Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.


Executive Summary

Cognizant is one of the world’s leading professional services companies, engineering modern business for the digital era. Our services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Digital services are an important part of our portfolio, aligning with our clients' focus on becoming data-enabled, customer-centric and differentiated businesses. We are continuing to invest in digital services with a focus on four key areas: IoT, digital engineering, data and cloud. We tailor our services and solutions to specific industries with an integrated global delivery model that employs client service and delivery teams based at client locations and dedicated global and regional delivery centers. We help clients modernize technology, reimagine processes and transform experiences so they can stay ahead in a fast-changing world.

On July 6, 2022, we announced that we will be simplifying our internal operating structure around practice areas and delivery operations by merging our Digital Business & Technology and Digital Business Operations practice areas with their respective delivery organizations to create four new integrated practices: Software & Platform Engineering, Core Technologies & Insights, Enterprise Platform Services, and Intuitive Operations & Automation. This change did not impact our reportable business segments.

Q3 2022 Financial Results


Revenue


Income from Operations


Operating Margin


Diluted EPS


GAAP						Adjusted1


GAAP						Adjusted1


GAAP						Adjusted1




Revenue up $113 million or 2.4% from Q3 2021; 5.6% in constant currency1	Income from Operations up $69 million or 9.5% from Q3 2021 Adjusted Income from Operations1 up $49 million or 6.5% from Q3 2021	Operating margin up 100 bps from Q3 2021 Adjusted Operating Margin1 up 60 bps from Q3 2021	Diluted EPS up $0.19 or 18.4% from Q3 2021 Adjusted Diluted EPS1 up $0.11 or 10.4% from Q3 2021

Revenue growth was strongest in our Communications, Media and Technology and our Products and Resources segments. Revenues in our Financial Services segment reflect the negative impact of the previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022. For further details, see the 'Revenues - Reportable Business Segments' section within the Results of Operations.

Revenue growth was driven by our clients' continued adoption and integration of digital technologies as well as pricing improvements but was negatively impacted by challenges attracting and retaining personnel. For the three months ended September 30, 2022, our annualized attrition, including both voluntary and involuntary, was 34.9% as compared to 37.0% for the three months ended September 30, 2021. Attrition and hiring challenges have also resulted in increased cost of delivery.

1 Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.


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Operating margin increased to 16.4% for the quarter ended September 30, 2022 from 15.4% for the quarter ended September 30, 2021. Our 2022 operating margin was positively impacted by economies of scale that allowed us to leverage our cost structure over a larger organization, delivery efficiencies, pricing improvements and the depreciation of the Indian rupee against the U.S. dollar, partially offset by increased compensation costs for our delivery personnel (including employees and subcontractors). Our 2021 GAAP operating margin was negatively impacted by the Class Action Settlement Loss, which was excluded from our Adjusted Operating Margin2 in 2021.

Business Outlook

We continue to expect the long-term focus of our clients to be on their digital transformation into software-driven, data-enabled, customer-centric and differentiated businesses. Our four strategic priorities are:

Accelerating digital - growing our digital business organically and inorganically;
Globalizing Cognizant - accelerating the growth of our business in key international markets and diversifying our leadership, capabilities and delivery footprint;
Increasing our relevance to our clients - ensuring industry-aligned thought leadership and capabilities to address clients' business needs; and
Repositioning our brand - improving our global brand recognition and becoming better known as a global digital partner to the entire C-suite.

Clients will likely continue to contend with industry-specific changes driven by evolving digital technologies, uncertainty in the regulatory environment, industry consolidation and convergence as well as international trade policies and other macroeconomic factors, including the increasing uncertainty related to the global economy, which could affect their demand for our services.

As a global professional services company, we compete on the basis of the knowledge, experience, insights, skills and talent of our employees and the value they can provide to our clients. Our success is dependent, in large part, on our ability to keep our supply of skilled employees, in particular those with experience in key digital areas, in balance with client demand. Competition for skilled employees in the current labor market is intense, and we continue to experience significantly elevated voluntary attrition. Challenges attracting and retaining personnel have resulted in increased cost of delivery and negatively impacted our ability to satisfy client demand. We expect these impacts to continue for at least the remainder of 2022. Further, our ongoing and anticipated future efforts with respect to recruitment, talent management and employee engagement may not be successful and are likely to continue to result in increased compensation costs. While we strive to adjust pricing to reduce the impact of compensation increases on our operating margin, we may not be successful in fully recovering these increases, which could adversely affect our profitability.

The invasion of Ukraine by Russia and the sanctions and other measures being imposed in response to this conflict have increased the level of economic and political uncertainty worldwide. We do not have employees, facilities or significant operations in either Russia or Ukraine and revenues generated from clients in both countries were immaterial in both 2021 and the first nine months of 2022. However, the continuation of the hostilities or the expansion of the current conflict’s scope into surrounding geographic areas could impact us, our clients, vendors or subcontractors, which could impact our operations and financial performance. We continue to monitor the situation closely to ensure business continuity plans are in place for neighboring countries where we have a presence.

