Cognizant Marches Into $10 Billion Revenue Club

CHENNAI: The Teaneck, New Jersey-based Cognizant on Wednesday said its quarterly revenues for April-June period rose to $2.52 billion, in line with analyst expectations, up 16.5% from a year-ago period and 3.9% sequentially, joining the $10 billion a year run-rate club. GAAP net income was up 23.8% at $372 million and 6.6% sequentially. The company lowered its guidance for the remaining period, sending its stock prices crashing.

Cognizant, which employs more than three-fourths of its employees in India, said its growth could slow down than previous forecast due to weakness at some clients and delays in order booking. Cognizant shares fell 16% to $42.19 in NASDAQ in early trades, after declining as much as 17% for the biggest intra-day drop since May 2012. The stock had declined 1% this year through Tuesday. "Clients aren't spending as much as we expected on projects as we were anticipating," Gordon Coburn, president of Cognizant, said on the second-quarter earnings conference call.

The company cut its revenue growth forecast for the year to at least 14% from earlier 16.5%, slowest ever in its 20 year history. Its latest full-year guidance could result in revenues of at least $10.1 billion, achieving a significant milestone. Analysts were expecting full-year revenue of $10.34 billion, according to Thomson Reuters. Cognizant also forecast July-September quarter revenues to range between $2.55 billion and $2.58 billion, again lower than analyst estimates of nearly $2.66 billion.

"Due to weakness at certain clients and longer than anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year," Francisco D'Souza, CEO of Cognizant, said in a statement.

It said that it has signed three transformational engagements totalling $3.5 billion in contract value, including a letter of intent with Health Net for a seven-year deal. The deal is expected to represent approximately $2.7 billion in total contract value, the largest in Cognizant's history, a company statement said.

Operating margins were at 21%, higher than the company's targeted 19-20% range. This, however, lags its comparable Indian peers who have higher operating margins. For example: TCS's margins are 26.1% while that of Infosys are 25.1%. Revenues from North America rose 15%, accounting for about 77% of all revenues. The EU region contributed to 20.4% of revenues.

Consulting and technology services contributed to 52% of revenues and grew 6.2% sequentially while outsourcing services 48% of revenues and grew 1.5% sequentially. "As expected, overall pricing was stable during the quarter, said Karen McLoughlin, CFO, Cognizant

The company said it added 8800 persons (net), its highest since Q3 2011, in a quarter where its comparable peers recruited fewer people. "Around 34% of gross additions for the quarter were direct college hires, while 64% were lateral hires of experienced professionals. We ended the quarter with approximately 187,400 employees globally. Annualized attrition levels at Cognizant was 16.9% during the quarter-including BPO and trainees-down by almost 200 basis points from the year ago period.

Cognizant also said it expanded its stock repurchase programme from $1.5 billion to $2 billion.