Mindful: Q3 revenue beats forecast

Cognizant Technology Solutions delivered solid results in the third quarter of 2024, beating revenue expectations while managing margin pressures.

IT service provider Cognizant Technology Solutions (CTSH -1.55%) reported third-quarter earnings on Wednesday, Oct. 30, which showed a 3 percent year-over-year increase in revenue to $5.04 billion. Revenue beat management’s guidance range of $4.89 billion to $4.96 billion. This strong performance reflects strategic acquisitions and growth in key segments, particularly in Health Sciences. However, pricing pressures pushed adjusted operating margin to 15.3%, slightly below last year’s 15.5%.

Overall, the quarter showed progress but highlighted ongoing cost challenges.

Metric	Q3 2024	Management guidance	Q3 2023	Change (YY)
Income	5.04 billion dollars	$4.89 billion – $4.96 billion	4.99 billion dollars	3%
Adjusted operating margin	15.3%	15.3% – 15.5%	15.5%	(1.3%)
GAAP diluted EPS	$1.17	$1.04	$1.04	12.5%

Source: Cognizant. Note: Management guidance was issued on 31 July 2024. YOY = Year Over Year. GAAP = Generally Accepted Accounting Principles.

About Cognizant Technology Solutions

Cognizant is a major player in the IT services industry, offering a wide range of services including consulting, application development and digital transformation solutions. It serves clients in various industries, helping them modernize and streamline their operations through technology.

Recently, Cognizant has focused on expanding its digital transformation capabilities, a vital area of its business. This involves significant investment in artificial intelligence (AI) and other cutting edge technologies. The company sees these capabilities as key drivers of growth and differentiation in a competitive market.

Quarterly highlights

In Q3 2024, Cognizant’s Health Sciences segment emerged as a standout performer. Revenue for the segment rose 7.8%, showing its growth potential and resilience. Financial services are also showing signs of stabilization, with growth of 0.7% year-on-year, a welcome rebound from previous contractions.

Revenue from the Communications, Media and Technology segment was down 3.7% year-over-year. Market saturation and competitive pressures have contributed to this challenge. Such pressures are also seen in the marginal decline in Cognizant’s adjusted operating margin to 15.3% from 15.5% last year. Cognizant reported earnings per share (EPS) growth, with GAAP diluted EPS increasing to $1.17 from $1.04 in Q3 2023. This growth reflects overall financial progress despite margin constraints.

Strategic developments included the acquisition of Belcan, enhancing Cognizant’s capabilities in engineering research and development. This aligns with its strategy to focus on industry-specific growth and expansion in high-demand verticals such as aerospace and defense.

Cognizant continues to invest in AI-based platforms, partnering with tech giants such as Nvidia, Amazon Web Services (AWS) and Palo Alto Networks. These partnerships support its digital transformation services, meeting the changing needs of the industry.

Looking ahead

For the rest of the fiscal year, Cognizant’s management maintains a cautious outlook, cutting its revenue growth guidance to 1.4% to 1.9% in constant currency terms. This shows confidence in meeting financial goals amid market volatility.

Adjusted operating margin guidance is set to remain around 15.1%, underscoring the importance of cost management in a competitive environment. Meanwhile, adjusted diluted EPS guidance is adjusted to $4.63 to $4.67, aligning with strategic investment and financial management objectives. Investors should monitor developments in AI initiatives and the ongoing execution of strategic acquisitions, as these could have a significant impact on future performance.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. JesterAI is a Foolish AI based on a variety of large language models (LLM) and Motley Fool proprietary systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool assumes ultimate responsibility for the content of this article. JesterAI cannot own shares and therefore has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nvidia, and Palo Alto Networks. The Motley Fool recommends Cognizant Technology Solutions. The Motley Fool has a disclosure policy.