M+E Connections

Cognizant reported stronger revenue for its fourth quarter (ended Dec. 31) than it did a year ago, helped significantly by continued growth in digital and its Communications, Media and Technology (CMT) business.

CMT revenue grew 9% from Q4 a year earlier, while overall Cognizant revenue inched up 1.3% to $4.8 billion and was up 4.1% in constant currency, the company said Feb. 2.

In the CMT business in Q4, “growth again was led by our technology business, where our work with digital-native clients has driven growth in our core portfolio,” CFO Jan Siegmund told analysts on an earnings call.

“Our growth has moderated somewhat as growth among some of our largest clients have slowed but remains positive,” he said, adding: “We are closely monitoring trends and developments affecting the tech industry.”

In Q4, digital revenue grew 4% year-over-year and was up 7% in constant currency. That resulted in full year 2022 digital revenue growth of 11% (13% in constant currency). “Digital mix was unchanged from last quarter, at 51 percent, up two points from the prior year period,” Siegmund said.

Speaking during the first earnings call after being appointed Cognizant’s new CEO, Ravi Kumar told analysts: “Over the last year or so, Cognizant business has advanced its solutioning capabilities along with its project and program management processes. We have become better equipped to … manage large deals and have planned to build on this foundation to reenergize our efforts. In particular, I want to instill a greater sense of pride and empowerment among our client partners and delivery teams to encourage a faster, more agile response to client needs.”

With that in mind, he told analysts he has a “weekly standing meeting during which I review 10 large deals and do everything I can to help our teams to drive these deals over the finish line.”

Cognizant’s recent signing of a 10-year, $1 billion renewal contract with long-time client CoreLogic demonstrated “our capabilities and the confidence our clients place in us,” he said.

Another key area of focus for Cognizant is “ensuring operational excellence across the company, including our approach to large deals and fulfillment in general,” he told analysts.

“We are building out an organizational structure designed to bring together a continuum of activities such as industrialized delivery with high productivity rates, market competitive cost takeout initiatives, contract life cycle and risk management, consortium-led deals and more,” he pointed out.

Meanwhile, he said, “as one Cognizant team, we are also working on internal simplification.”

And, “with the market for tech talent showing some early signs of improvement, we are working to optimize fulfillment of existing engagements, unleash our entrepreneur spirit and rejuvenate the growth mindset,” he said.

He went on to offer his take on the long-term demand environment for technology services, saying: “I believe we are in a golden era of technology and that software is the new alchemy for every business and industry. As the world prepares for a post-pandemic reset of the way we work and live our lives, we see more organizations accelerating their embrace of digital technologies.”

Industries that are at “lower levels of digital maturity, like health care, life sciences and manufacturing,” meanwhile, are “stepping up their tech intensity,” he told analysts. “While those that are more digitally mature, like financial services, retail and communications, are staying invested in digitizing the landscapes, we also interestingly see workplaces rapidly adapt digital technologies as employees get comfortable with continuously toggling between hybrid and physical workplaces.”

He explained: “In an era of globalization that has spanned several decades, enterprises have turned to tech services companies to enable their businesses to scale and globalize. Today, every industry is a tech industry. Technology will be deeply embedded in the core of every business, every product and every service. Therefore, the use of deep software engineering capabilities to transform the core of businesses will be a big player for tech services firms like Cognizant. So too will be the market opportunity that comes from born-digital companies that outsource the technology core and operations.”

He went on to predict that the cloud “will continue to remain the biggest general purpose technology we have seen in decades and be deeply embedded as a digital pillar in every business.”

Also, “cloud migration, modernization [and] application services will continue to create significant market momentum,” he predicted, adding: “Growth will also be driven by new cloud services like data in the cloud, data exchanges, new” Software-as-a-Service (SaaS) and cloud security services.

“Clients are aware of our deep alliances with the hyperscalers and new best-in-class SaaS companies, as well as our ability to co-innovate with these partners,” he told analysts, noting: “We truly believe clients will continue to turn to us to help orchestrate those cloud capabilities.”

The shift to the cloud and 5G next-generation mobile service have also “accelerated” Internet of Things (IoT) “adoption as use cases grow with better connectivity and proliferating devices, and that’s core,” he said.

Cognizant is also seeing a “strong push now to bring” artificial intelligence (AI) into [the] business landscape with the expectation that AI will reengineer enterprises as completely as enterprise software did three decades ago,” he said.

While clients continue to “navigate a challenging macro environment now, they need to fund their investments in digital transformation by executing cost and efficiency agendas,” he told analysts. “These same clients are now asking how we can help them achieve their cost reduction ambitions and underwrite savings for their digital initiatives. Given our broad capabilities, we can help clients, whether they need to drive efficiency gains, innovation or an end-to-end transformation of the business.”

Although he was “confident” in Cognizant’s prospects, he conceded: “I’m fully aware, as we have signaled with our guidance for Q1 … that we have a great deal of work ahead of us. It will take time to rebuild the pipeline and go after larger opportunities.”

Steve Rohleder, chairman of Cognizant’s board, made note of two other key areas of focus for the company: “First, we’ll be focused on meaningful acceleration of revenue growth…. Our second key priority will be ensuring that Cognizant is the employer of choice in our industry.”