Data management has become increasingly important in IT. Source: Cognizant.
The boom in technology during the past 25 years has been dizzying, both to the billions of people across the globe and the companies that try to serve them as customers. Many of those companies needed to turn to outside providers in order to take advantage of the tech boom, and Cognizant Technology Solutions (CTSH 0.50%) has been quite successful in providing IT consulting and outsourcing services to its business clients.
With the company reporting its fourth-quarter financial results Wednesday morning, investors were hoping that Cognizant would sustain its impressive growth rate, and the IT specialist's financials gave its shareholders much of what they wanted to see. Let's take a closer look at Cognizant's fourth quarter and how the company plans to keep moving forward in 2015 and beyond.
Cognizant knows growth
Cognizant's headline numbers gave investors even more than they had bargained for in the growth department. Revenue for the fourth quarter rose to $2.74 billion, up more than 16% from the previous year's fourth quarter. Some of those gains came from Cognizant's acquisition of TriZetto, but even taking out the positive impact of that deal, Cognizant's organic growth came in at 13% year over year.
Cognizant's bottom line also benefited from good conditions, with net income gaining 12% from a year ago, and adjusted earnings coming in at $0.67 per share, topping consensus estimates by $0.02. For the full year, Cognizant had similarly strong growth, with revenue and earnings per share both jumping 16%.
Source: Cognizant.
Looking deeper at its results, Cognizant's various segments did well nearly across the board. For the fourth quarter, health care was the best-performing segment, with sales growth of 26%. Financial services also grew at a double-digit percentage rate, while even the lagging manufacturing, retail, and logistics segment posted 9% growth. Health care has continued to become an increasingly important business for Cognizant, with health-care-related sales making up well over a quarter of the company's total revenue.
Geographically, Cognizant remains reliant on North America for more than three-quarters of its sales. That was a strong place to be, with revenue climbing more than 17% within the region. The strong dollar held back gains elsewhere, particularly in Europe, but even with those currency headwinds, European revenue climbed almost 11%, and the rest of the world grew at an even faster pace than Cognizant's core North American region.
Cognizant's management was pleased with the company's results. "Business leaders globally are facing dramatically compressed innovation cycles," said CEO Francisco D'Souza. "They are turning to us as a partner that can help them reimagine their businesses for the digital era." President Gordon Coburn agreed, noting that, "we are in a unique position in the market to address a wide range of opportunities fueled by digital transformations."
Cloud-based products are essential to Cognizant's growth. Source: Cognizant.
What will Cognizant do in 2015?
Cognizant gave investors guidance for 2015 that signals continued growth, albeit not quite at the pace that some had hoped. Cognizant expects sales of $2.88 billion in the first quarter, with adjusted earnings per share of $0.69, slightly less than the consensus expectations among investors prior to the announcement. Similarly, adjusted EPS of $2.91 for the full 2015 year on revenue of $12.21 billion fell slightly short of what those following the stock wanted to see. Nevertheless, with full-year guidance equating to 19% sales growth and 12% higher earnings per share, Cognizant doesn't expect any sort of marked slowdown.
Perhaps the biggest question Cognizant shareholders face is how well the company will do in integrating TriZetto. The company has high hopes from the $2.8 billion acquisition, with TriZetto software helping its customers manage the health benefits of almost half of all Americans who have health insurance.
After the merger, Cognizant now counts 16 of the top 20 U.S. health plans among its customers, along with four of the top five pharmacy benefit management companies. As D'Souza said when the transaction closed, "As a fully integrated health care technology and operations provider, we look forward to enabling our clients to deliver improved quality of care and superior health outcomes." Now, Cognizant will have to execute well to take full advantage of the TriZetto opportunity.
Investors celebrated Cognizant's results, with shares gaining about 1.5% in pre-market trading right after the announcement. If Cognizant can sustain its growth throughout 2015 and beyond, then shareholders could easily see much more significant gains in the long run.
