Cognizant(CTSH) - 2024 Q3 - Quarterly Results

Financial Performance and Outlook Q3 2024 Financial Highlights Cognizant's Q3 2024 revenue grew 3.0% to $5.0 billion, driven by Health Sciences and Financial Services, achieving 14.6% GAAP operating margin and $1.25 Adjusted Diluted EPS Financial Highlights | Financial Metric | Q3 2024 | Q3 2023 | Y/Y Change | | :--- | :--- | :--- | :--- | | Revenue | $5.04B | $4.90B | +3.0% | | Revenue (Constant Currency) | - | - | +2.7% | | GAAP Operating Margin | 14.6% | 14.0% | +60 bps | | Adjusted Operating Margin | 15.3% | 15.5% | -20 bps | | GAAP Diluted EPS | $1.17 | $1.04 | +12.5% | | Adjusted Diluted EPS | $1.25 | $1.16 | +7.8% | - Revenue growth was driven by strong performance in Health Sciences and a return to growth in Financial Services[1][2] - Recently completed acquisitions contributed approximately 200 basis points to the year-over-year revenue growth[3] Business Segment & Geographic Performance In Q3 2024, Health Sciences led segment growth at 7.8%, with Financial Services returning to 0.7% growth, and North America leading geographic performance at 3.8% Segment Performance | Segment | Q3 2024 Revenue | Y/Y Growth | Y/Y Growth (CC) | | :--- | :--- | :--- | :--- | | Financial Services | $1,486M | 0.7% | 0.5% | | Health Sciences | $1,514M | 7.8% | 7.6% | | Products and Resources | $1,228M | 5.0% | 4.6% | | Communications, Media & Technology | $816M | (3.7)% | (4.1)% | Geographic Performance | Geography | Q3 2024 Revenue | Y/Y Growth | Y/Y Growth (CC) | | :--- | :--- | :--- | :--- | | North America | $3,735M | 3.8% | 3.8% | | Europe | $967M | (0.3)% | (1.9)% | | Rest of World | $342M | 4.3% | 4.2% | - Acquisitions contributed approximately 750 basis points of growth to the Products and Resources segment, primarily in North America[47] Key Operational Metrics Trailing 12-month bookings were $26.2 billion with a 1.3x book-to-bill ratio, supported by six large deals in Q3, and Tech Services voluntary attrition improved to 14.6% - Trailing 12-month bookings were $26.2 billion, a 2% year-over-year decline, with a book-to-bill ratio of 1.3x[1][5] - The company signed six large deals (over $100 million each) in Q3, bringing the year-to-date total to nineteen, surpassing the full year 2023 total[2][5] - Trailing 12-month voluntary attrition for Tech Services improved to 14.6%, down from 16.2% in the prior year period[6] - Total headcount increased by 3,800 from Q2 2024 to 340,100, including employees from the newly acquired Belcan[6] Capital Allocation In Q3 2024, the company repurchased 3.1 million shares for $228 million and declared a $0.30 per share dividend, with $1.4 billion remaining for share repurchases - In Q3, the company repurchased 3.1 million shares for $228 million[7] - As of September 30, 2024, $1.4 billion remained available under the share repurchase authorization[7] - A quarterly cash dividend of $0.30 per share was declared, payable in November 2024[7] Q4 & Full-Year 2024 Guidance Cognizant projects Q4 revenue of $5.0-$5.1 billion (4.8%-6.8% CC growth) and full-year 2024 revenue growth of 1.4%-1.9% (CC) with an Adjusted Operating Margin of ~15.1% Financial Guidance | Guidance Metric | Q4 2024 Forecast | Full-Year 2024 Forecast | | :--- | :--- | :--- | | Revenue | $5.0B - $5.1B | $19.7B - $19.8B | | Revenue Growth (Y/Y) | 5.1% to 7.1% | 1.6% to 2.1% | | Revenue Growth (Y/Y, CC) | 4.8% to 6.8% | 1.4% to 1.9% | | Adjusted Operating Margin | - | ~15.1% | | Adjusted Diluted EPS | - | $4.63 - $4.67 | - The full-year 2024 revenue guidance assumes an approximate 200 basis point contribution from inorganic growth (acquisitions)[8] Strategic and Business Developments Strategic Initiatives Cognizant's strategic initiatives include an AI-led approach, the Belcan acquisition for ER&D, Neuro® AI platform enhancements, and key partnerships with NVIDIA, ServiceNow, AWS, and Palo Alto Networks Strategic Acquisitions Cognizant completed the $1.3 billion acquisition of Belcan, strengthening its ER&D capabilities and expanding its presence in aerospace, defense, and industrial markets - Completed the acquisition of Belcan for approximately $1.3 billion in cash and stock[9] - The acquisition strengthens Cognizant's capabilities in ER&D, IoT, and Digital Engineering, increasing its presence in the aerospace and defense (A&D) services market[2][9] Platform Enhancements Cognizant enhanced its Neuro® platforms by launching Neuro® Cybersecurity and introducing Multi-Agent Orchestration to Neuro® AI for rapid AI use case development - Launched Cognizant Neuro® Cybersecurity, an AI-enabled platform designed to integrate various security solutions and enhance real-time decision-making[10] - Announced Multi-Agent Orchestration for the Cognizant Neuro® AI Platform to enable enterprises