Cognizant Q2 FY24: Beating Expectations and Raising Guidance

Cognizant Technologies, the Nasdaq-listed IT services giant, turned in a strong performance in the second quarter of fiscal year 2024-beating market expectations amidst a challenging economic environment.

Financial Highlights

Revenue and Profitability

Cognizant reported revenue for Q2 FY24 of $4.9 billion, higher than the upper end of its guided range. This is a year-on-year decline of 0.7%, but sequential growth was strong at 1.9% or 2.1% in constant currency. While the net profit was 22.2% higher year-over-year at $566 million, the operating margin was higher at 14.6% compared with 11.8% in the same quarter a year ago, with the adjusted operating margin at 15.2%, an increase of 100 basis points.

Segment Performance

• Financial Services: This vertical showed signs of recovery as it improved 5% sequentially although it is down 1.1% year-over-year
• Health Sciences: In the process, recorded solid growth with 3% sequentially and 1.5% year-on-year
• Products and Resources: In the process, suffered a year-on-year decline of 4.3%

Strategic Developments

Bookings and Deal Momentum

Cognizant maintained strong commercial momentum. Trailing 12-month bookings reached $26.2 billion, while the book-to-bill ratio stood at 1.4x. Five bookings worth more than $100 million and two deals worth over $90 million were recorded during the quarter.

Workforce Optimization

The company ended Q2 with a total of 336,300 headcount, which is a decrease of 8,100 compared to the previous quarter. This decline in headcount is mainly attributed to higher utilization rates that reached up to 83%, and the further use of automation and AI.

Innovation Focus: AI

Cognizant reported over 750 early engagements including generative AI, from 450 in the previous quarter. The company goes on investing in AI, cloud, data modernization, digital engineering and IoT, to enhance solution delivery capability

Outlook and Guidance

This performance has given Cognizant reason enough to revise its full-year revenue guidance. The company now expects FY24 revenue growth between -0.5% to 1.0% in constant currency, an upward revision from the previous forecast.
For Q3 FY24, Cognizant forecasts revenue growth of 0% to 1.5% year-over-year in constant currency. For the full-year adjusted operating margin guidance, the company has reiterated that it would be at 15.3-15.5%, representing a year-over-year expansion of 20 to 40 basis points for the year.

Conclusion

Cognizant has announced Q2 FY24 results, which reflect a company navigating tough market conditions while investing for the future. Given this improving financial performance and strong bookings-in addition to investments in emerging technologies like AI-Cognizant would seem to be the best positioned to take advantage of changing client needs and ensure long-term value creation for shareholders.