Connections

Cognizant reported stronger results for its third quarter (ended 30th Sept) than it did a year ago, helped significantly by continued growth in digital and its Communications, Media and Technology (CMT) business.

CMT revenue grew 6% from a year ago and 10.4% in constant currency, driven by strength among digital native clients, the company said 2nd Nov.

“We’re expanding our collaboration with Qualcomm to accelerate digital transformation through a new 5G experience centre in Atlanta,” Cognizant CEO Brian Humphries told analysts on an earnings call.

“The collaboration combines our deep expertise in 5G,” the Internet of Things (IoT), cloud and data analytics with Qualcomm’s intelligent edge devices, artificial intelligence (AI) and 5G connectivity solutions,” he said.

In Products and Resources, revenue grew 3.7% (8.2% in constant currency), with growth “driven by demand for our digital services among logistics, automotive, consumer goods and travel and hospitality clients,” according to Humphries.

Digital revenue grew 7% (11% at constant currency). “Digital represented approximately 51% of total revenue for the quarter, up 2 points from the prior year period,” CFO Jan Siegmund told analysts.

“Our slower digital revenue growth reflected the expected lower inorganic contribution we discussed last quarter,” Siegmund said.

“Clients are slowing discretionary spending as they await greater clarity on the economy and navigate an increasingly complex regulatory environment,” Siegmund noted.

Total Cognizant Q3 revenue grew 2.4% (5.6% in constant currency) to $4.9 billion. The company, meanwhile, reported net income grew to $629 million ($1.22 per share) from $544 million ($1.03 per share) a year ago.

“While a non-certain macroeconomic backdrop impacted bookings and revenue, the primary driver” of revenue coming in less than expected “relates to a reduction in U.S. onshore billable resources in recent quarters, following a period of elevated attrition, a reduction in visa travel and a COVID-induced shift in the near and offshore delivery centres,” Humphries said.

The “financial impact of this headcount reduction is magnified given this is our highest revenue and margin dollar per head population,” he noted.

To reverse that trend, Cognizant has “already initiated a series of actions that are intended to increase U.S. onshore billable resources, including enhanced focus on lateral hires and subcontractors, accelerated visa travel and targeted compensation programs,” according to Humphries.

Addressing the macroeconomic environment, Humphries said: “We see clients closely scrutinising and slowing their investment decisions faced with a backdrop of uncertain economic conditions. Spending has been reduced on lower-priority projects or those with a longer return on investment. We are seeing some early signs of slowing discretion on digital projects.”

As Humphries mentioned in its Q2 earnings call, “targeted M&A remains an important tool for enhancing our competitiveness,” he said, adding: “We have several M&A targets in the pipeline in line with our strategy and capital allocation framework. As always, we continue to focus on opportunities, which are value-accretive among its shareholders and align with our strategy.”

One day before the earnings call, Cognizant announced an agreement to acquire the professional services and application management practices of OneSource Virtual, a Workday partner based in Dallas, Texas.

“These practices will complement our existing finance and HR advisory services on the Workday Cloud Platform,” Humphries said on the earnings call. “The acquisition is anticipated to close by year-end 2022, subject to satisfaction of closing conditions, at which stage, we expect to welcome nearly 400 new employees to our strategic Workday practice,” he said.