IT services provider Cognizant Technology Solutions (CTSH 0.50%) reported third-quarter earnings on Wednesday, Oct. 30, that showed a 3% increased in revenue year over year to $5.04 billion. Revenue topped management's guidance range of $4.89 to $4.96 billion. This solid performance reflects strategic acquisitions and growth in key segments, particularly Health Sciences. However, pricing pressures pushed adjusted operating margin down to 15.3%, slightly below last year's 15.5%.
Overall, the quarter showed progress but underscored ongoing cost challenges.
| Metric | Q3 2024 | Management's Guidance | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $5.04 billion | $4.89 billion - $4.96 billion | $4.99 billion | 3% |
| Adjusted operating margin | 15.3% | 15.3% - 15.5% | 15.5% | (1.3%) |
| GAAP diluted EPS | $1.17 | $1.04 | $1.04 | 12.5% |
Source: Cognizant. Note: Management's guidance was issued on July 31, 2024. YOY = Year over year. GAAP = Generally accepted accounting principles.
About Cognizant Technology Solutions
Cognizant is a major player in the IT services industry, providing a range of services including consulting, application development, and digital transformation solutions. It serves clients across various industries, helping them modernize and streamline their operations through technology.
Recently, Cognizant has focused on expanding its digital transformation capabilities, a vital area of its business. This involves significant investments in artificial intelligence (AI) and other cutting-edge technologies. The company sees these capabilities as key drivers of growth and differentiation in a competitive market.
Quarterly Highlights
In Q3 2024, Cognizant's Health Sciences segment emerged as a standout performer. Revenue for the segment rose 7.8%, showcasing its growth potential and resilience. Financial Services also shows signs of stabilization by growing 0.7% year over year, a welcome recovery from prior contractions.
Revenue from the Communications, Media, and Technology segment fell 3.7% year over year. Market saturation and competitive pressures contributed to this challenge. Such pressures are also seen in the marginal decrease in Cognizant's adjusted operating margin to 15.3% from 15.5% last year. Cognizant reported increased earnings per share (EPS), with GAAP diluted EPS rising to $1.17 from $1.04 in Q3 2023. This increase reflects overall financial progress despite margin constraints.
Strategic developments included the acquisition of Belcan, enhancing Cognizant's capabilities in engineering research & development. This aligns with its strategy to focus on industry-specific growth and expansion into high-demand verticals like aerospace and defense.
Cognizant continues to invest in AI-driven platforms, collaborating with tech giants such as Nvidia, Amazon Web Services (AWS), and Palo Alto Networks. These partnerships support its digital transformation services, meeting the industry's shifting needs.
Looking Ahead
For the remainder of the fiscal year, Cognizant management maintains a cautious outlook, narrowing its revenue growth guidance to 1.4% to 1.9% in constant currency terms. This shows a confidence in meeting financial targets amid market volatility.
Adjusted operating margin guidance is set to remain around 15.1%, emphasizing the importance of cost management in a competitive environment. Meanwhile, the adjusted diluted EPS guidance is fine-tuned to $4.63 to $4.67, aligning with strategic investments and financial management objectives. Investors should watch for developments in AI initiatives and the continued execution of strategic acquisitions as these could significantly impact future performance.
