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Cognizant on Wednesday reported strong financial numbers in the second quarter ended June, with the information technology (IT) services company reporting its best-ever sequential revenue growth and revising its revenue forecast upwards, for the second quarter in a row.
The Nasdaq-listed company, seen as a competitor to large Indian IT firms such as Tata Consultancy Services (TCS) and Infosys, reported $420 million (Rs 2,675 crore) in net profit, a growth of 13 per cent when compared with the year-ago period. The revenues at $3,085.1 million (Rs 19,649 crore) grew 22.6 per cent compared with the corresponding quarter previous year.
On a sequential basis (compared with the previous quarter), the net profit increased 9.7 per cent while the revenues grew six per cent, the strongest sequential revenue growth in the history of the company. As compared to this, TCS, India’s largest IT services company, posted a sequential dollar term revenue growth of 3.5 per cent; for Infosys, it was 4.5 per cent, the best for the Bengaluru-based company in the past 15 quarters.
“Our second quarter sequential revenue increase in dollar terms was the strongest in our history,” said Francisco D’Souza, chief executive of Cognizant.
“We’ve got a great portfolio of offerings and, as a result, we’re seeing robust demand for our services, a trend that has continued to accelerate from the first quarter. We also saw very robust underlying demand across the geographies and industries we serve,” he added.
Significant uptick in the healthcare spending in the US, better than expected performance in the key banking, financial service and insurance (BFSI) segment apart from strong performance in the North America region aided Cognizant’s performance in the June quarter.
In terms of profitability, Cognizant showed an improvement in its operating margin unlike most large Indian IT services players. Its operating margin improved by 40 basis points over the previous quarter to 20.2 per cent, largely because the wage increases which it effected from August 1, 2015 did not make any dent.
On the back of the strong show during the quarter and better visibility over the clients’ spending, Cognizant raised its full year revenue growth guidance to 20.1 per cent as against 19.3 per cent given at the end of March quarter this year. This is for the second quarter in a row that Cognizant is raising its guidance. For 2015, Cognizant said it was expecting its revenues to be at least at least $12.33 billion.
“Our strong performance has allowed us to raise our full year revenue and EPS guidance for the second time this year, despite the impact to our full year revenues from the announcement that Health Net would be acquired by Centene Corporation,” said Karen McLoughlin, Chief Financial Officer.
US-based health insurer Health Net was one of Cognizant’s largest customers in the healthcare space which whom the latter had signed a $2.7 billion worth IT services contract. The impact from the revenue loss from Health Net account however was not reflected much in Cognizant’s healthcare revenues which 2.1 per cent on sequential basis and 39 per cent on YoY basis.
Financial services which accounted for around 40.5 per cent of Cognizant’s overall revenues grew the fastest at 7.7 per cent in sequential term while on YoY basis it grew 18.1 per cent. “Within banking, growth was broad-based across our clients, who remain focused on cost optimization, vendor consolidation, regulatory compliance, and cyber security. In addition, there is an increased focus on automation and digital, particularly in areas that improve customer experience and customer self-service,” said Gordon Coburn, President.
Among the geographies, the company showed all-rounded growth across all geographies which the key North America showing a sequential growth of 5.8 per cent and YoY growth of 15.7 per cent. Europe grew 5.5 per cent sequentially led by the UK which accounts for close to 10 per cent of Cognizant’s overall revenues.
During the quarter, Cognizant added seven strategic customers, who it said, have the potential to generate at least $5 million to $50 million or more in annual revenue. This took the total number of strategic clients to 285.
The company however added a fewer employees on net basis during the quarter as its global headcount at 218,000 were just 300 more than the closing headcount in the previous quarter. Part of that could be attributable to the high attrition it reported in Q2 which stood at 19 per cent due to the seasonality in employee movement.
“While attrition historically is seasonally higher in Q2 due to the timing of bonus payouts and associates leaving for higher education, second quarter annualized attrition this year, at 19 per cent, was higher than normal. Although higher attrition was an industry-wide phenomenon this quarter, Cognizant is working to improve retention levels through a number of employee engagement initiatives,” the company said.
