Technology Growth Gave Cognizant a Lift in Q2

Growth in technology provided a boost for Cognizant Technology Solutions in the company’s second quarter (ended June 30), the company said July 31.

Revenue in its Communications, Media and Technology business segment increased 12.2% from a year ago and 14.1% on a constant currency basis, dominated by technology, it said. Communications, Media and Technology accounted for 14.6% of Cognizant’s total revenue, the company said in its earnings news release.

The growth in technology was “driven primarily by our digital content services and solutions,” CFO Karen McLoughlin said on an earnings call. Through Cognizant’s acquisition of privately-held digital engineering and consulting company Softvision last year, it’s “seeing good traction for digital engineering solutions with our technology clients,” she said.

In addition to that “positive note,” the company continued to be “pleased with our momentum in international markets,” CEO Brian Humphries said on the call. “Our global growth markets region, which encompasses our non-North America operations surpassed the $1 billion run rate for the first time in our history,” he said, adding: “We intend to invest in our international business, which should continue to be a growth driver for Cognizant.”

The company also plans to “finalize our strategic positioning in the coming weeks,” but, “as we enable our customers to disrupt and innovate via modern, scalable, agile, data-enabled and future-proof architectures, it is clear that we should further accelerate our investments in digital engineering, cloud” and the Internet of Things (IoT), he told analysts.

Cognizant established a transformation office that he said has been “charged with reviewing six areas of focus” for the company: Strategic choices, which include “where we want to make strategic bets to better expose us to growth categories”; organizational structure; talent; delivery transformation, which includes optimizing unit cost of delivery across a global delivery model; sales force transformation, including compensation plans, customer segmentation, increased partnerships, sales coverage ratios and consultative selling; and “fit for growth, which “aims to ensure we have the cost structure, processes and tools to facilitate growth.”

Cognizant has already “made significant progress in a short period of time,” but “we have more work to do in the weeks ahead, including internal change management and communications to maximize associate engagement,” he said, adding: “We expect to outline the details of this program, including the execution plan and associated restructuring charges,” on its third quarter earnings call.

Growth also requires investments in sales coverage, “targeted” mergers and acquisitions, and a competitive cost structure, he told analysts. Therefore, “even ahead of the execution of the conclusions of the transformation office, we have moved on a number of things,” including its recently announced plan to acquire privately-held life sciences manufacturing technology services company Zenith Technologies, which he noted expands Cognizant’s IoT portfolio and “extends our life sciences domain expertise by enabling us to become a single-source provider of end-to-end smart factory capabilities.”

Total Cognizant revenue increased 3.4% year-over-year in Q2 to $4.14 billion, while income jumped to $509 million (90 cents a share) from $456 million (78 cents a share).