cognizant earnings: Cognizant net earnings increase amid strong digital business growth

Chenai: Cognizant Technology Solutions on Thursday reported an 11.4% rise in net profit even as total revenue rose 10.9% in constant currency to $4.8 billion on strong demand for digital services in the March quarter, according to a company statement.

“Thanks to our talented employees, we delivered on our first quarter commitments in a fiercely competitive global job market,” said Brian Humphries, president and chief executive officer (CEO), Cognizant.

Quarterly net income, representing net income performance, was $563 million for the quarter versus $505 million a year ago. Earnings per share (EPS) were $1.07 versus $0.95 year-on-year.

The company’s adjusted operating margin was 15%, compared to 15.2% last year. Regarding the slight decline in generally accepted accounting principles (GAAP) and adjusted operating margin (AOM), chief financial officer (CFO) Jan Siegmund said that the increase in compensation costs, including the cost of sub- contractors, remained the strongest headwind. Going forward, Cognizant expects to see “gradual improvement” in the metric in Q2.

Attrition continued to be a sore spot for the company, but it saw some respite this quarter. Voluntary annualized attrition rate decreased to 26% this quarter from 31% in the December quarter.

Humphries said on the earnings call that quarterly revenue was above the midpoint of previously provided guidance, at 10.2-11.2% growth. Strong growth in digital services in sectors such as financial services, healthcare and products and resources boosted performance, the CEO said. “We had another stellar quarter in digital business operations, which continues to significantly outpace the BPO market, reflecting the momentum of intelligent process automation and digital native customers,” he said. during the call.

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In the prior quarter, the company posted revenue of $4.8 billion, which it said was its highest quarterly revenue ever. However, Cognizant cut its full-year guidance in the March quarter to $19.8-20.2 billion with constant currency growth of 9-11%.

The software services major, which finds a significant portion of its workforce in India, said it hired 9,800 employees in the first quarter, bringing its global workforce to 340,400 for the quarter ended March.

Cognizant’s battle against churn is consistent with trends that have been seen among software vendors across the board. Infosys’ voluntary attrition rate in the last 12 months (LTM) stood at 27.7% while TCS reported attrition of 17.4% and HCL Tech saw attrition climb to 21, 8% in the first quarter as the war for talent in the tech space continued to rage.

Cognizant continued to show a steady revenue stream from the digital vertical, with revenue growing approximately 20% year-over-year and contributing 50% of total revenue for the March quarter. Interestingly, it accounted for 45% of the company’s total revenue in the December quarter.

“Our performance in the first quarter reflects strong revenue growth from our digital portfolio and a healthy demand environment. We remain focused on investing to support growth opportunities while executing pricing to offset the impact of compensation pressure driven by the persistent imbalance between labor supply and demand,” said said Siegmund.

The company said its first-quarter bookings were up 4% year over year, resulting in 12-month bookings of $23.4 billion. He also shared revenue growth forecasts of 7.2% to 9.2% or 9.0% to 11.0% in constant currency for the second quarter. That’s lower than the company’s forecast for the full year 2022 in the previous quarter, which was pegged at 7.8% to 10.8%, or 8.5% to 11.5% in constant currency.

“Our updated constant currency revenue guidance for 2022 includes an improved organic revenue growth outlook and a lower inorganic contribution, reflecting a disciplined acquisition strategy,” added Siegmund.

During the first quarter, the company also repurchased five million shares for $444 million at an average price of $88.22 under its share buyback program. As of March 31, 2022, $1.7 billion remained under the stock repurchase authorization, the company added.

The communications, media and technology vertical saw the strongest revenue growth with an 18.1% year-over-year increase, or 19.9% ​​in constant currency, reflecting strong demand for data services among digital native companies, Cognizant said.

Products and Resources revenue also increased 13.2% year-on-year, or 14.9% in constant currency, driven by customer demand for digital services across all industries and included profit recent acquisitions.

Financial Services revenue increased 4.8% year-on-year or 6.0% in constant currency. Cognizant said the completion of the sale of subsidiary Samlink in February negatively impacted segment revenue growth by approximately 130 basis points. During the December quarter, this segment saw the strongest traction with an 18.5% year-over-year increase.

Healthcare revenue increased slightly to 8.1% year-over-year, or 8.8% in constant currency. “Growth in the healthcare segment was driven by increased demand for digital services among life sciences customers, including the digitization of clinical trial processes and investments in the modernization of manufacturing operations,” the company said.