Cognizant Q4 net income down 1.9% at $416 mn

Nasdaq-listed Cognizant Technology Solutions has managed to meet its earlier forecast on growth in the numbers it announced for its fourth quarter and full-year (2016) results.

The company reported net income of $416 million for the fourth quarter ended December 31 last year, down 1.9% from $424 million in the corresponding quarter of 2015. On a sequential basis, net profit dipped 6.8% from $444.4 million (quarter ended September 30). 

For the full year, Cognizant reported revenue of $13.49 billion, up 8.6% from $12.42 billion in 2015. The revenue growth met the lower end of its growth guidance of 8.5-9%. 

For 2017, Cognizant guided for full-year revenue growth at 7.9-10%. It gave a guidance of revenue in the range of $14.56 billion to $14.84 billion. The company also guided that the first quarter (January-March) revenue growth is expected to be $3.51 billion to $3.55 billion, representing a growth of 1.45% to 2.6%. 

“As we enter 2017, the time is right for us to accelerate the shift to digital services and solutions to meet the growing demands from our clients to transform their business models in the face of the rapid business and technology shifts disrupting their industries,” said Francisco D’Souza, Chief Executive Officer, Cognizant. 

The Q1 guidance growth of 1.45-2.6% is higher from the company’s Q1 2016 guidance, indicating that demand in 2017 is much stronger than 2016. “Q1 of this year will be stronger. We see good demand. Last year, the problem areas were banking and the financial sector, which had fallen apart. But January of this year came in as we expected,” said Karen McLoughlin, chief financial officer during an analyst call.

Cognizant, also for the first time, disclosed that contribution from digital was 23% of its revenue. The company did not disclose the contribution of each vertical to the digital revenues. 

D’Souza also announced a comprehensive plan to accelerate the shift to digital services and solutions, execute on operational opportunities to drive leverage in its cost structure and return significant capital to shareholders. “Faced with business and technology shifts disrupting their industries, clients are both accelerating their adoption of digital services and solutions and, at the same time, optimising their core systems and processes. This plan will allow the company to leverage its position as a leader in the services sector and accelerate its shift to be a leading provider of digital services and solutions,” he said.

With an increased shift towards digital, the company also stated that it is targeting its operating margins to be at 22% by 2019. At present, the company has maintained that its margins will be in the band of 19-20%. The move to 22% margins targets means an impact of 360-440 basis points. This will be achieved by a shift to higher-value services, selective pursuit of business opportunity, and operating leverage and scale benefits by increasing utilisation, optimising pyramid structure and automation etc. 

Karen McLoughlin, CFO, Cognizant expects the benefits to margins to play out from 2017 onwards. “Benefits of cost actions take in Q1 2017 will start to flow through in Q2 to Q4,” she added.