Cognizant pegs a better growth for CY24

NASDAQ-listed Cognizant in its recently reported third quarter numbers has narrowed its full year revenue guidance to 1.4-1.9% in constant currency from the earlier -0.5% to +1.0% in the second quarter. However, in August, following the announcement of acquisition of Belcan, an ER&D company for nearly $1.3 billion in a cash+stock, the company had also provided a mid-quarter revision of full year guidance to 0.9% to 2.4% factoring in a 200 basis points of inorganic growth.

The company reported a revenue of $5 billion in the third quarter, an increase of 3% year on year. While order bookings on a trailing-twelve-month basis saw a decline of 2% year-on- year to $26.2 billion, it logged six large orders whose total contract value were over $100 million. At the end of Q3 Cognizant’s total headcount at 340100 saw a sequential addition of 3800 people including the acquisition, however it is still a decline of 6500 compared to the corresponding quarter a year ago. Among the geographies, the company saw its highest growth sequentially coming from Europe at 5.8%, while among verticals financial services and Healthcare led the pack registering a 2.7% and 3.6% quarter on quarter growth respectively. “Financial Services returned to year over year growth, driven by strong execution and partial return of discretionary spending, and we maintained our large deal momentum, signing six deals each with a total contract value of $100 million or more. Year-to-date, we signed 19 such deals compared to 17 during all of 2023” said Ravi Kumar Singisetti Chief Executive Officer & Director, Cognizant Technology Solutions in the investor call.

Cognizant’s two year rejig program ‘NextGen’ that started in May of 2023 with an expected restructuring charges of $105 million in 2024, impacted the margins by approximately 70 basis points in the quarter even as the company registered an Adjusted Operating Margin of 15.3%. Cognizant has however maintained the margin guidance to remain flattish at 15.1% for 2024. “During the quarter, we continued to focus on modernising our operations. This helped us increase gross margin by 50 basis points sequentially, driven by improved utilisation and increased adoption of automation and AI within delivery” said Jatin Dalal CFO adding that this was achieved despite the acquisition related costs and partial hikes.

Having announced investments of over $1 billion in AI and GenAI late last year, the company said that it now has over 225 project implementations with 120 clients and that it was generating 150,000 lines of accepted code per month.” We now have more than 1,000 GenAI early engagements compared to about 750 at the end of the second quarter. We are seeing significant traction in four categories of use cases starting with tech for tech or applying AI to software development cycles, which had the highest velocity, followed by customer and employee experience, content aggregation and early use cases in content generation,” said Ravi. In its post-earnings note Nomura revised its CY24-26 forward earnings per share of the company by 1-2%.