the digital, consulting and platform spaces.

"Digital is a broad area that has a lot of wind under its wings," Cognizant CEO Francisco D'Souza said during an earnings call Friday. "The world is becoming more technologically intensive, not less technologically intensive."

The Teaneck, N.J.-based company, No. 7 on CRN's Solution Provider 500 list, saw sales in the second quarter ended June 30 increase by 9.2 percent from $3.09 billion last year to $3.37 billion this year. That was in line with Seeking Alpha projections.

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Net income, however, fell 39.9 percent from $420.1 million last year to $252.4 million (41 cents per share) this year, due to the repatriation of cash from India to the U.S. in May. On a non-GAAP basis, though, net income improved from 79 cents per share last year to 87 cents per share this year, beating Seeking Alpha estimates of 82 cents per share.

Wall Street reacted favorably to the results, sending Cognizant's stock up 2.2 percent to $60.04 per share shortly after noon Friday. Earnings were announced before the market opened Friday.

Cognizant remitted $2.8 billion of cash from India in May, transferring $1.2 billion – or $1 billion net of taxes – to the United States and $1.6 billion to other parts of the world. Cognizant's principal operating subsidiary in India repurchased shares from shareholders, which are non-Indian Cognizant entities, resulting in the $2.8 billion in cash in India.

The company wants to deploy the cash effectively to grow its business, particularly as it relates to ramping up the volume of mergers and acquisitions, chief financial officer Karen McLoughlin said during the earnings call.

Cognizant is actively examining acquisition opportunities that will allow the company to expand its industry expertise, geographic footprint, service lines or technical capabilities, President Gordon Coburn said during the earnings call.

Specifically, Coburn said there's a healthy pipeline of smaller, tuck-in acquisitions in the digital space and across several industries in the consulting space, as well as opportunities to strengthen its geographic footprint in Europe.

Cognizant is looking to pick up the pace of small, tuck-in acquisitions since the company has become good at integrating and capturing value from these deals, Coburn said. The company has made six investments in the digital space, D'Souza said, including July's acquisition of behavioral research and design firm Idea Couture and April's purchase of a stake in human sciences consultancy ReD Associates.

Although Cognizant's core growth in the digital space will be organic, Coburn said expanding the size of the team through acquisitions will supplement existing capabilities and make Cognizant stronger in the marketplace.

Cognizant will also continue to look at platform acquisitions such as its $2.7 billion purchase of Englewood, Colo.-based health care IT provider TriZetto, which was announced in September 2014. Coburn said platform acquisitions won't take place at such a regular pace, but the company will nonetheless continue to look at potential targets to cement its leadership position in the area.

The $1.6 billion of cash taken out of India to other overseas locations will be used for non-U.S. acquisitions or brought to the U.S. during future repatriation opportunities, Coburn said.

Cognizant's financial services segment enjoyed 8.1 percent year-over-year sales growth to $1.35 billion as the company helped insurance clients transform their claims and underwriting processes through managed services or other outcome-based arrangements, Rajeev Mehta, CEO of Cognizant's IT services practice, said during the earnings call.

Healthcare segment sales grew by 6.9 percent to $958.8 million, although growth in the number of life sciences clients leveraging Cognizant's cloud platforms and advanced data analytics was tempered by consolidation in the U.S. payer industry, driving down sales there. Cognizant is optimistic about its healthcare practice in the long run as clients need to drive efficiencies and adapt to regulatory and technological changes, Coburn said.

Sales for Cognizant's retail, manufacturing and logistics segment soared by 14.2 percent to $660.4 million thanks to Internet of Things (IoT) implementations across organizations and the optimization of data to address key business problems and drive revenue growth, Coburn said.

Sales from all other operations improved by 11.2 percent to $399.5 million and was driven by demand from telecom and technology clients for a wide range of support services, Coburn said.

Cognizant's North American sales increased 8.3 percent to $2.62 billion, Coburn said, while European sales jumped by 8.9 percent to $547.2 million, thanks to recent contract wins in Germany and the Nordics. Revenue from the rest of the world soared by 25 percent to $198.6 million thanks to strength in Singapore, India and Australia, Coburn said.

For the current (third) quarter, Cognizant expects to deliver non-GAAP earnings per share between 82 cents and 85 cents on sales ranging between $3.43 billion and $3.47 billion. Analysts had been projecting earnings of 86 cents per share on revenue of $3.54 billion.