Cognizant Technology Solutions ((CTSH)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Cognizant Technology Solutions’ latest earnings call painted a picture of robust growth and strategic foresight, despite some ongoing challenges. The company reported strong revenue growth, improved operating margins, and significant advances in AI productivity and large deal signings. However, it also acknowledged challenges such as geopolitical uncertainties and a decline in bookings. Overall, the sentiment was positive, with a focus on strategic initiatives in AI and partnerships positioning the company well for future growth.
Revenue Growth
Cognizant reported a 6.5% year-over-year revenue growth in constant currency, amounting to $5.4 billion. This achievement marks the fifth consecutive quarter of year-over-year organic revenue growth, showcasing the company’s consistent performance across its operating segments.
Large Deal Signings
The company successfully signed six large deals, each with a total contract value (TCV) of $100 million or more, bringing the year-to-date total to 16. This represents a 40% increase in the TCV of large deals compared to the prior year period, highlighting Cognizant’s strong market presence and ability to secure significant contracts.
Adjusted Operating Margin Improvement
Cognizant’s Q3 adjusted operating margin improved by 70 basis points year-over-year. This improvement was driven by disciplined expense management and an increasingly AI-enabled delivery model, reflecting the company’s focus on operational efficiency.
AI and Productivity Gains
The company’s focus on AI has led to notable productivity gains, with revenue per employee rising 8% year-over-year and adjusted operating income per employee growing 10%. Approximately 30% of internal code was AI-generated, significantly enhancing productivity.
Partnerships and Innovation
Cognizant continues to expand its AI ecosystem through new collaborations, such as its partnership with Anthropic. The launch of the Cognizant Enterprise Vibe Coding Blueprint aims to help clients build AI fluency, further cementing its position as an innovator in the AI space.
Financial Performance
The company’s financial performance was strong, with adjusted EPS growing approximately 11% year-over-year. Additionally, free cash flow reached $1.2 billion, representing 170% of adjusted net income, underscoring Cognizant’s solid financial health.
Demand Environment and Geopolitical Uncertainty
Despite the positive results, Cognizant acknowledged the challenges posed by geopolitical uncertainties and a lower pace of discretionary spending in certain areas. Clients across industries are navigating elevated levels of uncertainty around trade policy and its impacts.
Bookings Decline
In Q3, bookings declined by about 5% year-over-year, although the trailing 12-month bookings grew by 5%. This indicates some short-term challenges in securing new business, despite overall growth.
Forward-Looking Guidance
Cognizant is optimistic about its future, expecting to reach the high end of its yearly revenue guidance. The company’s AI-driven strategy, focusing on transforming into an AI builder, is expected to drive further productivity gains and position it as a leader in the AI era. With strong bookings momentum and a robust pipeline, Cognizant is well-positioned for future growth.
In conclusion, Cognizant Technology Solutions’ earnings call reflected a positive outlook, with strong revenue growth and strategic advancements in AI and large deal signings. Despite some challenges, the company’s focus on innovation and partnerships positions it well for continued success in the evolving tech landscape.