Cognizant Tempers Guidance In Another Sign Of IT Slowdown

Cognizant Technology Solutions Corp. has tempered its expectations for fourth quarter revenue, underscoring the slowdown threat for the wider outsourcing industry.

The New Jersey-based IT services company, which has a sizable presence in India, expects its top line to decline by up to 3.1% to $4.69–4.82 billion in the quarter ended December, according to an earnings statement released on Thursday. That compares with the $4.84-billion consensus estimate of analysts tracked by Bloomberg.

For the full year, revenue is likely to remain flat or decline by up to 0.7% to $19.3–19.4 billion. That compares with the Bloomberg estimate of $19.43 billion.

"We have narrowed our full-year revenue guidance range, which now reflects discretionary spending pressure and its impact to our near-term revenue expectations," Jan Siegmund, chief financial officer at Cognizant, said. "We have also updated our adjusted operating margin guidance to approximately 14.7%, which is the high-end of our prior range, reflecting our continuing focus on enhancing operational discipline."

Analysts tracked by Bloomberg have estimated the annual operational profitability at 17.1%.

India's IT services industry is staring at a slowdown, if not a total washout, in the fiscal ending March 2024 as enterprises in the United States and beyond cut back on technology spending to cope with higher interest rates and inflation.

Paredowns by industry heavyweights, including Infosys Ltd., HCL Technologies Ltd., Wipro Ltd. and Accenture Plc, makes the industry outlook gloomier still. Bellwether Tata Consultancy Services Ltd. doesn't provide guidance but has warned of single-digit growth through March 2024.

The paredown by Cognizant accompanied its third quarter earnings that met estimates.

Revenue of the U.S.-based outsourcer rose 0.8% over the year earlier to $4.9 billion in the three months ended September, according to a company statement. That compares with the $4.90-billion consensus estimate of analysts tracked by Bloomberg. The top line, however, dropped 0.2% in constant currency terms.

Cognizant Q3 Results: Key Highlights (YoY)

• Revenue up 0.8% at $4.90 billion (Estimate: $4.90 billion).

• Operating margin at 14% vs 16.4% (Estimate: 14.48%).

• Earnings per share at $1.04 vs $1.22 (Estimate: $1.04).

• Bookings up 9% at $26.9 billion.

The company hired a net 1,000 employees in the third quarter to increase its headcount to approximately 3.47 lakh, as on Sept. 30. The tally had dipped by 2,800 employees in the year-ago period. The attrition rate, on a trailing 12-month basis, improved to 16.2% from 29.2% a year earlier.

"We strengthened the company's fundamentals during the third quarter, as reflected in higher customer satisfaction scores, significantly lower attrition, and continued growth in bookings, despite ongoing economic uncertainty,” Chief Executive Officer Ravi Kumar S said. "We are investing to put Cognizant in the best position to serve clients as they strive to reduce costs, digitally transform their business and embrace generative AI."