Our future results may be affected by potential tax law changes and other potential regulatory changes, including possible U.S. corporate income tax reform and potentially increased costs for employment and post-employment benefits in India as a result of the Code on Social Security, 2020.

2 Adjusted Operating Margin is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measure, as applicable.


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Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

The following table sets forth, for the periods indicated, certain financial data for the three months ended September 30:


			% of			% of	Increase / Decrease
(Dollars in millions, except per share data)	2022		Revenues	2021		Revenues	$		%
Revenues	$	4,857	100.0	$	4,744	100.0	$	113	2.4
Cost of revenues(a)	3,080		63.4	2,947		62.1	133		4.5
Selling, general and administrative expenses(a)	838		17.3	924		19.5	(86)		(9.3)

Depreciation and amortization expense	141		2.9	144		3.0	(3)		(2.1)
Income from operations	798		16.4	729		15.4	69		9.5
Other income (expense), net	14			2			12		600.0
Income before provision for income taxes	812		16.7	731		15.4	81		11.1
Provision for income taxes	(183)			(187)			4		(2.1)

Net income	$	629	13.0	$	544	11.5	$	85	15.6
Diluted earnings per share	$	1.22		$	1.03		$	0.19	18.4

Other Financial Information3
Adjusted Income from Operations and Adjusted Operating Margin	$	798	16.4	$	749	15.8	$	49	6.5
Adjusted Diluted EPS	$	1.17		$	1.06		$	0.11	10.4

(a)Exclusive of depreciation and amortization expense.


Revenues - Overall

During the quarter ended September 30, 2022, revenues increased by $113 million as compared to the quarter ended September 30, 2021, representing growth of 2.4%, or 5.6% on a constant currency basis3. Our recently completed acquisitions contributed 40 basis points to revenue growth while the previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022, negatively impacted revenue growth by 60 basis points. Revenue growth was driven by our clients' continued adoption and integration of digital technologies as well as pricing improvements but was negatively impacted by challenges attracting and retaining personnel. Revenues from clients added since September 30, 2021 were $96 million.

3 Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.


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Revenues - Reportable Business Segments

The following charts set forth revenues and change in revenues by business segment and geography for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021:




	Financial Services					Health Sciences
			Increase / (Decrease)					Increase / (Decrease)
Dollars in millions	Revenues		$	%	CC4	Revenues		$	%	CC %4
North America	$	1,086	11	1.0	1.2	$	1,212	50	4.3	4.3
United Kingdom	148		8	5.7	18.6	41		(3)	(6.8)	5.0
Continental Europe	143		(44)	(23.5)	(13.3)	119		1	0.8	12.6
Europe - Total	291		(36)	(11.0)	0.4	160		(2)	(1.2)	10.5
Rest of World	144		2	1.4	7.6	33		3	10.0	22.6
Total	$	1,521	(23)	(1.5)	1.6	$	1,405	51	3.8	5.5

	Products and Resources					Communications, Media and Technology
			Increase / (Decrease)					Increase / (Decrease)
Dollars in millions	Revenues		$	%	CC %4	Revenues		$	%	CC %4
North America	$	779	30	4.0	4.3	$	544	44	8.8	8.8
United Kingdom	130		5	4.0	20.8	127		6	5.0	21.7
Continental Europe	143		(2)	(1.4)	13.6	33		(1)	(2.9)	12.0
Europe - Total	273		3	1.1	16.9	160		5	3.2	19.6
Rest of World	96		8	9.1	14.2	79		(5)	(6.0)	2.5
Total	$	1,148	41	3.7	8.2	$	783	44	6.0	10.4


Financial Services - revenues declined 1.5%, and increased by 1.6% on a constant currency basis4



Banking	ê	$46M

Insurance	é	$23M

Revenues declined in this segment but grew on a constant currency basis. Constant currency revenue growth was driven by the growing demand for digital services among public sector clients in the United Kingdom and insurance clients. This was offset by the 180 basis points negative impact related to the previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022. Revenues from clients added since September 30, 2021 were $22 million.4


Health Sciences - revenues increased 3.8%, or 5.5% on a constant currency basis4

Effective in the second quarter of 2022, we combined the healthcare operating segment with the life sciences operating segment and renamed our Healthcare reportable segment as Health Sciences. See Note 11 to our unaudited consolidated financial statements for additional information.

Revenue growth was driven by increased demand for digital services among pharmaceutical clients. Revenues from clients added since September 30, 2021 were $11 million.


			é			$51M

4 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.


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Products and Resources - revenues increased 3.7%, or 8.2% on a constant currency basis5


Manufacturing, Logistics, Energy and Utilities	é	$18M

Retail and Consumer Goods	é	$7M

Travel and Hospitality	é	$16M

Revenue growth in this segment was primarily driven by demand for our digital services among logistics, automotive, consumer goods and travel and hospitality clients. Revenues from clients added since September 30, 2021 were $30 million.5


Communications, Media and Technology - revenues increased 6.0%, or 10.4% on a constant currency basis5

In 2022, we combined the communications and media operating segment with the technology operating segment. See Note 11 to our unaudited consolidated financial statements for additional information.

