10-Q: Cognizant Reports Q1 2025 Results: Revenue and Operating Margin Increase

• Cognizant's Q1 2025 revenue increased by 7.5% to $5.115 billion, or 8.2% on a constant currency basis, compared to Q1 2024.
• Recently completed acquisitions contributed approximately 400 basis points to revenue growth.
• The operating margin increased to 16.7% from 14.6% in Q1 2024, while the adjusted operating margin increased to 15.5% from 15.1%.
• Diluted earnings per share (EPS) increased by 21.8% to $1.34, and adjusted diluted EPS increased by 9.8% to $1.23.
• The company's voluntary attrition rate for tech services was 15.8% for the trailing twelve months ended March 31, 2025, compared to 13.1% in the prior year.
• Cognizant had approximately 336,300 employees at the end of Q1 2025, compared to 344,400 at the end of Q1 2024.
• The company sold an office complex in India for $70 million, recording a gain of $62 million.
• The Board of Directors approved a dividend of $0.31 per share, payable on May 28, 2025.

Score: 7

Explanation: The document presents a generally positive outlook with revenue and margin growth, but also acknowledges challenges such as increased attrition and macroeconomic uncertainties. The company's strategic focus on AI and digital transformation is promising, but execution risks remain.

• Revenue increased by 7.5% year-over-year, indicating strong business performance.
• Operating margin improved, reflecting enhanced profitability and efficiency.
• Adjusted operating margin also increased, demonstrating core business improvement.
• Diluted EPS and adjusted diluted EPS both saw significant growth, benefiting shareholders.
• Acquisitions contributed positively to revenue growth, expanding the company's market presence.
• The sale of an office complex in India generated a substantial gain, boosting profitability.
• The company repaid the $300 million balance outstanding under the revolving credit facility.

• Voluntary attrition in tech services increased to 15.8%, potentially impacting project continuity and talent retention.
• Employee count decreased from 344,400 to 336,300, which could reflect restructuring or reduced hiring.
• Reduced demand for discretionary work negatively impacted revenues in the Products and Resources and Communications, Media and Technology segments.
• The acquisition of Belcan had a modest near-term dilutive impact to operating margin, primarily due to integration-related expenses and amortization of acquired intangibles.

• Economic and geopolitical conditions globally could affect client demand.
• Intense competition and rapid technological advances require continuous innovation.
• Failure to protect client and company data from security breaches poses legal and financial risks.
• Fluctuations in foreign currency exchange rates could impact financial results.
• Restrictions on visas could affect the ability to provide services to clients.
• Potential changes in tax laws could adversely affect financial performance.
• The ongoing legal dispute with Syntel could result in further costs and uncertainty.
• The class action lawsuit regarding disparate treatment could lead to significant liabilities.
• The company faces risks related to infringement upon the IP rights of others or having its IP rights infringed upon.

Cognizant expects clients to focus on AI-driven transformation, demanding services that enhance productivity and deliver cost savings, while navigating industry-specific changes and macroeconomic uncertainties. The company plans to continue investing in AI capabilities.

• We continue to expect our clients' focus to be on their transformation into AI-ready, technology-driven, data-enabled, customer-centric and differentiated businesses.
• To support this transformation and drive greater business resiliency, we expect clients will continue to demand services and solutions that can enhance productivity and deliver cost savings.
• We increasingly use AI-based technologies, including GenAI, in our client offerings and our own internal operations.
• We plan to continue to make significant investments in our AI capabilities to meet the needs of our clients and harness AI's value in a flexible, secure, scalable and responsible way.

Cognizant's focus on AI and digital transformation aligns with broader industry trends, as companies across sectors seek to leverage technology to improve efficiency and customer experience. The company's integrated global delivery model and industry-specific expertise position it to compete effectively in the professional services market.

• Cognizant's revenue growth of 7.5% is comparable to other major IT services firms, such as Accenture and TCS, which have also reported growth driven by digital transformation initiatives.
• The company's operating margin of 16.7% is competitive with industry peers, although some firms may have higher or lower margins depending on their business mix and cost structure.
• Cognizant's focus on AI and cloud services mirrors the strategies of companies like IBM and Microsoft, which are also investing heavily in these areas.
• The voluntary attrition rate of 15.8% is within the typical range for the IT services industry, but companies are actively working to improve employee retention in a competitive talent market.

• Shareholders will benefit from increased revenue, improved profitability, and dividend payments.
• Employees may be affected by changes in workforce size and attrition trends.
• Clients will benefit from Cognizant's focus on AI and digital transformation.
• The company's financial performance and strategic initiatives will impact suppliers and partners.

• Continue to execute strategic plans and initiatives.
• Monitor and manage attrition trends.
• Invest in AI capabilities to meet client needs.
• Vigorously defend claims against Syntel.
• Pursue all available appellate arguments concerning class certification and the September 24, 2024 trial at the appropriate time.

• Cognizant is involved in an ongoing legal dispute with Syntel regarding misappropriation of trade secrets, with a new trial scheduled for June 24, 2025.
• The company is also involved in a dispute with the Indian Income Tax Department (ITD) regarding share repurchase transactions in 2013 and 2016.
• Cognizant is defending a class action lawsuit alleging disparate treatment on the basis of race and national origin.

• 2013: CTS India undertook a share repurchase transaction valued at $523 million.
• 2016: CTS India undertook a share repurchase transaction valued at $2.8 billion.
• October 31, 2016: Three putative shareholder derivative complaints were filed in New Jersey Superior Court.
• September 18, 2017: Three former employees filed suit against Cognizant in the USDC-CDCA, alleging disparate treatment on the basis of race.
• February 28, 2019: A ruling of the SCI interpreting the India Defined Contribution Obligation altered historical understandings of the obligation.
• October 27, 2020: A jury returned a verdict in favor of Cognizant in the Syntel case in the amount of $855 million.
• April 20, 2021: The USDC-SDNY issued a post-trial order reducing the damages award in the Syntel case to $570 million.
• May 25, 2023: The Second Circuit issued an opinion affirming in part and vacating in part the judgment of the USDC-SDNY in the Syntel case.
• March 7, 2025: The Second Circuit denied Syntel's request for an interlocutory appeal in the Syntel case.
• April 9, 2025: The USDC-SDNY rescheduled the trial in the Syntel case to begin June 24, 2025.
• April 29, 2025: The Board of Directors approved the Company's declaration of a $0.31 per share dividend.
• May 19, 2025: Record date for the dividend of $0.31 per share.
• May 28, 2025: Payment date for the dividend of $0.31 per share.
• June 24, 2025: The USDC-SDNY rescheduled the trial in the Syntel case to begin.
• October 2027: Maturity date for the $650 million Term Loan and $1,850 million unsecured revolving credit facility.