Cognizant net soars 15.4%

Global factors, demand main drivers; annual revenue, earning expectations raised

Reaffirming the belief that sustained growth might have returned in the information technology (IT) outsourcing services space, Nasdaq-listed IT services company Cognizant Technology Solutions on Tuesday announced strong earnings for the quarter ended September this year.

For the second consecutive quarter, the US-headquartered company raised its full-year revenue forecast, amid improvement in the demand environment.

For the September quarter, Cognizant recorded 15.4 per cent annual growth in net profit at $319.6 million. Though the growth in net profit was lower than TCS’s (16.9 per cent), it was better than that of Infosys (11.1 per cent). At $2.31 billion, Cognizant’s revenues rose 21.9 per cent on a year-on-year basis, backed by all-round growth in key verticals, business lines and geographies.

“Our performance during the quarter was stronger than anticipated, owing to faster ramp-up in demand for outsourcing services and strong discretionary spend on consulting and technology services,” said Gordon Coburn, president, Cognizant.

“We delivered yet another quarter of industry-leading growth that was broad-based across our portfolio of industries, services and geographies,” said chief executive Francisco D’Souza. On a sequential basis, Cognizant’s net profit rose 6.4 per cent, while revenues increased 6.7 per cent, the best among the top Indian IT services companies.

However, unlike its large Indian peers, Cognizant saw a decline in operating profit margin. Its (non-generally accepted accounting principles) operating margin for the quarter stood at 20.4 per cent, a fall of about 100 basis points compared to the previous quarter, though well within the company’s targeted range of 19-20 per cent.

In terms of business segments, Cognizant’s growth in the September quarter was led by the healthcare vertical, followed by manufacturing/retail/logistics and financial services. The healthcare segment, which accounted for 26 per cent of Cognizant’s overall revenues, grew 10.8 per cent on a sequential basis and 24.2 per cent on an annual basis. Operations in North America, which accounted for 77 per cent of overall revenues, grew at a healthy 6.3 per cent. Europe operations (including the UK), which accounted for 18 per cent of revenues, grew 7.1 per cent.

“The sheer velocity of change in the industries we serve is driving the C-suite to challenge the status quo and rethink their business models to be relevant for the future. Our investments across multiple horizons of growth position us well to deliver differentiated value, as we partner clients in this journey,” said D’Souza.

During the quarter, the company added 33 clients, raising the total number of its active clients to 1,133. The company said the new clients included seven “strategic clients” with the potential to account for $5-50 million in annual revenues. Currently, the company has 236 strategic clients.

Cognizant has raised its annual revenue forecast to $8.84 billion, a rise of 20.3 per cent over the previous year. In the quarter ended June, the company had projected annual revenues to rise 19 per cent to $8.74 billion. “Our strong performance in the quarter allows us to once again increase our full-year revenue and EPS (earnings per share) guidance and further strengthen our balance sheet,” said Karen McLoughlin, chief financial officer.

During the September quarter, the company increased total cash and short-term investments by $460 million to about $3.4 billion.