CTSH
Cognizant Technology Solutions CORP
NASDAQ
8-K: Cognizant Reports Mixed Results for 2023, Provides Cautious 2024 Outlook
Sentiment:
Quarterly Report
6 February 2024 4:08 PM
Cognizant's full-year revenue declined slightly in 2023, but the company exceeded margin guidance and increased its dividend, while providing a mixed outlook for 2024.
Worse than expected
The company's full-year revenue declined by 0.4% year-over-year, indicating worse than expected performance.
The company's Q4 revenue declined by 1.7% year-over-year, indicating worse than expected performance.
The company's 2024 revenue growth guidance is between -2% and 2% in constant currency, indicating worse than expected performance.
Summary
- Cognizant's full-year 2023 revenue was $19.4 billion, a decrease of 0.4% year-over-year, or 0.3% in constant currency.
- The company's full-year operating margin was 13.9%, with an adjusted operating margin of 15.1%, exceeding their guidance by 40 basis points.
- Full-year operating cash flow was $2.3 billion, and free cash flow was $2.0 billion, representing 95% of net income.
- Trailing 12-month bookings reached $26.3 billion, a 9% increase year-over-year.
- Cognizant returned $1.7 billion to shareholders through share repurchases and dividends in 2023.
- The company increased its cash dividend by 3% to $0.30 per share for Q1 2024.
- For 2024, Cognizant projects revenue growth between -2% and 2% in constant currency, and an adjusted operating margin between 15.3% and 15.5%.
Sentiment
Score: 5
Explanation: The sentiment is neutral to slightly negative. While the company exceeded margin guidance and increased its dividend, the revenue decline and cautious 2024 outlook temper the positive aspects. The mixed results and potential challenges ahead suggest a cautious outlook from an investment perspective.
Positives
- Cognizant exceeded its full-year operating margin guidance by 40 basis points.
- The company's free cash flow was strong, representing 95% of net income.
- Bookings increased by 9% year-over-year, indicating strong future revenue potential.
- The company is actively returning capital to shareholders through dividends and share repurchases.
- Voluntary attrition in tech services has significantly decreased year-over-year.
- The adjusted operating margin improved sequentially in Q4 2023 to 16.1%.
Negatives
- Full-year revenue declined by 0.4% year-over-year, or 0.3% in constant currency.
- Fourth quarter revenue declined by 1.7% year-over-year, or 2.4% in constant currency.
- Bookings in the fourth quarter declined 6% year-over-year.
- The company's 2024 revenue growth guidance is between -2% and 2% in constant currency, indicating potential stagnation.
- The company expects to incur $70 million in expenses related to the NextGen program in 2024.
Risks
- The company faces risks related to general economic conditions and the competitive nature of the markets they operate in.
- There are risks associated with the competitive marketplace for talent and its impact on employee recruitment and retention.
- The company's ability to successfully implement the NextGen program and realize its benefits is a risk.
- There are risks related to the successful use of AI-based technologies.
- The company faces legal, reputational, and financial risks from cyberattacks.
- Changes in the regulatory environment, including immigration and taxes, pose potential risks.
Future Outlook
Cognizant's 2024 revenue is expected to be between $19.0 and $19.8 billion, representing a decline of 1.8% to growth of 2.2% as reported, or a decline of 2.0% to growth of 2.0% in constant currency. The adjusted operating margin is expected to be between 15.3% and 15.5%, and adjusted EPS is expected to be between $4.50 and $4.68.
Management Comments
- Ravi Kumar S, Chief Executive Officer, stated that he is grateful to the company's employees and that Cognizant delivered Q4 revenue within the guided range and maintained commercial momentum.
- Ravi Kumar S believes Cognizant is in a significantly stronger position than a year ago to help clients transform their businesses.
- Jatin Dalal, Chief Financial Officer, noted the sequential improvement in adjusted operating margin in Q4 and the delivery of $2 billion in full-year free cash flow.
- Jatin Dalal stated that the company remains committed to adjusted operating margin expansion of 20 to 40 basis points in 2024.
Industry Context
The announcement reflects the ongoing challenges in the IT services sector, with companies navigating macroeconomic pressures and investing in new technologies like generative AI. Cognizant's focus on digital transformation and strategic partnerships aligns with industry trends, but the mixed financial results and cautious outlook highlight the competitive landscape.
Comparison to Industry Standards
- Cognizant's revenue decline of 0.4% for the full year is below the growth rates of some of its peers in the IT services industry, such as Accenture and Infosys, which have reported positive growth in recent periods.
- The adjusted operating margin of 15.1% is competitive but not industry-leading, with some companies achieving higher margins through different business models and cost structures.
- The 9% growth in bookings is a positive sign, but the 6% decline in Q4 bookings raises concerns about future revenue growth compared to industry averages.
- Cognizant's focus on generative AI and digital transformation aligns with industry trends, but the company's ability to capitalize on these trends will determine its competitive position against companies like TCS and Wipro.
Stakeholder Impact
- Shareholders will benefit from the increased dividend and share repurchases.
- Employees may be impacted by the ongoing NextGen cost optimization program.
- Clients will benefit from Cognizant's investments in new technologies and digital transformation.
- Suppliers and creditors will be impacted by the company's overall financial performance.
Next Steps
- Cognizant will continue to invest in generative AI, cloud, data modernization, digital engineering, and IoT.
- The company will focus on expanding its strategic partnerships and collaborations.
- Cognizant will continue to implement its NextGen cost optimization program.
- The company will continue to return capital to shareholders through share repurchases and dividends.
Key Dates
- February 1, 2022: Sale of the Samlink subsidiary was completed.
- June 2023: Fortrea successfully completed its spin-off from its former parent company.
- February 6, 2024: Cognizant announced its fourth quarter and full-year 2023 financial results, and declared a quarterly cash dividend.
- February 20, 2024: Shareholders of record date for the Q1 2024 dividend.
- February 28, 2024: Payment date for the Q1 2024 dividend.
Keywords
Cognizant, Financial Results, Revenue, Operating Margin, Bookings, Free Cash Flow, Share Repurchase, Dividends, Technology Services, Digital Transformation, Generative AI, IT Services
CTSH
Cognizant Technology Solutions CORP
NASDAQ
Sector: TBD
Filings with Classifications
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Better than expected
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Better than expected
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Worse than expected
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Quarterly Report
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Better than expected
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Quarterly Report
- The company exceeded its revenue guidance for the quarter.
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Capital raise
10 June 2024 7:05 AM
Merger Announcement
- The cash portion of the acquisition is expected to be funded through a mix of cash on hand and debt.
- Cognizant intends to increase its share repurchase plan to maintain current share count guidance of 497 million for the full year 2024.
Worse than expected
1 May 2024 5:40 PM
Quarterly Report
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Worse than expected
14 February 2024 12:16 PM
Annual Results
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- The company's operating margin decreased to 13.9% from 15.3% in 2022, indicating worse than expected results.
Worse than expected
6 February 2024 4:08 PM
Quarterly Report
- The company's full-year revenue declined by 0.4% year-over-year, indicating worse than expected performance.
- The company's Q4 revenue declined by 1.7% year-over-year, indicating worse than expected performance.
- The company's 2024 revenue growth guidance is between -2% and 2% in constant currency, indicating worse than expected performance.
Disclaimer: This summary was generated by artificial intelligence and its accuracy is not guaranteed. The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.