Cognizant’s Earnings Call: Strong Growth and AI Focus

Cognizant Technology Solutions ((CTSH)) has held its Q2 earnings call. Read on for the main highlights of the call.

Cognizant Technology Solutions recently held its earnings call, presenting a positive outlook characterized by strong revenue and bookings growth, improved operating margins, and significant advancements in AI-driven innovation and productivity. Despite facing challenges in the demand environment and potential headwinds in health sciences, the company remains committed to its strategic focus and operational discipline.

Strong Revenue Growth

Cognizant reported a robust 7.2% year-over-year revenue increase in constant currency for the second quarter, reaching $5.2 billion. This marks the fourth consecutive quarter of organic growth, underscoring the company’s resilience and effective strategies in navigating market challenges.

Significant Bookings Increase

The company achieved an 18% year-over-year growth in Q2 bookings, with a trailing 12-month growth of 6%. Cognizant successfully landed six large deals with a total contract value of $100 million or more, including two mega deals valued at approximately $1 billion each, demonstrating its strong market position.

Adjusted Operating Margin Improvement

Cognizant’s adjusted operating margin improved by 40 basis points year-over-year to 15.6%, aligning with its goal of achieving a 20 to 40 basis point margin expansion by 2025. This improvement reflects the company’s focus on operational efficiency and cost management.

AI-Driven Innovation and Productivity

AI initiatives have gained significant traction, with over 2,500 early GenAI client engagements in Q2, up from 1,400 in Q1. Nearly 30% of the code was AI-generated, significantly enhancing developer productivity and showcasing Cognizant’s commitment to leveraging AI for business growth.

Talent and Engagement Initiatives

Cognizant’s employee engagement scores have remained above industry benchmarks for the third consecutive year. The company continues to invest in AI and emerging technology hubs, highlighting its commitment to fostering a skilled and engaged workforce.

Record Capital Return to Shareholders

In Q2, Cognizant returned $521 million to shareholders and plans to return $2 billion for the full year, an increase from the previously planned $1.7 billion. This demonstrates the company’s strong financial health and commitment to delivering shareholder value.

Limited Visibility and Demand Environment

The demand environment remains dynamic with limited visibility. However, Cognizant’s ability to secure large deals has helped offset pressures from discretionary spending, showcasing its adaptability in a challenging market.

Impact of U.S. Budget Bill

Cognizant anticipates a one-time noncash tax expense of approximately $400 million in Q3 due to changes in U.S. tax laws. This is expected to reduce near-term cash taxes, reflecting the company’s proactive financial planning.

Headwinds in Health Sciences

The recent U.S. Budget Bill and changes to Medicaid are expected to impact near-term discretionary demand from payers and providers in the health sciences sector. Cognizant is navigating these challenges with strategic focus and operational discipline.

Forward-Looking Guidance

Cognizant provided strong forward-looking guidance, expecting full-year 2025 revenue growth of 4% to 6% in constant currency and adjusted EPS growth of 7% to 10% year-over-year. The company continues to focus on strategic initiatives, including AI-driven productivity and innovation, while expanding its talent base and investing in emerging technology hubs.

In summary, Cognizant Technology Solutions’ earnings call highlighted a positive outlook with strong revenue and bookings growth, improved operating margins, and significant progress in AI-driven innovation. Despite challenges in the demand environment and health sciences, the company remains strategically focused and operationally disciplined, providing robust forward-looking guidance for continued growth.