cognizant earnings: Cognizant’s net income rises amid strong digital business growth


Chennai: Cognizant Technology Solutions on Thursday reported an 11.4% jump in net income even as total revenues grew 10.9% in constant currency to $4.8 billion on the back of strong demand for digital services in the quarter ended March, according to a company statement.

“Thanks to our talented employees, we delivered on our first quarter commitments in what is an intensely competitive global labour market,” said Brian Humphries, chief executive officer (CEO) of Cognizant.

The quarterly net income, representing the bottomline performance, stood at $563 million for the quarter against $505 million a year ago. Earnings per share (EPS) stood at $1.07 against $0.95 year-on-year.

The company’s adjusted operating margin stood at 15%, down from 15.2% last year. On the slight decline in Generally Accepted Accounting Principles (GAAP) and adjusted operating margin (AOM), chief financial officer (CFO), Jan Siegmund said increased compensation costs, including the cost of subcontractors, remained the largest headwind. Going forward, Cognizant expects to see “some gradual improvement” in the metric in Q2.

Attrition continued to be a pain point for the company but it did see some respite this quarter. The voluntary annualised attrition rate decreased to 26% this quarter from 31% in the December quarter.

Humphries said in the earnings call that the quarterly revenue was above the midpoint of the guidance provided earlier at 10.2-11.2% growth. Strong growth posted in digital services across sectors such as financial services, healthcare, and products and resources buoyed performance, the CEO said. “We had another exceptional quarter in digital business operations, which continues to meaningfully outgrow the BPO market reflecting momentum in intelligent process automation and digital-native clients,” he said in the call.

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In the preceding quarter, the company posted revenues of $4.8 billion which it claimed was its highest-ever quarterly revenue. However, Cognizant has reduced its guidance for the full year in the March quarter to $19.8-20.2 billion at 9-11% constant currency growth.

The software services major, which finds a substantial amount of its workforce in India, said it hired 9,800 employees in the first quarter taking its global headcount to 340,400 for the quarter ended March.

Cognizant’s battle with attrition is in line with the trends that have been observed with software companies across the board. Infosys’ voluntary attrition rate for the last 12 months (LTM) stood at 27.7% while TCS reported 17.4% attrition and HCL Tech saw attrition surging to 21.8% in the first quarter as the war for talent in the tech space continued to rage.

Cognizant continued to post steady revenue flow from the digital vertical with revenues going up about 20% year-over-year and contributing 50% of the total revenues for the March quarter. Interestingly, it represented 45% of the company’s total revenue in the December quarter.

“Our first-quarter performance reflects strong revenue growth in our digital portfolio and a healthy demand environment. We remain focused on investing to support growth opportunities while also executing on pricing to offset the impact of compensation pressure driven by the continued labor supply-demand imbalance,” Siegmund said.

The company said its bookings for the first quarter grew 4% year-over-year which resulted in trailing 12-month bookings of $23.4 billion. It also shared revenue growth guidance of 7.2% to 9.2% or 9.0% to 11.0% in constant currency for the second quarter. This is less than the guidance that the company projected for the full-year 2022 in the previous quarter which was pegged at 7.8% to 10.8%, or 8.5% to 11.5% in constant currency.

“Our updated 2022 constant currency revenue guidance includes an improved organic revenue growth outlook and a lower inorganic contribution, reflecting a disciplined acquisition strategy,” Siegmund added.

During the first quarter, the company also repurchased five million shares for $444 million at an average price of $88.22 under its share repurchase program. As of March 31, 2022, there was $1.7 billion remaining under the share repurchase authorization, the company added.

The Communications, media, and technology vertical saw the highest revenue growth with an 18.1% year-over-year, or 19.9% in constant currency increase reflecting strong demand for data services among digital-native companies, Cognizant said.

Revenue from Products and Resources too grew 13.2% year-over-year, or 14.9% in constant currency driven by client demand for digital services across all industries and included the benefit from recently completed acquisitions.

Financial Services revenue grew 4.8% year-over-year or 6.0% in constant currency. Cognizant said that the completion of the sale of the Samlink subsidiary in February, negatively impacted segment revenue growth by approximately 130 basis points. In the December quarter, it was this segment that saw the highest traction with an 18.5% increase year-over-year.

Healthcare revenue grew marginally to 8.1% year-on-year, or 8.8% in constant currency. “Growth in the Healthcare segment was driven by increased demand for digital services among life sciences clients, including digitization of clinical trial processes and investments in manufacturing operations modernization,” the company said.



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