to rapidly prototype and develop AI use cases[11] Partnerships Cognizant expanded its ecosystem via strategic partnerships with NVIDIA for data modernization, ServiceNow for Workflow Data Fabric, AWS for smart manufacturing, and Palo Alto Networks for AI-driven cybersecurity - New collaboration with NVIDIA to enhance data modernization offerings using the NVIDIA RAPIDS library[12] - Expanded partnership with ServiceNow to be the first to market its new Workflow Data Fabric, which unifies enterprise data[13] - Signed a strategic collaboration with Amazon Web Services (AWS) to enhance smart manufacturing capabilities for global enterprises[14] - Partnered with Palo Alto Networks to deliver AI-driven cybersecurity capabilities and services[15] Major Client Wins Cognizant secured major client wins, including digital transformation for mecwacare and UAE telecom du, and technology services for Alnylam Pharmaceuticals and FCCI Insurance Group - Selected by mecwacare (aged care provider) as a strategic partner for a digital transformation program to modernize its enterprise applications[16] - Announced a five-year strategic relationship with du, a leading telecom provider in the UAE, to accelerate its digital transformation[18] - Chosen by Alnylam Pharmaceuticals to manage its global infrastructure, cloud, security, and data analytics, and by FCCI Insurance Group to implement a new policy administration system[19][20] Industry Recognition and Awards Cognizant received widespread industry recognition, including Forbes' 'World's Best Employers' and Fortune's 'Change the World' lists, and was named a 'Leader' by multiple analyst firms across diverse service areas - Recognized by Forbes as one of the World's Best Employers and ranked seventh on Fortune's 2024 'Change the World' list for its Synapse skilling initiative[21][22] - Named one of America's Greenest Companies by Newsweek and received multiple awards for its sustainability efforts[23] - Acknowledged as a 'Leader' by Everest Group, HFS, ISG, Avasant, and Constellation in numerous reports covering areas such as Generative AI, IoT Services, Multi Public Cloud Services, and Digital Transformation[26][27] Detailed Financial Statements Consolidated Statements of Operations In Q3 2024, Cognizant reported revenues of $5.044 billion, income from operations of $738 million, and net income of $582 million, with nine-month net income at $1.694 billion Consolidated Statements of Operations | (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Revenues | $5,044 | $4,897 | | Income from operations | $738 | $686 | | Net income | $582 | $525 | | Diluted EPS | $1.17 | $1.04 | Consolidated Statements of Financial Position As of September 30, 2024, total assets were $20.16 billion, driven by increased Goodwill and Intangible Assets, with total liabilities at $5.71 billion and stockholders' equity at $14.45 billion Consolidated Statements of Financial Position | (in millions) | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $7,548 | $7,506 | | Goodwill | $7,132 | $6,085 | | Intangible assets, net | $1,681 | $1,149 | | Total assets | $20,164 | $18,483 | | Total current liabilities | $3,388 | $3,333 | | Long-term debt | $1,183 | $606 | | Total liabilities | $5,712 | $5,256 | | Total stockholders' equity | $14,452 | $13,227 | Condensed Consolidated Statements of Cash Flows In Q3 2024, net cash from operating activities was $847 million, investing activities used $1.25 billion (primarily for acquisitions), and financing activities provided $212 million from borrowing offsetting share repurchases and dividends Condensed Consolidated Statements of Cash Flows | (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $847 | $828 | | Net cash (used in) investing activities | $(1,250) | $(199) | | Net cash provided by (used in) financing activities | $212 | $(450) | | Free cash flow | $791 | $755 | - Cash used for business combinations, net of cash acquired, was $1.194 billion in Q3 2024[48] Reconciliation of GAAP to Non-GAAP Measures Cognizant reconciles GAAP to non-GAAP measures, with Q3 2024 adjustments for $33 million in 'NextGen charges,' resulting in an Adjusted Operating Margin of 15.3% and Adjusted Diluted EPS of $1.25 Reconciliation of GAAP to Non-GAAP Measures | (in millions, except per share data) | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | GAAP income from operations | $738 | $686 | | NextGen charges | $33 | $72 | | Adjusted Income From Operations | $771 | $758 | | GAAP operating margin | 14.6% | 14.0% | | Adjusted Operating Margin | 15.3% | 15.5% | | GAAP diluted EPS | $1.17 | $1.04 | | Adjusted Diluted EPS | $1.25 | $1.16 | - NextGen charges in Q3 2024 totaled $33 million, consisting of $29 million in employee separation costs and $4 million in facility exit costs[43]