Cognizant (CTSH) Q4 Earnings Beat Estimates, Revenues Down Y/Y

Cognizant Technology Solutions CTSH reported fourth-quarter 2023 non-GAAP earnings of $1.18 per share, which beat the Zacks Consensus Estimate by 13.46% and increased 16.8% year over year.

Revenues of $4.76 billion lagged the consensus mark by 0.08%. The top line decreased 1.7% year over year and 2.4% at constant currency (cc). Acquisitions contributed 90 basis points (bps) to top-line growth.

Cognizant’s fourth-quarter results suffered from a challenging macroeconomic environment, cautious clients and limited discretionary spending

Bookings decreased 6% year over year. Cognizant’s fourth-quarter bookings included seven deals that exceeded $100 million each. Of these seven deals, two were new business and five were a mix of renewals and expansions.

Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise

Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise

Cognizant Technology Solutions Corporation price-consensus-eps-surprise-chart | Cognizant Technology Solutions Corporation Quote

On a trailing twelve-month basis, bookings increased 9% year over year to $26.3 billion, which represented a book-to-bill of approximately 1.4 times.

Top-Line Details

Financial services revenues (29.3% of revenues) decreased 5.8% year over year (down 6.6% at cc) to $1.395 billion. The decline was attributed to a challenging demand environment.

Health Sciences revenues (29.3% of revenues) declined 2.1% year over year (down 2.7% at cc) to $1.396 billion. Soft discretionary spending negatively impacted top-line growth.

Products and Resources revenues (24.4% of revenues) increased 1.9% year over year (up 0.6% at cc) to $1.16 billion. The segment benefited from acquisitions.

Communications, Media and Technology revenues (16.9% of revenues) were $804 million, which increased 2.6% from the year-ago quarter (up 2% at cc). The segment benefited from new acquisitions and the ramp of new bookings.

Region-wise, revenues from North America decreased 1.6% year over year (down 1.7% at cc) and accounted for 74.2% of total revenues.

Revenues from Europe increased 1.3% from the year-ago quarter (down 3.4% at cc) and made up 19.3% of total revenues. Revenues from the U.K. decreased 1.1% (down 5.8% at cc). Continental Europe revenues increased 3.8% (down 1% at cc).

The Rest of the World revenues decreased 9.9% year over year (down 7.9% at cc) and represented 6.5% of total revenues.

Operating Details

Selling, general & administrative expenses, as a percentage of revenues, decreased 130 bps year over year to 16.5%.

Total headcount at the end of the fourth quarter was 347,700, down 7,600 year over year but up 1,100 sequentially.

Voluntary attrition - Tech Services for the year ended Dec 31, 2023, declined to 13.8% from 25.6% for the year ended Dec 31, 2022.

Cognizant reported a GAAP operating margin of 15.2%, up 100 bps on a year-over-year basis.

The company incurred $40 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 90 bps.

Non-GAAP operating margin (adjusted for NextGen charges) of 16.1% expanded 190 bps year over year.

Balance Sheet

Cognizant had cash and short-term investments of $2.64 billion as of Dec 31, 2023 compared with $2.37 billion as of Sep 30, 2023.

As of Dec 31, 2023, the company had a total debt of $639 million, down from $647 million reported as of Sep 30, 2023.

It generated $737 million in cash from operations compared with $828 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 fourth quarter of 2023, the company returned $298 million through share repurchases. As of Dec 31, 2023, it had $1.8 billion remaining under the current share repurchase program.

Cognizant raised its dividend payout by 3% year over year to 30 cents per share, payable on Feb 28 to shareholders of record Feb 20.

Guidance

Cognizant expects first-quarter 2024 revenues between $4.68 billion and $4.76 billion, indicating a decline of 2.7% to 1.2% (a decline of 3-1.5% 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 $19-$19.8 billion, indicating a decline of 1.8% to growth of 2.2% on a reported basis (down 2% to growth of 2% on a cc basis). Acquisitions are expected to contribute 100 bps and 20 bps positive impact from favorable forex.

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.

Moreover, it still expects to incur $300 million in NextGen charges, out of which $70 million will be recognized in 2024.

Cognizant expects to return $1 billion to shareholders through share repurchases (at least $400 million) and regular quarterly dividends.

Zacks Rank & Other Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold).

Shopify SHOP, Pinterest PINS and AvidXchange AVDX are some better-ranked stocks that investors can consider in the broader sector, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shopify shares have gained 4.2% year to date. SHOP is set to report its fourth-quarter 2023 results on Feb 13.

Pinterest shares have gained 6% year to date. PINS is set to report its fourth-quarter 2023 results on Feb 8.

AvidXchange shares have declined 6.5% year to date. AVDX is set to report its fourth-quarter 2023 results on Feb 28.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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