Cognizant CEO: Company’s Shift to Digital Services On Track (MESA)

Cognizant Technology Solutions continued to see growth in digital-related revenue during the third quarter (ended Sept. 30) as the company continued its shift to digital services and solutions, according to CEO Francisco D’Souza. The company’s plan was “roughly right on track – right where we expected to be” in the shift to digital, he said Nov. 1 in an earnings call with analysts.

Cognizant has been “aggressively building high-end digital skills in areas” including artificial intelligence, automation, cybersecurity, data science and the Internet of Things, he said. To meet the increasing demand for “enterprise transformation,” Cognizant has 
“re-aligned our global delivery along 3 practice areas, extensively retrained our workforce, and accelerated our investments in platform-based software and solutions, client co-innovation centers, and new technologies including AI, the company said in its results announcement.

Cognizant reported Q3 revenue of $3.77 billion, which D’Souza said was at the “high end of our guided range” and 9.1% higher than a year ago. Three of its four business segments were “strong contributors to our performance” in the quarter as healthcare, products and resources, and communications, media and technology “averaged double-digit growth rates,” he told analysts.

Digital-related revenue “grew well above company average” in Q3 and, to “further enhance our digital capabilities,” Cognizant recently made two acquisitions: Netcentric and Zone, he pointed out.

Those purchases will “broaden our portfolio of digital services and solution,” he said.

Q3 profit grew to $495 million (84 cents a share) from $444 million (73 cents a share), while income from operations increased to $648 million from $583 million, Cognizant said.

It was the third-straight quarter of “strong execution at the top and bottom lines,” underscoring the “continuing strong demand for our portfolio of services,” D’Souza told analysts.

Cognizant booked about $19 million in charges in Q3 as part of a realignment and expects to report additional costs as part of that plan, CFO Karen McLoughlin said on the call, adding: “We will continue to reassess less profitable opportunities that do not further our position in the digital marketplace.”

The company also completed a $1.5 billion accelerated share repurchase program, she noted. During the quarter, Cognizant “continued to take actions designed to improve our cost structure while allowing us to invest in the business for growth,” she said in the company’s earnings news release, adding: “We maintained our momentum, and we expect to close out 2017 with solid revenue and earnings growth while having undertaken a substantial return of capital to shareholders.”

Cognizant expects fourth-quarter revenue to come in at $3.79 billion-$3.85 billion and Q4 non-GAAP earnings per share (EPS) to be at least 95 cents. For the fiscal year, it expects to report revenue of $14.8 billion and non-GAAP EPS of at least $3.70, it said.