Cognizant(CTSH) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q4 2025 was $5.3 billion, representing a 3.8% year-over-year growth in constant currency, all organic [30][41] - Full-year revenue reached $21.1 billion, growing 6.4% in constant currency, surpassing the $20 billion mark [6][30] - Adjusted Operating Margin improved to 16%, up 30 basis points year-over-year, with a full-year adjusted operating margin of 15.8%, exceeding guidance [6][39] - Adjusted diluted EPS for Q4 was $1.35, up 12% year-over-year, leading to a full-year EPS of $5.28, an 11% increase from the prior year [41][45] Business Line Data and Key Metrics Changes - Financial Services segment led growth with a 9% year-over-year increase in constant currency for Q4 and 7% for the full year, marking the highest annual level since 2016 [5][32] - Health Sciences segment grew at 6%, outperforming the company average, driven by strong demand for administrative and patient care solutions [86] - BPO business experienced a 9% year-over-year growth, indicating strong demand for AI-enabled operations [80][82] Market Data and Key Metrics Changes - North America was the standout region with over 4% year-over-year growth in constant currency, primarily driven by Financial Services and healthcare [37] - Europe grew 2% in constant currency, with healthy growth in Financial Services and Life Sciences [38] - The Rest of World segment grew in line with the total company, driven by the Middle East [38] Company Strategy and Development Direction - The company aims to bridge the AI velocity gap, focusing on transforming AI technology into measurable returns for clients [11] - Cognizant's strategy includes a three-vector approach to capture demand, emphasizing AI-led productivity and the development of new agentic software [12][13] - The company plans to maintain its position in the industry's winner's circle by continuing to innovate and expand its AI capabilities [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining growth in 2026, supported by a strong pipeline of large deals and a focus on AI integration [31][67] - The operating environment remains complex, but the company views it as an opportunity to capture wallet share in large deals and help clients reinvest savings into innovation [32] - Management highlighted the importance of maintaining productivity and cost discipline to navigate market challenges [59] Other Important Information - The company returned $2 billion to shareholders through dividends and share repurchases in 2025 [10][41] - The acquisition of 3Cloud was completed, adding over 1,200 Azure specialists to enhance capabilities in AI and cloud services [10] - The company is actively evaluating potential strategic acquisitions and a possible secondary listing in India [46] Q&A Session Summary Question: Insights on AI's impact on revenue and package implementation - Management noted that AI provides opportunities for increased total addressable spend and emphasized the need for reimagining processes to integrate new technologies effectively [50][54] Question: Gross margin dynamics for 2026 - Management indicated that Q4's gross margin decline was primarily due to higher variable compensation, but they expect to maintain productivity and manage costs effectively in 2026 [56][59] Question: Confidence in large deal growth for 2026 - Management expressed optimism about the strong pipeline of large deals and the potential for timely deal ramps, expecting acceleration in growth during the year [68][69] Question: Risks and opportunities of fixed-price contracts - Management explained that fixed-price contracts place delivery risk on the service provider, but they have a robust process to monitor performance and ensure delivery aligns with expectations [75][76] Question: Durability of BPO growth - Management highlighted that the BPO business has shown consistent growth and sees a long-term tailwind due to the need for ongoing transformation and maintenance of AI-enabled processes [82][80]