Cognizant warns of slow growth in US healthcare business

By Sruthi Ramakrishnan

REUTERS - Technology outsourcing company Cognizant Technology Solutions Corp said growth in its North America healthcare business would remain slow this quarter due to lower spending by customers as they adjust to changes brought on by Obamacare.

Cognizant's shares fell as much as 7 percent, after the company also forecast current-quarter revenue below analysts' estimates.

The company provides services such as claims processing, billing and maintaining regulatory compliance to healthcare customers, including insurers and hospitals.

"More and more employers (are) moving to high deductible plans and so on, which is changing consumption patterns for healthcare in the United States," Chief Executive Francisco D'Souza said on a conference call on Wednesday.

Revenue growth in North America, Cognizant's largest market, slowed to 16.1 percent, in the first quarter ended March 31 from 16.3 percent, a year earlier.

The company's customers include operators of online healthcare exchanges, set up as part of U.S. President Barack Obama's Affordable Care Act. Cognizant provides services such as connecting payers to the exchanges and call center operations to handle customer queries.

Several U.S. state-run exchanges have been facing problems, with Massachusetts and Oregon deciding to join the federal HealthCare.gov exchange. Maryland has sought help from other states for its failed exchange.

President Gordon Coburn said some customers in North America had leadership changes in the quarter, which delayed their spending on outsourcing.

"I'd expect that healthcare remains soft in (second quarter) ... and stable for the rest of the year. We do not expect a significant rebound in the second half in healthcare," Coburn told Reuters.

Revenue from its global healthcare business grew 20.8 percent, accounting for a quarter of total revenue. The business grew 17.1 percent in the fourth quarter and 9.1 percent in the first quarter of 2013.

Revenue from Europe rose 35 percent, the strongest growth since the company started breaking out revenue by region two years ago. Europe contributed 19.4 percent to total revenue.

India-based rivals Tata Consultancy Services Ltd and Infosys Ltd also reported better-than-expected profit for the period.

Cognizant forecast revenue of $2.50 billion to $2.53 billion for the current quarter, slightly below the average analyst estimate of $2.54 billion, according to Thomson Reuters I/B/E/S.

Net income rose 23 percent to $348.9 million, or 57 cents per share, in the first quarter.

Revenue increased about 20 percent to $2.42 billion.

Analysts on average had expected earnings of 55 cents per share on revenue of $2.43 billion.

Cognizant said it continued to expect revenue to grow by at least 16.5 percent to $10.3 billion this year. It raised its adjusted earnings forecast by 3 cents to at least $2.54 per share.

Cognizant's shares were down 6.7 percent at $45.90 in morning trading on the Nasdaq on Wednesday.

(Additional reporting by Soham Chatterjee in Bangalore; Editing by Kirti Pandey)