Revenues in this segment reflected growing demand from our technology clients for services related to digital content, primarily driven by the largest clients in this segment, as well as demand for personalized user experiences and data modernization. Revenues from clients added since September 30, 2021 were $33 million.


									é			$44M


Revenues - Geographic Markets

Revenues of $4,857 million by geographic market were as follows for the three months ended September 30, 2022:


Q3 2022 as compared to Q3 2021			Increase / (Decrease)
(Dollars in millions)	$	%			CC %5
North America			$	135		3.9	4.0
United Kingdom			16			3.7	18.7
Continental Europe			(46)			(9.5)	2.9
Europe - Total			(30)			(3.3)	10.3
Rest of World			8			2.3	9.3
Total revenues			$	113		2.4	5.6

North America continues to be our largest market, representing 74.6% of total revenues. Outside of the North America region, revenues were negatively impacted by foreign currency exchange rate movements. Constant currency revenue growth in the United Kingdom was strong among Financial Services clients, including certain public sector clients, Products and Resources clients, and Communications, Media and Technology clients. Constant currency revenue growth in the Continental Europe region was driven by our pharmaceutical clients, Products and Resources clients, and Communications, Media and Technology clients, while the previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022, negatively impacted growth in the region by 580 basis points.


Cost of Revenues (Exclusive of Depreciation and Amortization Expense)


é			$133M
é			1.3% as a % of revenues
¡			% of Revenues

Our cost of revenues consists primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, project-related immigration and travel for technical personnel, subcontracting and equipment costs relating to revenues. The increase, as a percentage of revenues, was due to higher compensation costs for delivery personnel (including employees and subcontractors), partially offset by delivery efficiencies and the depreciation of the Indian rupee against the U.S. dollar. Challenges attracting and retaining highly qualified personnel have resulted and are likely to continue to result in higher compensation costs.

5 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.


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SG&A Expenses (Exclusive of Depreciation and Amortization Expense)

SG&A expenses consist primarily of salaries, incentive-based compensation, stock-based compensation expense, employee benefits, immigration, travel, marketing, communications, management, finance, administrative and occupancy costs. The decrease, as a percentage of revenues, was primarily due to economies of scale that allowed us to leverage our cost structure over a larger organization, the beneficial impact of foreign currency exchange rate movements and the optimization of non-strategic SG&A expenses.


ê			$86M
ê			2.2% as a % of revenues
¡			% of Revenues


Depreciation and Amortization Expense

Depreciation and amortization expense decreased by 2.1%, or 0.1% as a percentage of revenues, during the third quarter of 2022 as compared to the third quarter of 2021.


Operating Margin and Adjusted Operating Margin6 - Overall

Our 2022 operating margin was positively impacted by economies of scale that allowed us to leverage our cost structure over a larger organization, delivery efficiencies, pricing improvements and the depreciation of the Indian rupee against the U.S. dollar, partially offset by increased compensation costs for our delivery personnel (including employees and subcontractors). Our 2021 GAAP operating margin was negatively impacted by the Class Action Settlement Loss, which was excluded from our Adjusted Operating Margin6 in 2021.

A predominant portion of our costs in India are denominated in the Indian rupee, representing approximately 23% of our global operating costs during the three months ended September 30, 2022. These costs are subject to foreign currency exchange rate fluctuations, which have an impact on our results of operations. We enter into foreign exchange derivative contracts to hedge certain Indian rupee denominated payments in India. These hedges are intended to mitigate the volatility of the changes in the exchange rate between the U.S. dollar and the Indian rupee. Net of the impact of the hedges, the depreciation of the Indian rupee contributed 78 basis points to the improvement in our operating margin for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Excluding the impact of applicable designated cash flow hedges, the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by 137 basis points during the three months ended September 30, 2022. Each additional 1.0% change in exchange rate between the Indian rupee and the U.S. dollar will have the effect of moving our operating margin by 18 basis points (excluding the impact of the hedges). The settlement of our cash flow hedges negatively impacted our operating margin by 27 basis points during the three months ended September 30, 2022 while positively impacting our operating margin by 32 basis points during the three months ended September 30, 2021.

We finished the third quarter of 2022 with approximately 349,400 employees. Annualized attrition, including both voluntary and involuntary, was approximately 34.9% for the three months ended September 30, 2022. In both 2021 and 2022, voluntary attrition constituted the vast majority of attrition for the period. Attrition in all periods presented is weighted towards our more junior employees.




¡ Annualized attrition

6 Adjusted Income from Operations and Adjusted Operating Margin are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.


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Segment Operating Profit

In 2022, we made certain changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to charge to the business segments costs that are directly managed and controlled by them. Specifically, segment operating profit now includes costs related to non-delivery personnel that support consulting services, which were previously included in "unallocated costs." We have reported 2022 segment operating profits using the new allocation methodology and have recast the 2021 results to conform to the new methodology.

Segment operating profit and operating margin percentage were as follows:

In 2022, segment operating margins benefited from delivery efficiencies, pricing improvements and the depreciation of the Indian rupee against the U.S. dollar partially offset by increased compensation costs for delivery personnel (including employees and subcontractors).

