Cognizant reports slight increase in revenue of 0.8% y-o-y to $4.9 bn

IT services firm Cognizant Technology Solutions released its financial results for the third quarter of 2023, reporting a slight increase in revenue of 0.8% year-over-year to $4.9 billion. Despite ongoing economic uncertainty, the company experienced significant growth in bookings and a decrease in voluntary attrition.

However, Cognizant has narrowed its full-year 2023 revenue growth guidance to $19.3-19.4 billion, representing a decline of 0.7% to flat, both as reported and in constant currency. This adjustment is due to uncertainty in discretionary spending and a seasonally soft fourth quarter.

The company expects fourth-quarter revenue to be in the range of $4.69-$4.82 billion, representing a decline of 4.0% to 1.2% in constant currency. This decrease is attributed to furloughs and a lower number of working days in the December quarter.

Cognizant's net profit for the September quarter declined by 19.8% to $525 million from $629 million the previous year. The revenue declined by 0.2% in constant currency from the year-ago period to $4.9 billion, falling within its own guidance range. The company follows the calendar year.

Additionally, Cognizant forecasts quarterly revenue below estimates due to weak corporate spending. The company now expects annual revenue in the range of $19.3 billion to $19.4 billion, compared to its previous estimates of $19.2 billion to $19.6 billion.

"We have narrowed our full-year revenue guidance range, which now reflects recent discretionary spending pressure and its impact on our near-term revenue expectations," Jan Siegmund, CFO ,said in a statement.

In October, Indian IT services giants Infosys and Tata Consultancy Services reported weaker-than-expected quarterly revenue, raising concerns about near-term demand. Accenture also forecast full-year earnings and first-quarter revenue below Wall Street targets in late September.

Cognizant expects the full-year 2023 adjusted operating margin to be approximately 14.7%, at the high end of its prior range. Jan Siegmund, the outgoing CFO, stated, "This reflects our continuing focus on enhancing operational discipline." Jatin Dalal, a veteran of Wipro, will take over as CFO in December.

Cognizant further reported a net employee addition in the September quarter, while its peers Tata Consultancy Services, Infosys, Wipro, and HCL Technology reported a decline. The total headcount at the end of the third quarter was 346,600, with Cognizant reporting an increase of 1,000 from Q2 2023. In comparison, TCS reported a decline of 6,333 employees, Infosys by 7,350, Wipro by 5,054, and HCL Tech by 2,299 employees in the September quarter.

Bookings in the third quarter grew 9% year-over-year. On a trailing twelve-month basis, bookings grew 16% year-over-year to $26.9 billion, resulting in a book-to-bill ratio of approximately 1.4x. Cognizant signed three large deals over $100 million during the third quarter.

Ravi Kumar S, the CEO of Cognizant, stated that the company won three large deals worth more than $100 million in the September quarter. He also mentioned that the deals are starting to ramp up, leading to an increase in headcount.

Kumar, a former Infosys president, joined Cognizant as CEO on January 12, succeeding Brian Humphries, who departed the company on March 15 after assisting with the transition.

Major Indian IT companies, including TCS, Infosys, HCL Tech, and Wipro, reported subdued earnings for the July-September quarter (Q2) due to ongoing macroeconomic uncertainties, resulting in reduced discretionary spending in critical markets.

TCS reported a consolidated net profit of ₹11,342 crore in the September quarter, a rise of 8.7% compared to ₹10,431 crore in the corresponding period last year.

Infosys, India's second-largest IT major, saw its net profit rise 3.17% to ₹6,212 crore, compared to ₹6,012 crore in the corresponding period last year. The company trimmed its revenue growth guidance for the full year at the upper end to 1-2.5%.

HCL Tech reported a rise of 9.8% in its consolidated net profit to ₹3,832 crore, compared to ₹3,489 crore in the corresponding period last year.

Wipro reported a consolidated net profit of ₹2,667.3 crore in the July-September quarter, compared to ₹2,649 crore in the year-ago period.