Cognizant's March in to $10 Billion Dollar
Club
The Teaneck, New
Jersey-based Cognizant on Wednesday said its quarterly revenues for April-June
period rose to $2.52 billion, in line with analyst expectations, up 16.5% from
a year-ago period and 3.9% sequentially, joining the $10 billion a year
run-rate club. GAAP net income was up 23.8% at $372 million and 6.6%
sequentially. The company lowered its guidance for the remaining period,
sending its stock prices crashing.
Cognizant, which employs
more than three-fourths of its employees in India, said its growth could slow
down than previous forecast due to weakness at some clients and delays in order
booking. Cognizant shares fell 16% to $42.19 in NASDAQ in early trades, after
declining as much as 17% for the biggest intra-day drop since May 2012. The
stock had declined 1% this year through Tuesday. "Clients aren't spending
as much as we expected on projects as we were anticipating," Gordon
Coburn, president of Cognizant, said on the second-quarter earnings conference
call.
The company cut its revenue
growth forecast for the year to at least 14% from earlier 16.5%, slowest ever
in its 20 year history. Its latest full-year guidance could result in revenues
of at least $10.1 billion, achieving a significant milestone. Analysts were
expecting full-year revenue of $10.34 billion, according to Thomson Reuters.
Cognizant also forecast July-September quarter revenues to range between $2.55
billion and $2.58 billion, again lower than analyst estimates of nearly $2.66
billion.
"Due to weakness at
certain clients and longer than anticipated sales cycles for certain large
integrated deals, we are adopting a more conservative stance for the remainder
of the year," Francisco D'Souza, CEO of Cognizant, said in a statement.
It said that it has signed
three transformational engagements totalling $3.5 billion in contract value,
including a letter of intent with Health Net for a seven-year deal. The deal is
expected to represent approximately $2.7 billion in total contract value, the
largest in Cognizant's history, a company statement said.
Operating margins were at
21%, higher than the company's targeted 19-20% range. This, however, lags its
comparable Indian peers who have higher operating margins. For example: TCS's
margins are 26.1% while that of Infosys are 25.1%. Revenues from North America
rose 15%, accounting for about 77% of all revenues. The EU region contributed
to 20.4% of revenues.
Consulting and technology
services contributed to 52% of revenues and grew 6.2% sequentially while outsourcing
services 48% of revenues and grew 1.5% sequentially. "As expected, overall
pricing was stable during the quarter, said Karen McLoughlin, CFO, Cognizant
The company said it added
8800 persons (net), its highest since Q3 2011, in a quarter where its
comparable peers recruited fewer people. "Around 34% of gross additions
for the quarter were direct college hires, while 64% were lateral hires of
experienced professionals. We ended the quarter with approximately 187,400
employees globally. Annualized attrition levels at Cognizant was 16.9% during
the quarter-including BPO and trainees-down by almost 200 basis points from the
year ago period.
Cognizant also said it
expanded its stock repurchase program from $1.5 billion to $2 billion.
