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Cognizant (CTSH) Beats on Q3 Earnings, Revenues Increase Y/Y

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Cognizant (CTSH) Beats on Q3 Earnings, Revenues Increase Y/Y

Cognizant's (CTSH) third-quarter 2018 results benefit from growth across all four domains.

Cognizant Technology Solutions Corp. CTSH delivered third-quarter 2018 non-GAAP earnings of $1.19 per share, which beat the Zacks Consensus Estimate by six cents and increased 21.4% from the year-ago quarter. The figure was better than management’s expectation of $1.13 per share.

However, revenues of $4.078 billion lagged the Zacks Consensus Estimate of $4.084 billion. The figure improved 8.3% year over year, driven by growth in all four domains. The figure was within management’s guidance of $4.06-$4.10 billion.

The company adopted ASC 606 (new revenue standard), which positively impacted revenues by $33 million, income from operations by $37 million and earnings by a nickel.

Quarter Details

Segment-wise, Financial services (35.9% of revenues), which includes insurance, banking and transaction processing, grew 2.6% year over year to $1.46 billion. The company witnessed modest growth in both banking and insurance.

Healthcare (29.2% of revenues) grew 9.6% year over year to $1.19 billion. Top-line growth can be attributed to strong demand for the company’s solutions across healthcare and life sciences platform.

Products and Resources (21.1% of revenues) continued its growth momentum and improved 11.5% year over year to $863 million, driven by growth in manufacturing and retail clients.
 

Cognizant Technology Solutions Corporation Price

Cognizant Technology Solutions Corporation Price | Cognizant Technology Solutions Corporation Quote

 

Communications, Media and Technology (13.8% of revenues) were $562 million, up 17.1% from the year-ago quarter.

Digital revenues grew in the low 20% range on a year-over-year basis and were slightly above 30% of total revenues in the reported quarter. Moreover, Cognizant added seven new strategic customers during the quarter, bringing the total to 378.

Further, Consulting & Technology services revenues were up 6.6% year over year. Moreover, outsourcing services revenues increased 10.7% from the year-ago quarter.

Additionally, roughly 36% of Cognizant’s revenues were from fixed price contracts.

Region-wise, revenues from North America increased 7.5% year over year and represented 76.1% of total revenues. Revenues from Europe increased 15.1% from the year-ago quarter and accounted for 17.7% of total revenues. Rest of the World revenues inched up 0.4% and represented 6.1% of total revenues.

Operating Details

Selling, general & administrative (SG&A) expenses, as a percentage of revenues, increased 10 basis points (bps) from the year-ago quarter to 18%.

Headcount increased 5,300 sequentially and 18,100 year over year. Annualized attrition was 22.3%, almost flat year over year.

Cognizant reported non-GAAP operating margin of 21.1%, which expanded 110 bps from the year-ago quarter.

Balance Sheet

As of Sep 30, 2018, cash and cash equivalents (and short-term investments) were $4.76 billion, up from $4.25 billion reported as of Jun 30, 2018.

Cognizant generated $862 million in cash from operations. The company bought back 1.4 million shares in the reported quarter.

Cognizant declared a quarterly cash dividend of 20 cents per share payable on Nov 30, 2018.

Guidance

For the fourth quarter of 2018, Cognizant expects revenues between $4.09 billion and $4.13 billion. Non-GAAP earnings are anticipated to be at least $1.05 per share, reflecting almost 2% year-over-year growth.

The Zacks Consensus Estimate for revenues and earnings are currently pegged at $4.15 billion and $1.14 per share, respectively.

For 2018, revenues are projected between $16.09 billion and $16.13 billion compared with previous guidance of $16.05-$16.30 billion.

Non-GAAP operating margin is still expected to be roughly 21%. Non-GAAP earnings are projected to be at least $4.50 per share, up from previous guidance of $4.47 per share.

The Zacks Consensus Estimate for revenues and earnings are currently pegged at $16.16 billion and $4.52 per share, respectively.

Cognizant remains on track to achieve 22% non-GAAP operating margin in 2019.

Zacks Rank & Stocks to Consider

Cognizant has a Zacks Rank #3 (Hold).

Angie’s Homeservices ANGI, The Trade Desk TTD and NetApp NTAP are stocks worth considering in the broader computer and technology sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Angie’s Homeservices, The Trade Desk, and NetApp are expected to report quarterly results on Nov 7, 8 and 21, respectively.

 

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