Total segment operating profit and operating margin were as follows for the three months ended September 30:


(Dollars in millions)	2022		% of Revenues	2021		% of Revenues	Increase
Total segment operating profit	$	1,527	31.4	$	1,423	30.0	$	104
Less: unallocated costs	729			694			35
Income from operations	$	798	16.4	$	729	15.4	$	69


Other Income (Expense), Net

The following table sets forth total other income (expense), net for the three months ended September 30:


(in millions)	2022		2021		Increase/ Decrease
Foreign currency exchange (losses)	$	(48)	$	(4)	$	(44)
Gains on foreign exchange forward contracts not designated as hedging instruments	51		1		50
Foreign currency exchange gains (losses), net	3		(3)		6
Interest income	17		7		10
Interest expense	(6)		(3)		(3)
Other, net	—		1		(1)
Total other income (expense), net	$	14	$	2	$	12

The foreign currency exchange losses were attributed to the remeasurement of net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. The gains on foreign exchange forward contracts not designated as hedging instruments related to the realized and unrealized gains and losses on contracts entered into to offset our foreign currency exposures. As of September 30, 2022, the notional value of our undesignated hedges was $1,210 million. The increase in interest income of $10 million was primarily attributable to higher interest rates in the current period.


Provision for Income Taxes


ê			$4M

¡ Effective Income Tax Rate ê 3.1%

The effective income tax rate decreased primarily due to the recognition in the third quarter of 2022 of an income tax benefit of $36 million related to a specific uncertain tax position that was previously unrecognized in our prior-year consolidated financial statements. See Note 6 to our unaudited consolidated financial statements for additional information.


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Net Income

The increase in net income was primarily driven by higher income from operations and a lower effective tax rate.


é			$85M

¡ é 1.5% of Revenues

Non-GAAP Financial Measures

Portions of our disclosure include non-GAAP financial measures. These non-GAAP financial 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 financial measures used by other companies. In addition, these non-GAAP financial measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of non-GAAP financial measures to the corresponding GAAP measures set forth below should be carefully evaluated.

Our non-GAAP financial measures Adjusted Operating Margin and Adjusted Income From Operations exclude unusual items, such as the Class Action Litigation Settlement in the third quarter of 2021. Our non-GAAP financial measure Adjusted Diluted EPS excludes unusual items, such as the Class Action Litigation Settlement in the third quarter of 2021 and the effect of recognition in the third quarter of 2022 of an income tax benefit related to a specific uncertain tax position that was previously unrecognized in our prior-year consolidated financial statements, net non-operating foreign currency exchange gains or losses and the tax impact of all the applicable adjustments. The income tax impact of each item excluded from Adjusted Diluted EPS is calculated by applying the statutory rate and local tax regulations in the jurisdiction in which the item was incurred. Constant currency revenue growth is defined as revenues for a given period restated at the comparative period’s foreign currency exchange rates measured against the comparative period's reported revenues.

We believe providing investors with an operating view consistent with how we manage the Company provides enhanced transparency into our operating results. For 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 executive officers and for making comparisons of our operating results to those of our competitors. We believe that the presentation of non-GAAP financial measures, which exclude certain costs, along with reconciliations to the most comparable GAAP measure, as applicable, 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 financial measures versus financial measures calculated in accordance with GAAP is that non-GAAP financial measures may exclude costs that are recurring such as 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 financial measures to allow investors to evaluate such non-GAAP financial measures.


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The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the three months ended September 30:


	2022		% of Revenues	2021		% of Revenues
GAAP income from operations and operating margin	$	798	16.4	$	729	15.4
Class Action Settlement Loss (1)	—		—	20		0.4
Adjusted Income from Operations and Adjusted Operating Margin	$	798	16.4	$	749	15.8

GAAP diluted EPS	$	1.22		$	1.03
Effect of above adjustments, pre-tax	—			0.04
Non-operating foreign currency exchange (gains) losses, pre-tax (2)	(0.01)			0.01
Tax effect of above adjustments (3)	0.03			(0.02)
Effect of recognition of income tax benefit related to an uncertain tax position (4)	(0.07)			—
Adjusted Diluted EPS	$	1.17		$	1.06

(1)During the three months ended September 30, 2021, we recorded a Class Action Settlement Loss in "Selling, general and administrative expenses" in our unaudited consolidated financial statements. For further information, see "Note 15 - Commitments and Contingencies" in the notes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

(2)Non-operating foreign currency exchange gains and losses, inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes, are reported in "Foreign currency exchange gains (losses), net" in our unaudited consolidated statements of operations.

(3)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:


	Three Months Ended September 30,
(in millions)	2022	2021
Non-GAAP income tax benefit (expense) related to:

Class Action Settlement Loss	—	6
Foreign currency exchange gains and losses	(15)	3

The effective tax rate related to non-operating foreign currency exchange gains and losses varies depending on the jurisdictions in which such income and expenses are generated and the statutory rates applicable in those jurisdictions. As such, the income tax effect of non-operating foreign currency exchange gains and losses shown in the above table may not appear proportionate to the net pre-tax foreign currency exchange gains and losses reported in our unaudited consolidated statements of operations.

