Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cognizant Technology Solutions Corp (CTSH, Financial) reported revenue growth that exceeded the high end of their guidance range.
- The company expanded its adjusted operating margin year-over-year by 50 basis points to 15.1%.
- Cognizant Technology Solutions Corp (CTSH) saw a significant reduction in voluntary attrition, with a 10 percentage point year-over-year decline.
- The company secured 8 large deals each with a total contract value (TCV) of $100 million or more, demonstrating strong deal momentum.
- Cognizant Technology Solutions Corp (CTSH) continues to invest in innovation and AI, including a strategic alliance with Shopify and Google Cloud to drive digital transformation.
Negative Points
- Cognizant Technology Solutions Corp (CTSH) experienced a revenue decline of 1% year-over-year, both as reported and in constant currency.
- There was softness in smaller deals in the range of $0 to $10 million TCV, reflecting the tight discretionary environment.
- The demand environment remains uncertain with geopolitical risks continuing to impact client spending priorities.
- Financial Services and Products and Resources segments saw declines, with Financial Services being more significantly impacted by weaker discretionary spending.
- The company incurred approximately $23 million of costs related to its NextGen optimization program, which negatively impacted its GAAP operating margin by approximately 50 basis points.
Q & A Highlights
Q: Can you comment on what areas performed better than your expectations here on growth in 1Q versus your guide?
A: (Ravi Kumar Singisetti - CEO & Director) The guidance range is based on visibility to the middle of the range, with upside based on large deal momentum, M&A, and committed client spend. The broad range reflects the sluggish market, though Cognizant performed well in Q1. Discretionary spending hasn't changed since last quarter. Notably, the sequential drop from Q4 to Q1 in banking, financial services, and insurance was only $10 million, showing signs of stability.
Q: What are your thoughts on margin, particularly the gross margin contraction year-over-year but a strong SG&A reduction?
A: (Jatin Pravinchandra Dalal - CFO) Directionally, SG&A should continue to show improvement, though not as significantly as in 2023 due to large actions taken last year. The back end of the NextGen program will continue to impact the SG&A line throughout the year.
Q: What are your expectations around bookings for the second quarter and the second half of the year?
A: (Ravi Kumar Singisetti - CEO & Director) There is good momentum with large deals, which is helping with ramp-ups this year and will continue throughout the year. The nature of smaller deals remains soft, and it's hard to predict their outlook for the rest of the year. Most large deals are focused on cost takeout and productivity, which are longer in duration but provide opportunities for managed services and further business upon successful execution.
Q: Given the current demand environment, are you seeing pressure on pricing in the industry?
A: (Jatin Pravinchandra Dalal - CFO) There is a downward pressure on pricing due to the nature of deals focusing on consolidation of spend and cost management. However, this pressure is not out of the ordinary for the current market conditions.
Q: Can you elaborate on the "green shoots" you mentioned in BFSI?
A: (Ravi Kumar Singisetti - CEO & Director) The smaller sequential drop in BFSI from Q4 to Q1 indicates some positive changes. Efforts have been made to reorganize the BFSI vertical, energize teams, and enhance offerings. Initiatives like mainframe modernization in insurance and digitizing distribution networks are gaining traction, reflecting a stabilizing platform and improved client engagement.
Q: How are you managing the mix of new logos and renewals in your bookings?
A: (Ravi Kumar Singisetti - CEO & Director) Cognizant has a healthy new logo program and is actively working to ramp new logos to significant annual spends. The focus is on both opening new logos and transitioning them to larger accounts, which is managed separately from the mining engine to ensure focused growth and client engagement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
