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Cognizant (CTSH) Q1 Earnings Beat Estimates, Revenues Down Y/Y

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Cognizant Technology Solutions (CTSH - Free Report) reported first-quarter 2024 non-GAAP earnings of $1.12 per share, which beat the Zacks Consensus Estimate by 0.9% and increased 0.9% year over year.

Revenues of $4.76 billion beat the consensus mark by 0.83%. The top line decreased 1.1% year over year and 1.2% at constant currency (cc). Acquisitions contributed 70 basis points (bps) to top-line growth.

On a trailing twelve-month basis, bookings increased 1% year over year to $25.9 billion, which represented a book-to-bill of approximately 1.3 times. Cognizant’s first-quarter bookings included eight deals that exceeded $100 million each. Of these eight deals, two were in the APJ region.

Top-Line Details

Financial services revenues (29.1% of revenues) decreased 6.2% year over year (down 6.5% at cc) to $1.385 billion. The decline was attributed to a challenging demand environment.

Health Sciences revenues (29.7% of revenues) declined 1.2% year over year (down 1.3% at cc) to $1.416 billion. Soft discretionary spending negatively impacted top-line growth.

Products and Resources revenues (23.8% of revenues) increased 1.3% year over year (up 0.9% at cc) to $1.13 billion.
 

 

Communications, Media and Technology revenues (17.4% of revenues) were $826 million, which increased 5.2% from the year-ago quarter (up 5.7% at cc). The segment benefited from new acquisitions and the ramp of new bookings.

Region-wise, revenues from North America decreased 0.7% year over year (down 1.7% at cc) and accounted for 74% of total revenues.

Revenues from Europe were flat year over year (down 2.4% at cc) and made up 19.7% of total revenues. Revenues from the U.K. decreased 4.6% (down 7.7% at cc). Continental Europe revenues increased 4.8% (up 3.1% at cc).

The Rest of the World revenues decreased 8.5% year over year (down 3.7% at cc) and represented 6.3% of total revenues.

Operating Details

Selling, general & administrative expenses, as a percentage of revenues, decreased 130 bps year over year to 16.1%.

Total headcount at the end of the first quarter was 344,400, down 7,100 year over year and 3,300 sequentially.

Voluntary attrition - Tech Services on a trailing-12-month basis declined to 13.1% from 23.1% for the period ended Mar 31, 2023.

Cognizant reported a GAAP operating margin of 14.6%, unchanged on a year-over-year basis.

The company incurred $23 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 50 bps.

Non-GAAP operating margin (adjusted for NextGen charges) of 15.1% expanded 50 bps year over year.

Balance Sheet

Cognizant had cash and short-term investments of $2.23 billion as of Mar 31, 2024 compared with $2.64 billion as of Dec 31, 2023.

As of Mar 31, 2024, the company had a total debt of $631 million, down from $639 million reported as of Dec 31, 2023.

It generated $737 million in cash from operations compared with $737 million in the previous quarter.

Free cash flow was $659 million compared with free cash flow of $755 million reported in the prior quarter.

In the first quarter of 2024, the company returned $284 million through share repurchases.

Guidance

Cognizant expects second-quarter 2024 revenues between $4.75 billion and $4.82 billion, indicating a decline of 2.9% to 1.4% (a decline of 2.5-1% on a cc basis).

In the Financial Services segment, Cognizant continues to expect the challenging macro environment to hurt spending rates, thereby negatively impacting top-line growth.

For 2024, revenues are expected to be $18.9-$19.7 billion, indicating a decline of 2.2% to growth of 1.8% on a reported basis (down 2% to growth of 2% on a cc basis). Acquisitions are expected to contribute 100 bps.

Adjusted operating margin for 2024 is expected to be between 15.3% and 15.5%. Adjusted earnings for 2024 are expected between $4.50 and $4.68 per share.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #4 (Sell).

CTSH’s shares have underperformed the Zacks Computer & Technology sector year to date. Shares have declined 13.5%, while the broader sector has gained 6.9%.

Arista Networks (ANET - Free Report) , AMETEK (AME - Free Report) and NVIDIA (NVDA - Free Report) are some better-ranked stocks that investors can consider in the broader sector. While Arista Networks sports a Zacks Rank #1 (Strong Buy) at present, AMETEK and NVIDIA carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks shares have gained 8.3% year to date. ANET is set to report its first-quarter 2024 results on May 7.

AMETEK shares have gained 5.5% year to date. AME is set to report its first-quarter 2024 results on May 2.

NVIDIA shares have gained 67.6% year to date. NVDA is set to report its first-quarter fiscal 2025 results on May 22.

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