(4)During the three months ended September 30, 2022, we recognized an income tax benefit of $36 million related to a specific uncertain tax position that was previously unrecognized in our prior-year consolidated financial statements. The recognition of the benefit in the third quarter of 2022 was based on management’s reassessment regarding whether this unrecognized tax benefit met the more-likely-than-not threshold in light of the lapse in the statute of limitations as to a portion of such benefit.


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Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

The following table sets forth, for the periods indicated, certain financial data for the nine months ended September 30:


			% of			% of	Increase / Decrease
(Dollars in millions, except per share data)	2022		Revenues	2021		Revenues	$		%

Revenues	$	14,589	100.0	$	13,730	100.0	$	859	6.3
Cost of revenues(a)	9,296		63.7	8,574		62.4	722		8.4
Selling, general and administrative expenses(a)	2,583		17.7	2,632		19.2	(49)		(1.9)

Depreciation and amortization expense	428		2.9	430		3.1	(2)		(0.5)
Income from operations	2,282		15.6	2,094		15.3	188		9.0
Other income (expense), net	20			(4)			24		*
Income before provision for income taxes	2,302		15.8	2,090		15.2	212		10.1
Provision for income taxes	(537)			(531)			(6)		1.1
Income (loss) from equity method investments	4			2			2		100.0
Net income	$	1,769	12.1	$	1,561	11.4	$	208	13.3
Diluted EPS	$	3.40		$	2.96		$	0.44	14.9
Other Financial Information7
Adjusted Income From Operations and Adjusted Operating Margin	$	2,282	15.6	$	2,114	15.4	$	168	7.9
Adjusted Diluted EPS	$	3.40		$	3.02		$	0.38	12.6

(a)Exclusive of depreciation and amortization expense.

*Not meaningful


Revenues - Overall

During the nine months ended September 30, 2022, revenues increased by $859 million as compared to the nine months ended September 30, 2021, representing growth of 6.3%, or 8.6% on a constant currency basis7. Our recently completed acquisitions contributed 120 basis points to revenue growth while the previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022, negatively impacted revenue growth by 60 basis points. Revenue growth was driven by our clients' continued adoption and integration of digital technologies but was negatively impacted by challenges attracting and retaining personnel. Revenues from clients added since September 30, 2021, including those related to acquisitions, were $208 million.

7 Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Diluted EPS and constant currency revenue growth are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures.


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Revenues - Reportable Business Segments

The following charts set forth revenues and change in revenues by business segment and geography for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021:




	Financial Services					Health Sciences
			Increase / (Decrease)					Increase / (Decrease)
Dollars in millions	Revenues		$	%	CC %8	Revenues		$	%	CC %8
North America	$	3,270	133	4.2	4.4	$	3,617	223	6.6	6.6
United Kingdom	446		51	12.9	21.4	129		—	—	8.2
Continental Europe	443		(122)	(21.6)	(13.9)	365		9	2.5	11.4
Europe - Total	889		(71)	(7.4)	0.6	494		9	1.9	10.5
Rest of World	432		25	6.1	11.4	94		6	6.8	15.3
Total	$	4,591	87	1.9	4.2	$	4,205	238	6.0	7.3

	Products and Resources					Communications, Media and Technology
			Increase / (Decrease)					Increase / (Decrease)
Dollars in millions	Revenues		$	%	CC %8	Revenues		$	%	CC %8
North America	$	2,310	120	5.5	5.7	$	1,649	229	16.1	16.2
United Kingdom	396		49	14.1	25.5	386		54	16.3	28.4
Continental Europe	431		51	13.4	26.3	103		(18)	(14.9)	(4.3)
Europe - Total	827		100	13.8	25.9	489		36	7.9	19.7
Rest of World	281		38	15.6	19.7	237		11	4.9	11.4
Total	$	3,418	258	8.2	11.4	$	2,375	276	13.1	16.4


Financial Services - revenues increased 1.9%, or 4.2% on a constant currency basis8


Banking	ê	$19M

Insurance	é	$106M

Revenue growth reflects the growing demand for digital services among U.S. regional banks, public sector clients in the United Kingdom and insurance clients. The previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022, negatively impacted revenue growth in this segment by 170 basis points.8Revenues from clients added since September 30, 2021 were $46 million.


Health Sciences - revenues increased 6.0%, or 7.3% on a constant currency basis8

Effective in the second quarter of 2022, we combined the healthcare operating segment with the life sciences operating segment and renamed our Healthcare reportable segment to Health Sciences. See Note 11 to our unaudited consolidated financial statements for additional information.

Revenue growth was driven by increased demand for digital services among pharmaceutical clients. Revenues from clients added since September 30, 2021 were $23 million.


			é			$238M

8 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.


