8-K: Cognizant Reports Solid Q3 2024 Results, Revenue at High End of Guidance

• Cognizant reported a revenue of $5.0 billion for the third quarter of 2024, representing a 3.0% year-over-year increase, or 2.7% in constant currency.
• The company's operating margin was 14.6%, flat sequentially and up 60 basis points year-over-year.
• Adjusted operating margin was 15.3%, a 10 basis point increase sequentially but a 20 basis point decrease year-over-year.
• Trailing 12-month bookings reached $26.2 billion, with a book-to-bill ratio of 1.3x.
• Health Sciences saw strong growth, up 7.8% year-over-year, while Financial Services returned to growth, up 0.7% year-over-year.
• The company signed six deals with a total contract value of over $100 million each in the third quarter, bringing the year-to-date total to nineteen.
• Cognizant completed the acquisition of Belcan for approximately $1.3 billion in cash and stock during the quarter.
• Full-year 2024 revenue guidance was narrowed to growth of 1.4% to 1.9% in constant currency, with an adjusted operating margin of approximately 15.1%.

Score: 7

Explanation: The sentiment is positive due to the revenue growth, large deal wins, and strategic acquisitions. However, there are some concerns about the slight decrease in adjusted operating margin and flat bookings, which temper the overall positive outlook.

• Revenue growth was at the high end of the guidance range.
• Health Sciences and Financial Services segments showed strong performance.
• The company signed a significant number of large deals, exceeding the total for the full year 2023.
• The acquisition of Belcan is expected to expand Cognizant's presence in the ER&D market.
• The company achieved sequential gross margin expansion due to better utilization and AI-led productivity.
• Adjusted EPS grew by more than 7% year-over-year.
• Voluntary attrition in Tech Services decreased to 14.6% from 16.2% year-over-year.
• The company repurchased 3.1 million shares for $228 million during the quarter.
• A quarterly cash dividend of $0.30 per share was declared.
• The company is seeing strong momentum in large deals, providing a foundation for 2025.

• Adjusted operating margin decreased by 20 basis points year-over-year.
• Bookings were flat year-over-year in the third quarter.
• Trailing twelve-month bookings declined 2% year-over-year.
• Total headcount decreased by 6,500 from Q3 2023.

• The company faces risks related to general economic conditions and the competitive nature of the markets.
• There are risks associated with the competitive marketplace for talent and its impact on recruitment and retention.
• The company's ability to successfully implement the NextGen program and realize its benefits is a risk.
• There are legal, reputational, and financial risks resulting from cyberattacks.
• Changes in the regulatory environment, including immigration and taxes, pose risks.
• The integration of Belcan and the realization of its benefits are subject to risks.

Cognizant expects fourth quarter revenue to be between $5.0 and $5.1 billion, representing a growth of 5.1% to 7.1% year-over-year, or 4.8% to 6.8% in constant currency. Full-year 2024 revenue is expected to be between $19.7 and $19.8 billion, with growth of 1.6% to 2.1%, or 1.4% to 1.9% in constant currency. The full-year adjusted operating margin is expected to be approximately 15.1%, and adjusted diluted EPS is expected to be in the range of $4.63 to $4.67.

• Ravi Kumar S, Chief Executive Officer, stated that revenue growth in the third quarter was at the high end of their guidance range, driven by strong performance in Health Sciences and Financial Services.
• Ravi Kumar S also noted that investments in AI-driven platforms are resonating with clients and supporting large deals.
• Jatin Dalal, Chief Financial Officer, mentioned that the company delivered organic revenue growth both sequentially and year-over-year, while also achieving sequential gross margin expansion.
• Jatin Dalal also stated that the company's focus on operating cost discipline and savings generated through the NextGen program have allowed them to expand year-to-date adjusted operating margin.
• Jatin Dalal added that the fourth quarter year-over-year organic revenue growth is expected to be stronger than it was in the prior year period.

Cognizant's results reflect the ongoing demand for digital transformation and technology services, particularly in the health sciences and financial services sectors. The company's focus on AI and strategic acquisitions aligns with broader industry trends towards leveraging advanced technologies and expanding service offerings. The partnerships with NVIDIA, ServiceNow, AWS and Palo Alto Networks highlight the importance of collaboration in the technology sector.

• Cognizant's revenue growth of 3.0% year-over-year is comparable to other large IT services companies, such as Accenture, which reported 2.5% growth in their most recent quarter, and Tata Consultancy Services, which reported 3.5% growth.
• The adjusted operating margin of 15.3% is within the range of industry peers, with Accenture reporting 15.1% and Infosys reporting 20.5%.
• Cognizant's book-to-bill ratio of 1.3x indicates a healthy demand for its services, similar to other IT services companies.
• The company's focus on AI and digital transformation aligns with industry trends, as seen in the investments and partnerships of competitors like IBM and Capgemini.
• The acquisition of Belcan is a strategic move to strengthen engineering capabilities, similar to how other companies are expanding their service offerings through acquisitions.

• Shareholders will benefit from the share repurchase program and the quarterly cash dividend.
• Employees will be impacted by the ongoing NextGen program and the integration of Belcan.
• Customers will benefit from the company's investments in AI and digital transformation.
• Suppliers and partners will be impacted by the company's strategic acquisitions and partnerships.

• Cognizant will continue to focus on its NextGen program to drive cost savings and improve efficiency.
• The company will integrate Belcan to expand its presence in the ER&D market.
• Cognizant will continue to invest in AI-driven platforms and strategic partnerships.
• The company will focus on converting its large deal wins into revenue growth.
• Cognizant will host a conference call on October 30, 2024, to discuss the results.

• October 30, 2024: Date of the earnings release and conference call to discuss Q3 2024 results.
• November 19, 2024: Shareholders of record date for the quarterly cash dividend.
• November 27, 2024: Payment date for the quarterly cash dividend.