Cognizant reports first quarter 2020 results

Quarterly revenue of $4.2 billion, up 2.8% (3.5% in constant currency) over 2019

Cognizant Technology Solutions Corporation (Nasdaq: CTSH), one of the world’s leading professional services companies, today announced its first quarter 2020 financial results.

Highlights – First Quarter 2020

  • Revenue increased to $4.2 billion, up 2.8% (3.5% in constant currency1) from the year-ago quarter, including a negative 50 basis points impact from the exit of certain content services business.
  • GAAP operating margin was 13.7% compared to 13.1% in the year-ago quarter.
  • Adjusted Operating Margin1 was 15.1% compared to 16.0% the year-ago quarter.
  • Net income was $367 million compared to $441 million in the year-ago quarter.
  • Quarterly GAAP diluted EPS was $0.67 compared to $0.77 in the year-ago quarter.
  • Quarterly Adjusted Diluted EPS1 was $0.96 compared to $0.91 in the year-ago quarter.

“We executed well in what was a challenging quarter, and posted our strongest quarterly signings since 2017,” said Brian Humphries, Chief Executive Officer. “Amid the pandemic’s unprecedented human and economic challenges, we remain focused on the health and safety of our associates whilst maintaining business continuity for our clients and supporting our communities. While we expect a challenging demand environment throughout 2020, we believe the pandemic is accelerating the secular trends of core modernization and cloud migration as companies shift to digital business models. These and other related IT trends play directly to Cognizant’s strategy. I am confident we will emerge from this crisis in a position of strength.”

First Quarter 2020 Performance by Business Segment

Financial Services (34.3% of revenues) revenue grew 1.0% year-over-year, or 1.8% in constant currency. Growth in banking was driven by the contribution of the previously announced partnership with three Finnish financial institutions to transform and operate a shared core banking platform and regional banks in North America. This was partially offset by continued softness with a few of our largest banking and insurance clients.

Healthcare (28.3% of revenues) revenue grew 2.5% year-over-year, or 2.7% in constant currency. Segment revenue was driven by double-digit growth in life sciences, including the contribution of Zenith Technologies, which was acquired in July 2019. This was partially offset by a low-single digit decline in revenue within healthcare as results were negatively impacted primarily by the movement of work to a captive at a large North American client.

Products and Resources (22.6% of revenues) revenue grew 4.4% year-over-year, or 5.3% in constant currency, driven by growth across retail and consumer goods, manufacturing, logistics, energy and utilities. This was partially offset by softness in the travel and hospitality industries.

Communications, Media and Technology (14.8% of revenues) revenue grew 5.2% year-over-year, or 6.3% in constant currency, driven by broad-based growth across all the industries in this segment. Revenue growth in technology was negatively impacted by our previously announced decision to exit certain portions of our content services business.

“We entered 2020 with a strong balance sheet and further strengthened our financial flexibility in the first quarter,” said Karen McLoughlin, Chief Financial Officer. “Against an uncertain economic backdrop, we will continue with our 2020 Fit For Growth Plan to streamline the Company’s operating model and reduce costs to fund growth investments that align to our long-term growth strategy.”

COVID-19 Business Implications

During the first quarter, COVID-19-related disruptions reduced revenue in March, reflecting delays in project fulfillment as Cognizant rapidly enabled the shift to work-from-home capabilities across its delivery teams.

Entering the second quarter, the pandemic and resulting economic slowdown are dampening demand across industries, most significantly within the travel, hospitality, retail, automotive, energy, and media and entertainment. At the same time, the pivot to digital is accelerating as companies look to quickly modernize and increase their competitiveness, migrate more of their workloads to the cloud, and fundamentally rethink their core business processes.

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Business Outlook

As communicated in our April 9th update, given the continued uncertainty around the duration of the COVID-19 pandemic and its impact on our ability to forecast performance, we are not providing guidance at this time.

Declaration of Quarterly Cash Dividend

The Company has declared a quarterly cash dividend of $0.22 per share on Cognizant Class A common stock for shareholders of record at the close of business on May 20, 2020. This dividend will be payable on May 29, 2020.

Update on Previously Reported Cyber-Security Incident

In late April, the Company announced a security incident involving its internal systems resulting from a Maze ransomware attack. The Company believes it has contained the attack and that the actor is no longer operating in the Company’s environment.

Since becoming aware of the attack, the Company has taken decisive actions to remediate the threat while keeping clients regularly informed. The Company believes these measures enabled it to continue its operations in a timely and secure manner. In addition, the Company has and will continue to take any necessary steps to protect the integrity of its systems.

1 Constant currency revenue growth, Adjusted Operating Margin and Adjusted Diluted Earnings Per Share (“Adjusted Diluted EPS”) are not measurements of financial performance prepared in accordance with GAAP.

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