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Products and Resources - revenues increased 8.2%, or 11.4% on a constant currency basis9


Manufacturing, Logistics, Energy and Utilities	é	$131M

Retail and Consumer Goods	é	$79M

Travel and Hospitality	é	$48M

Revenue growth in this segment was primarily driven by demand for our digital services among automotive, logistics, consumer goods and travel and hospitality clients. Revenue growth in this segment included approximately 250 basis points related to recently completed acquisitions. Revenues from clients added since September 30, 2021 were $58 million.9


Communications, Media and Technology - revenues increased 13.1%, or 16.4% on a constant currency basis9

In 2022, we combined the communications and media operating segment with the technology operating segment. See Note 11 to our unaudited consolidated financial statements for additional information.






			é			$276M


Revenues - Geographic Markets

Revenues of $14,589 million by geographic market were as follows for the nine months ended September 30, 2022:


YTD 2022 as compared to YTD 2021			Increase / (Decrease)
(Dollars in millions)	$	%			CC %9
North America			$	705		7.0	7.1
United Kingdom			154			12.8	23.1
Continental Europe			(80)			(5.6)	4.0
Europe - Total			74			2.8	12.7
Rest of World			80			8.3	13.8
Total revenues			$	859		6.3	8.6

North America continues to be our largest market, representing 74.3% of total revenues for the nine months ended September 30, 2022. Outside of our North America region, revenues were negatively impacted by foreign currency exchange rate movements. Constant currency revenue growth in the United Kingdom was strong among Financial Services clients, including certain public sector clients, Products and Resources clients, and Communications, Media and Technology clients. Constant currency revenue growth in the Continental Europe region was driven by growth in the German market, which benefited from an acquisition that closed in the first half of 2021 and strong demand from our pharmaceutical clients, partially offset by a negative 530 basis points impact from the previously disclosed sale of the Samlink subsidiary, which was completed on February 1, 2022. Constant currency revenue growth in the Rest of World region was primarily driven by the Australian market, which benefited from an acquisition that closed in the first half of 2021.

9 Constant currency revenue growth is not a measure of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information.


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Cost of Revenues (Exclusive of Depreciation and Amortization Expense)


é			$722M
é			1.3% as a % of revenues
¡			% of Revenues


SG&A Expenses (Exclusive of Depreciation and Amortization Expense)


ê			$49M
ê			1.5% as a % of revenues
¡			% of Revenues


Depreciation and Amortization Expense

Depreciation and amortization expense decreased 0.5%, and by 0.2% as a percentage of revenues, during the nine months ended September 30, 2022 as compared to the 2021 period.


Operating Margin and Adjusted Operating Margin10- Overall

Our 2022 operating margin was positively impacted by economies of scale that allowed us to leverage our cost structure over a larger organization, delivery efficiencies and the depreciation of the Indian rupee against the U.S. dollar, partially offset by increased compensation costs for our delivery personnel (including employees and subcontractors). Our 2021 GAAP operating margin was negatively impacted by the Class Action Settlement Loss, which was excluded from our Adjusted Operating Margin10 in 2021.

Net of the impact of the hedges, the depreciation of the Indian rupee contributed 61 basis points to the improvement in our operating margin for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Excluding the impact of applicable designated cash flow hedges, the depreciation of the Indian rupee against the U.S. dollar positively impacted our operating margin by approximately 93 basis points during the nine months ended September 30, 2022. The settlement of our cash flow hedges positively impacted our operating margin by 4 basis points during the nine months ended September 30, 2022 and by 36 basis points during the 2021 period.

10 Adjusted Income from Operations and Adjusted Operating Margin are not measures of financial performance prepared in accordance with GAAP. See “Non-GAAP Financial Measures” for more information and reconciliations to the most directly comparable GAAP financial measures, as applicable.


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Segment Operating Profit

In 2022, segment operating margins benefited from delivery efficiencies and the depreciation of the Indian rupee against the U.S. dollar offset by increased compensation costs for delivery personnel (including employees and subcontractors). The 2022 Health Sciences segment operating margin was negatively affected by investments to support revenue growth and elevated pricing pressure on non-digital services.

Total segment operating profit and margin were as follows for the nine months ended September 30:


(Dollars in millions)	2022		% of Revenues	2021		% of Revenues	Increase
Total segment operating profit	$	4,365	29.9	$	4,106	29.9	$	259
Less: unallocated costs	2,083			2,012			71
Income from operations	$	2,282	15.6	$	2,094	15.3	$	188


Other Income (Expense), Net

The following table sets forth total other income (expense), net for the nine months ended September 30:


(in millions)	2022		2021		Increase/ Decrease
Foreign currency exchange (losses)	$	(97)	$	(26)	$	(71)
Gains on foreign exchange forward contracts not designated as hedging instruments	96		7		89
Foreign currency exchange gains (losses), net	(1)		(19)		18
Interest income	32		23		9
Interest expense	(11)		(7)		(4)
Other, net	—		(1)		1
Total other income (expense), net	$	20	$	(4)	$	24

The foreign currency exchange losses were attributed to the remeasurement of net monetary assets and liabilities denominated in currencies other than the functional currencies of our subsidiaries. The gains on foreign exchange forward contracts not designated as hedging instruments related to the realized and unrealized gains and losses on contracts entered into to offset our foreign currency exposures. The increase in interest income of $9 million was primarily attributable to higher interest rates in the current period.


