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Cognizant cuts annual guidance for the third time in a year

Annual revenue growth in the 8.5-9% range; Q3 net profit up 12% YoY

Cognizant
BS Reporter Mumbai
Last Updated : Nov 07 2016 | 8:22 PM IST
Nasdaq-listed IT services player Cognizant Technology Solutions for the third straight quarter cut its full-year guidance, signaling pressure in its banking and finance and healthcare businesses and currency volatility. The sluggishness in numbers was reflective of the overall performance of the Indian IT services players.

The company cut the top end of its full-year revenue growth target to $13.47 billion from $13.53 billion representing a growth rate of 8.45 per cent to 8.9 per cent, one of the lowest ever for the company and comes after a growth of 21 per cent growth in 2015. Cognizant, in June 30, 2016, quarter had guided for a revenue growth of $13.47 billion to $13.6 billion. 

Cognizant at the start of the year (company follows Jan-Dec calendar) had guided for a growth rate of 10-14%, which it reduced post first quarter to 10-13%. The guidance target is lower than Nasscom’s growth estimate of 10-12% and lower than the firms last year growth of 21 per cent. However, Nasscom too has suggested that it will be revising its growth outlook for the industry soon. 

The management during the analyst call attributes the trimming of the top-end of the guidance to depreciation of UK Pound sterling that has resulted in a negative impact of $18 million for the fourth quarter.

Meanwhile, Cognizant reported a net profit of $444.4 million for the third quarter ended September 30, 2016, up 11.9% from a year ago quarter and jumped 76% on a sequential basis from $252.4 million.

Revenue for the quarter rose 8.4% at $3.45 billion on a year-on-year basis and was up 2.5% on sequential basis. The third quarter revenue numbers came within the guidance range for the quarter, however, it was below the Bloomberg estimate of $3.46 billion in revenue and net profit of $511.92 million. 

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“Our Q3 2016 results were driven by growth across all of our industries. This was encouraging, given the weakness in the pound sterling, and the softness we’ve seen this year in our financial services segment stemming from macroeconomic concerns, and in our healthcare payer segment due to industry consolidation. As we look ahead, we believe our market opportunity has never been greater. That’s because, with more technology in every product built and behind every customer experience, and more data generated at every turn, our clients’ businesses are, and will continue to become, increasingly technology-intensive,” said Francisco D’Souza, Chief Executive Officer, Cognizant on the analyst call.

The management also said that the internal investigation that the company had initiated has found improper payment of approximately $5 million in payments so far. The investigation is still going on.  

In September of 2016, Cognizant had disclosed that they were conducting an internal investigation to find if any improper payments were made in payment of some company owned facilities. Accordingly, they had approached US regulatory authorities and updated them with the details and begun an internal investigation with its audit committee.

D’Souza also said during the call that during the investigation it was found that some senior management were aware of the conduct and may have participated in such action which is not acceptable. “Those senior employees and management who may have been involved are no longer with the company,” he added.

In the filing to the Securities and exchange commission (SEC), the company also acknowledged that class action suits were filed against the company. “We are presently unable to predict the duration, scope or result of the internal investigation, the related purported class actions or any other related lawsuit, and any investigations by the DOJ or the SEC, including whether either agency will commence any legal action. As such, we are presently unable to develop a reasonable estimate of a possible loss or range of losses, if any, related to these matters,” said the company in the SEC filing.

On a sequential basis BFSI grew 1.8%, healthcare was up 3.5%, and manufacturing retail and logistics grew 2.8 per cent. In terms of geography North America grew 3.3%, UK grew 5.7% and Continental Europe was up 3.5%. 

During the quarter, Cognizant had approximately 11,500 net employee additions. The Company ended the quarter with approximately 255,800 employees globally. Annualized attrition of 16.6%during the quarter—including BPO and trainees—was down 350 basis points from the year-ago period, said the company. 

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First Published: Nov 07 2016 | 6:12 PM IST

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