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01/11 03:08
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong AI-led growth, increased shareholder returns, and an optimistic outlook for 2026. Despite slight concerns over gross margin impacts and secondary listing uncertainties, the company’s strategic investments in AI and partnerships, alongside a significant increase in large deal contracts, suggest a positive trajectory. The increased capital return and promising AI-driven initiatives further bolster a positive sentiment, likely leading to a stock price increase.
Revenue Revenue grew 6.5% year-over-year in constant currency to $5.4 billion. This growth was driven by strong performance across all four operating segments and geographies, reflecting the strength and resilience of the company's portfolio and delivery model.
Trailing 12 months bookings Trailing 12 months bookings increased by 5% year-over-year. The TCV of large deals year-to-date is up 40% from the prior year period, driven by strong deal momentum and client demand for AI-led transformation.
Revenue per employee Revenue per employee rose 8% year-over-year on a trailing 12-month basis. This increase is attributed to the scaling of IP and platforms, as well as the adoption of AI-led growth strategies.
Adjusted operating margin Adjusted operating margin improved by 70 basis points year-over-year to 16%. This improvement was driven by disciplined expense management and the increasingly AI-enabled delivery model.
Digital engineering business The digital engineering business achieved an approximately $2 billion annual run rate, growing about 8% organically year-to-date. This growth is attributed to the proactive shift to AI-native and platform-driven engineering.
Cloud and infrastructure modernization business This business grew 10% year-over-year in the quarter, driven by AI tooling and services that helped over 25 clients build resilient IT infrastructure.
BPO revenue BPO revenue grew 10% over the last two quarters and is on track to reach $3 billion in annualized revenue over the next several quarters. This growth is driven by the adoption of agentification and AI-led transformation.
Adjusted EPS Adjusted EPS grew approximately 11% year-over-year to $1.39. This growth was supported by strong revenue performance and margin expansion.
Free cash flow Free cash flow for the third quarter was $1.2 billion, representing 170% of adjusted net income. This increase was due to lower cash income taxes and strong operational performance.
AI Builder Strategy: Cognizant is evolving into an AI builder, focusing on scaling agentic AI across enterprises. Investments in platforms, intellectual property, and partnerships are driving this transformation.
Flowsource Platform: The Flowsource platform integrates generative and agentic AI across the software development lifecycle, currently used by over 70 clients with 120 more in the pipeline.
AI-Generated Code: Approximately 30% of internal code is AI-generated, improving developer productivity. This is expected to reach 50% in the future.
AI Hackathon: Cognizant hosted the world's largest online generative AI hackathon, involving over 53,000 associates and resulting in 30,000 working prototypes.
Large Deals: Signed 6 large deals in Q3, each with a TCV of $100 million or more, bringing the year-to-date total to 16. TCV of large deals is up 40% year-over-year.
Geographic Growth: North America led growth with nearly 8% year-over-year increase in constant currency, driven by large deal success.
Revenue Growth: Revenue grew 6.5% year-over-year in constant currency to $5.4 billion, marking the fifth consecutive quarter of organic revenue growth.
Adjusted Operating Margin: Improved by 70 basis points year-over-year, driven by disciplined expense management and AI-enabled delivery models.
Revenue Per Employee: Increased by 8% year-over-year on a trailing 12-month basis, reflecting operational efficiencies.
AI Ecosystem Expansion: Entered a collaboration with Anthropic to deploy cloud models and agentic tooling for clients and internal operations.
AI-Led Productivity: Focused on accelerating software development, reducing deployment costs, and addressing technical debt through AI.
Agentifying Enterprises: Developing agentic ecosystems to blend human and digital labor, expanding enterprise capabilities.
Geopolitical and Trade Policy Uncertainty: Clients are navigating elevated levels of uncertainty around trade policy and geopolitical issues, which could impact their businesses and technology investment decisions.
Discretionary Spending Pressures: Clients are carefully evaluating technology investments, leading to a lower pace of discretionary spending in certain areas like products and resources.
Regulatory Changes in H1B Visas: Recent policy changes in the U.S. regarding H1B visas could potentially impact operations, although the company has reduced dependency on visas.
Economic Uncertainty: Cost pressures and economic uncertainties are influencing client demand, particularly in modernization projects and AI-led transformations.
Tariffs and Regional Demand Variability: Demand trends in Europe and other regions are being affected by recent tariffs and geopolitical uncertainty, which could impact revenue growth.
Client Consolidation and Cost Pressures: Clients are consolidating vendors and focusing on productivity-led initiatives, which could create pricing pressures and impact margins.
Large Deal Ramp-Up Challenges: The ramp-up of large deals is dilutive to margins in the short term, which could impact profitability.
Sector-Specific Spending Weakness: Certain sectors, such as communications, media, and technology, are experiencing pockets of discretionary spending weakness.
Revenue Growth: For the fourth quarter, revenue is expected to grow 2.5% to 3.5% year-over-year in constant currency, which is all organic. Full year revenue is now expected to grow 6% to 6.3% in constant currency, above the prior guidance range of 4% to 6%. Full year inorganic contribution is expected to be approximately 250 basis points.
Adjusted Operating Margin: Full year adjusted operating margin guidance is increased to approximately 15.7%, which is the upper end of the prior guidance and represents 40 basis points of expansion. Margin performance will be driven by cost discipline and SG&A leverage.
Free Cash Flow Conversion: Free cash flow conversion is expected to be approximately 100% of adjusted net income, including the benefit from lower cash taxes as a result of the U.S. budget bill.
Adjusted EPS: Full year adjusted EPS guidance is increased to $5.22 to $5.26, compared to the prior range of $5.08 to $5.22, representing 10% to 11% year-over-year growth.
Tax Rate: The adjusted tax rate is expected to be in the 24% to 25% range, with the full year tax rate closer to the midpoint of this range.
Capital Returned to Shareholders: During the third quarter, $600 million was returned to shareholders through share repurchases and dividends, bringing the year-to-date total to approximately $1.5 billion. The company is on track to return $2 billion to shareholders in 2025.
Total Capital Returned Since 2022: Nearly $5 billion has been returned to shareholders since 2022.
Share Repurchase: $600 million was returned to shareholders in Q3 2025 through share repurchases and dividends. The company plans to return $2 billion to shareholders in 2025.
The earnings call highlights strong AI-led growth, increased shareholder returns, and an optimistic outlook for 2026. Despite slight concerns over gross margin impacts and secondary listing uncertainties, the company’s strategic investments in AI and partnerships, alongside a significant increase in large deal contracts, suggest a positive trajectory. The increased capital return and promising AI-driven initiatives further bolster a positive sentiment, likely leading to a stock price increase.
The earnings call reflects strong financial performance, with 8.2% revenue growth and improved operating margins. The company shows strategic focus on AI investments and talent development, while maintaining a positive outlook on bookings and innovation. Despite some vague responses, the guidance remains optimistic with increased shareholder returns and strategic capital allocation. The Q&A session supports a positive sentiment, emphasizing growth in deals and market share gains. Overall, the combination of strong financial metrics, optimistic guidance, and strategic initiatives suggest a positive stock price movement.
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