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Provision for Income Taxes


é			$6M

¡ Effective Income Tax Rate ê 2.1%

The effective income tax rate in the nine months ended September 30, 2022 decreased as compared to the 2021 period primarily due to the recognition in the third quarter of 2022 of an income tax benefit of $36 million related to a specific uncertain tax position that was previously unrecognized in our prior-year consolidated financial statements and higher discrete tax benefits related to the impact of depreciation of the Indian rupee against the U.S. dollar on our undistributed foreign earnings. See Note 6 to our unaudited consolidated financial statements for additional information.


Net Income

The increase in net income was driven by higher income from operations and a lower effective income tax rate.


é			$208M

¡ é 0.7% of Revenues

Non-GAAP Financial Measures

See “Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 – Non-GAAP Financial Measures” above for additional information about our use of non-GAAP financial measures.

The following table presents a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the nine months ended September 30:


(Dollars in millions, except per share amounts)	2022		% of Revenues	2021		% of Revenues
GAAP income from operations and operating margin	$	2,282	15.6	$	2,094	15.3
Class Action Settlement Loss (1)	—		—	20		0.1





Adjusted Income from Operations and Adjusted Operating Margin	$	2,282	15.6	$	2,114	15.4

GAAP diluted EPS	$	3.40		$	2.96
Effect of above adjustments, pre-tax	—			0.04
Non-operating foreign currency exchange (gains) losses, pre-tax (2)	—			0.03
Tax effect of above adjustments (3)	0.07			(0.01)
Effect of recognition of income tax benefit related to an uncertain tax position (4)	(0.07)			—
Adjusted Diluted EPS	$	3.40		$	3.02

(3)Presented below are the tax impacts of each of our non-GAAP adjustments to pre-tax income:


(in millions)	Nine Months Ended September 30,
	2022	2021
Non-GAAP income tax benefit (expense) related to:

Class Action Settlement Loss	—	6
Foreign currency exchange gains and losses	(35)	(3)


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Liquidity and Capital Resources

Our cash generated from operations has historically been the primary source of liquidity to fund operations and investments to grow our business. As of September 30, 2022, we had cash, cash equivalents and short-term investments of $2,731 million and available capacity under our credit facilities of approximately $1,909 million.

The following table provides a summary of cash flows for the nine months ended September 30:


(in millions)	2022		2021		Increase / Decrease
Net cash provided by (used in):
Operating activities	$	1,866	$	1,670	$	196
Investing activities	(28)		(1,666)		1,638
Financing activities	(1,508)		(1,007)		(501)

Operating activities

The increase in cash provided by operating activities for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by higher income from operations.

We monitor turnover, aging and the collection of accounts receivable by client. Our DSO calculation includes receivables, net of allowance for doubtful accounts, and contract assets, reduced by the uncollected portion of deferred revenue. Our DSO was 74 days as of September 30, 2022, 72 days as of September 30, 2021, and 69 days as of December 31, 2021.

Investing activities

The decrease in cash used in investing activities for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by net maturities of investments in 2022 as compared to net purchases of investments in 2021 as well as payments for business combinations in 2021.

Financing activities

The increase in cash used in financing activities for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily driven by higher repurchases of common stock.

The Credit Agreement provided for a $750 million Term Loan and a $1,750 million unsecured revolving credit facility, which were due to mature in November 2023. As of September 30, 2022, we had no outstanding balance on the revolving credit facility. In October 2022, we completed a debt refinancing and entered into the New Credit Agreement with a commercial bank syndicate providing for a $650 million New Term Loan and a $1,850 million unsecured revolving credit facility, which are due to mature in October 2027. The Credit Agreement was terminated upon the closing of the New Credit Agreement and the proceeds from the New Term Loan were used primarily to repay our outstanding Term Loan balance. We are required under the New Credit Agreement to make scheduled quarterly principal payments on the New Term Loan beginning in December 2023. See Note 5 to our unaudited consolidated financial statements.

The New Credit Agreement contains customary affirmative and negative covenants as well as a financial covenant. The financial covenant is tested at the end of each fiscal quarter and requires us to maintain a Leverage Ratio not in excess of 3.50:1.00, or for a period of up to four quarters following certain material acquisitions, 3.75:1.00.


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In March 2022, our India subsidiary renewed its one-year 13 billion Indian rupee ($159 million at the September 30, 2022 exchange rate) working capital facility, which requires us to repay any balances drawn down within 90 days from the date of disbursement. There is a 1.0% prepayment penalty applicable to payments made within 30 days after disbursement. This working capital facility contains affirmative and negative covenants and may be renewed annually. As of September 30, 2022, we have not borrowed funds under this facility.

Capital Allocation


			Acquisitions

			Share Repurchases

			Dividend payments

We review our capital allocation framework on an ongoing basis, considering our financial performance and liquidity position, investments required to execute our strategic plans and initiatives, acquisition opportunities, the economic outlook, regulatory changes, the potential impacts of the COVID-19 pandemic and other relevant factors. As these factors may change over time, the actual amounts expended on stock repurchase activity, dividends, and acquisitions, if any, during any particular period cannot be predicted and may fluctuate from time to time. While we have not completed any acquisitions in 2022, our longer-term capital allocation framework is unchanged.

