Cognizant Technology Solutions CTSH reported first-quarter 2023 non-GAAP earnings of $1.11 per share, which beat the Zacks Consensus Estimate by 5.71% and increased 2.8% year over year.
Revenues of $4.81 million beat the consensus mark by 1.60%. The top line decreased 0.3% year over year but increased 1.5% at constant currency (cc). Acquisitions contributed 100 basis points (bps) to top-line growth.
Financial services revenues (30.7% of revenues) decreased 1.4% year over year at cc to $1.48 billion.
Health Sciences revenues (29.8% of revenues) increased 3.5% year over year at cc to $1.43 billion.
Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise
Cognizant Technology Solutions Corporation price-consensus-eps-surprise-chart | Cognizant Technology Solutions Corporation Quote
Products and Resources revenues (23.2% of revenues) increased 1.4% year over year at cc to $1.12 billion. Continued strength among logistics, utility, and travel and hospitality customers benefited the segment’s top-line growth.
Communications, Media and Technology revenues (16.3% of revenues) were $785 million, up 3.9% from the year-ago quarter at cc.
Region-wise, revenues from North America decreased 0.5% year over year at cc and accounted for 73.7% of total revenues.
Revenues from Europe increased 9.7% from the year-ago quarter at cc and made up 19.5% of total revenues. Revenues from the U.K. and Continental Europe increased 14.4% and 5.1% year over year at cc, respectively.
Rest of the World revenues increased 0.9% at cc and represented 6.8% of total revenues.
Selling, general & administrative expenses, as a percentage of revenues, decreased 50 bps year over year to 17.4%.
Total headcount at the end of the first quarter was 351,500, down 3,800 sequentially but up 11,100 year over year.
Voluntary attrition- Tech Services, on a trailing 12-month basis, declined to 23% from 26% in the fourth quarter of 2022 and 30% in the first quarter of 2022.
Cognizant reported a non-GAAP operating margin of 14.6%, which contracted 40 bps year over year.
Cognizant had cash and short-term investments of $2.48 billion as of Mar 31, 2023 compared with $2.2 billion as of Dec 31, 2022.
As of Mar 31, 2023, the company had a total debt of $646 million, unchanged from the figure reported as of Dec 31, 2022.
It generated $729 million in cash from operations compared with $702 million in the previous quarter.
Free cash flow was $631 million compared with $612 million reported in the prior quarter.
In the first quarter of 2023, the company returned $200 million through share repurchases. As of Mar 31, 2023, it had $2.6 billion remaining under the current share repurchase program.
In the reported quarter, Cognizant initiated the NextGen program, which aims at improving operating efficiency. It expects to record costs worth roughly $400 million with approximately $350 million of such costs anticipated in 2023 and $50 million in 2024.
This cost mainly comprises employee severance ($200 million) and other costs related to nonbillable and corporate personnel, which Cognizant expects to mostly incur in 2023.
Moreover, approximately $200 million of these costs are related to the consolidation of office space, with approximately $150 million to be incurred in 2023 and the remaining $50 million in 2024.
The NextGen program is expected to generate meaningful cost savings beginning 2024. By 2025, Cognizant expects to reduce its annual real estate costs by approximately $100 million versus 2022.
The company expects the personnel-related actions of this program to impact roughly 3,500 employees or approximately 1% of its workforce.
Cognizant expects this program to help deliver 20-40 bps of margin expansion in 2024.
Second-quarter 2023 revenues are expected between $4.83 billion and $4.88 billion, flat to down 1% on a cc basis. Unfavorable forex is expected to hurt the top line by 60 bps while acquisitions are expected to contribute 100 bps.
For 2023, revenues are expected to be $19.2-$19.6 billion, indicating a decline of 1% to growth of 1% at cc. Adjusted operating margin for 2023 is expected between 14.2% and 14.7%.
Adjusted earnings for 2023 are expected between $4.11 and $4.34 per share.
Zacks Rank & Stocks to Consider
Currently, Cognizant has a Zacks Rank #4 (Sell).
BILL Holdings BILL, Fortinet FTNT and DigitalOcean DOCN are some better-ranked stocks that investors can consider in the Zacks Computer & Technology sector. While Fortinet sports a Zacks Rank #1 (Strong Buy), both BILL and DigitalOcean carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BILL Holdings shares have declined 27.9% year to date. BILL is set to report its first-quarter 2023 results on May 4.
Fortinet shares have gained 24% year to date. FTNT is set to report its first-quarter 2023 results on May 4.
DigitalOcean shares have gained 23% year to date. DOCN is set to report its first-quarter 2023 results on May 9.
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