Nasdaq-listed Cognizant Technologies exceeded Street estimates for its April-June quarter earnings, reporting a nearly 2% sequential revenue increase to $4.9 billion. This growth was driven by sustained market share gains and recoveries in its key financial services and health sciences segments.
The company also raised its annual revenue guidance on both ends of the spectrum, indicating improved visibility of revenue growth.
Cognizant’s net profit increased by 3.6% quarter-on-quarter to $566 million, while it rose 22% on a year-on-year basis. Jatin Dalal, chief executive officer, said, “We are clearly winning market share as we execute every quarter the deals that are ramping up are a reflection of new work that Cognizant is getting”.
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The company’s operating margin improved by 280 basis points (bps) on the year to 14.6%, but was flat sequentially.
Further, for the third quarter, Cognizant anticipates flat to 1.5% revenue growth in constant currency terms. The company improved its full-year guidance to a decline of 0.5% to a growth of 1% in constant currency, better than the previous forecast of a decline of 2% to a growth of 2%. The company follows the calendar year as its financial year.
The full-year guidance now assumes approximately 70 basis points of inorganic contribution.
In June, Cognizant agreed to acquire digital engineering firm Belcan for nearly $1.3 billion in cash and stock. The company’s management indicated that it does not foresee any other acquisition, in at least 2024, as the company wants to focus on completely integrating Belcan.
Vertical Performance and Regional Insights
Revenue from the financial services vertical decreased over 0.8% on the year to $1.45 billion in constant currency terms. This is the third consecutive quarter when financial services trailed behind the health sciences vertical.
Sales from the health sciences vertical increased 1.7% YoY to $1.46 billion in the second quarter in constant currency terms. Revenue from the products and resources vertical decreased 4.1% to $1.13 billion for the June quarter.
The company’s home ground, North America, offset much of its revenue loss from Europe, its second-largest market. Cognizant got $3.62 billion, or 75% of its overall revenue, from North America, and increase of 0.5% on the year.
Meanwhile, revenue from Europe fell 5.5% on a year-on-year basis to $1 billion.
The management was upbeat on the financial services recovery, as well as recovery in the North American market. “Our business in America and banking has sequentially done well for two quarters in a row so now we are now progressively taking that template in the international market so that we can replicate the success,” Ravi Kumar S, CEO of the company told analysts.
Cognizant is also advancing in the realm of Generative AI (Gen AI), with over 750 early engagements and another 600 Gen AI PoCs in the pipeline. The company said it has onboarded over 200 clients on its AI platforms.
“It is a pervasive technology (GenAI), therefore it diffuses into everything we do and because it is diffusing so fast you almost don’t know what to categorise as GenAI and what not to categorise as GenAI,” Kumar told analysts.
Employee Metrics and Attrition
Cognizant’s headcount decreased by 8,100 sequentially and 3,300 on year, ending with 336,300 employees in Q2. Attrition fell by 6.3 percentage points to 13.6% on a trailing twelve-month basis.
This is the sharpest decline in personnel among the top six Indian IT services companies. Cognizant had 73% of its global workforce in India as at the end of December.
The company’s utilisation rate also increased by a percentage point to 83% in the quarter. The management believes that the company still has some headspace to improve the metric for the rest of the year.
From: financialexpress
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