Other Liquidity and Capital Resources Information

We seek to ensure that our worldwide cash is available in the locations in which it is needed. As part of ongoing liquidity assessments, we regularly monitor the mix of domestic and international cash flows and cash balances. We evaluate on an ongoing basis what portion of the non-U.S. cash, cash equivalents and short-term investments is needed locally to execute our strategic plans and what amount is available for repatriation back to the United States.

We expect operating cash flows, cash and short-term investment balances, together with the available capacity under our revolving credit facilities, to be sufficient to meet our operating requirements, including purchase commitments, making Tax Reform Act transition tax payments and servicing our debt for the next twelve months. The ability to expand and grow our business in accordance with current plans, make acquisitions, meet long-term capital requirements beyond a twelve-month period and execute our capital return plan will depend on many factors, including the rate, if any, at which cash flow increases, our ability and willingness to pay for acquisitions with capital stock and the availability of public and private debt, including the ability to extend the maturity or refinance our existing debt, and equity financing. We cannot be certain that additional financing, if required, will be available on terms and conditions acceptable to us, if at all.


Commitments and Contingencies

See Note 10 to our unaudited consolidated financial statements.


Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited consolidated financial statements that have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities, including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. On an ongoing basis, we evaluate our estimates. The most significant estimates relate to the recognition of revenue and profits, including the application of the cost-to-cost method of measuring progress to completion for certain fixed-price contracts, income taxes, business combinations and valuation of goodwill and other long-lived assets. We base our estimates on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual amounts may differ from the estimates used in the preparation of the accompanying unaudited consolidated financial statements. For a discussion of our critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021. Our significant accounting policies are described in Note 1 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.


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Recently Adopted and New Accounting Pronouncements

There have been no changes in the information provided in our Annual Report on Form 10-K for the year ended December 31, 2021.


Forward Looking Statements

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Exchange Act) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,” “would,” “plan,” “intend,” “estimate,” “predict,” “potential,” “continue,” “should” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.

Such forward-looking statements may be included in various filings made by us with the SEC, in press releases or in oral statements made by or with the approval of one of our authorized executive officers. These forward-looking statements, such as statements regarding our anticipated future revenues or operating margin, earnings, capital expenditures, impacts to our business, financial results and financial condition as a result of the COVID-19 pandemic, the competitive marketplace for talent and future attrition trends, anticipated effective income tax rate and income tax expense, liquidity, financing strategy, access to capital, capital return strategy, investment strategies, cost management, plans and objectives, including those related to our digital practice areas, investment in our business, potential acquisitions, industry trends, client behaviors and trends, the outcome of and costs associated with regulatory and litigation matters, the appropriateness of the accrual related to the India Defined Contribution Obligation and other statements regarding matters that are not historical facts, are based on our current expectations, estimates and projections, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Actual results, performance, achievements and outcomes could differ materially from the results expressed in, or anticipated or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including:

economic and political conditions globally, including the invasion of Ukraine by Russia, and in particular in the markets in which our clients and operations are concentrated;
the continuing impact of the COVID-19 pandemic, or other future pandemics, on our business, results of operations, liquidity and financial condition;
our ability to attract, train and retain skilled employees, including highly skilled technical personnel and personnel with experience in key digital areas and senior management to lead our business globally, at an acceptable cost;
challenges related to growing our business organically as well as inorganically through acquisitions, and our ability to achieve our targeted growth rates;
our ability to achieve our profitability goals and maintain our capital return strategy;
our ability to meet specified service levels or milestones required by certain of our contracts;
intense and evolving competition and significant technological advances that our service offerings must keep pace with in the rapidly changing markets we compete in;
legal, reputation and financial risks if we fail to protect client and/or our data from security breaches and/or cyber attacks;
the effectiveness of our risk management, business continuity and disaster recovery plans and the potential that our global delivery capabilities could be impacted;
restrictions on visas, in particular in the United States, United Kingdom and EU, or immigration more generally or increased costs of such visas or the wages we are required to pay employees on visas, which may affect our ability to compete for and provide services to our clients;
risks related to anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing, both of which could impair our ability to serve our clients;
risks and costs related to complying with numerous and evolving legal and regulatory requirements and client expectations in the many jurisdictions in which we operate, including the increased stakeholder emphasis on ESG matters;
potential changes in tax laws, or in their interpretation or enforcement, failure by us to adapt our corporate structure and intercompany arrangements to achieve global tax efficiencies or adverse outcomes of tax audits, investigations or proceedings;


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potential exposure to litigation and legal claims in the conduct of our business; and
the factors set forth in "Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

You are advised to consult any further disclosures we make on related subjects in the reports we file with the SEC, including this report in the section titled “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part I, Item 1. Business” in our Annual Report on Form 10-K for the year ended December 31, 2021. We undertake 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 laws.

Previous: Item 1. Consolidated Financial Statements (Unaudited). · Next: Item 3. Quantitative and Qualitative Disclosures about Market Risk.