01—Abstract
Summary
Summary of the 8-K filed May 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Cognizant (CTSH) reported first-quarter 2024 results that beat the high end of its own revenue guidance, though the top line still contracted.
Revenue was $4.76 billiona, down 1.1% year-over-year as reported and down 1.2% in constant currency, with GAAP diluted EPS of $1.10 (vs. $1.14) and Adjusted Diluted EPS of $1.12 (vs. $1.11). GAAP operating margin was flat at 14.6%, while Adjusted Operating Margin expanded 50 basis points to 15.1%, driven by the NextGen cost-reduction program. Management kept full-year 2024 guidance unchanged: revenue of $18.9-$19.7 billion (-2.2% to +1.8% reported), Adjusted Operating Margin of 15.3%-15.5%, and Adjusted EPS of $4.50-$4.68.
Demand indicators were mixed. Trailing-twelve-month bookings grew 1% to $25.9 billionb (book-to-bill ~1.3x), but Q1 bookings alone fell 6% year-over-year. Eight deals of at least $100 million in total contract value were signed during the quarter.
Financial Services revenue fell 6.2%c while Communications, Media & Technology grew 5.2%. Voluntary attrition improved sharply to 13.1% from 23.1%, and headcount fell to 344,400. Cash generation was weak in the quarter.
Operating cash flow was $95 milliond and free cash flow was $16 million, versus $729 million and $631 million a year earlier. The company attributed this mainly to a previously disclosed $360 million payment to Indian tax authorities tied to an ongoing 2016 tax appeal.
Cognizant still returned $284 million to shareholders through $133 million of buybacks and $151 million of dividends, and it declared a $0.30 quarterly dividend. Net cash fell to $1.61 billion from $2.00 billion at year-end 2023.
02—Key points
Key Highlights
- Q1 2024 revenue of $4.76B (-1.1% YoY; -1.2% constant currency) came in above the high end of guidance.
- Adjusted Operating Margin expanded 50 bps YoY to 15.1%, while GAAP operating margin was flat at 14.6%; the gap reflects $23M of NextGen restructuring charges.
- Adjusted Diluted EPS of $1.12 rose from $1.11, while GAAP diluted EPS declined to $1.10 from $1.14.
- Free cash flow fell to $16M from $631M, largely due to a $360M India tax payment tied to a 2016 tax matter under appeal.
- Full-year 2024 guidance was reaffirmed: revenue of $18.9-$19.7B and Adjusted EPS of $4.50-$4.68; Q2 revenue is guided to $4.75-$4.82B.
- Trailing-twelve-month bookings reached $25.9B (+1% YoY, 1.3x book-to-bill), though Q1 bookings declined 6% YoY.
- Net cash declined to $1.61B from $2.00B, and $284M was returned to shareholders in the quarter, including buybacks of $133M and dividends of $151M.
03—Questions
Frequently Asked Questions
Did Cognizant meet its own expectations for Q1 2024?
Yes, in part. Revenue of $4.76 billion came in above the high end of the company's guidance range, though it still declined 1.1% year-over-year. Adjusted Operating Margin of 15.1% expanded 50 basis points, and Adjusted Diluted EPS of $1.12 edged up from $1.11.
Why did free cash flow drop so sharply?
Free cash flow was $16 million versus $631 million in Q1 2023. Management attributed the decline mainly to a previously disclosed $360 million payment to Indian tax authorities related to an ongoing appeal of a 2016 tax matter, which weighed on both operating cash flow and free cash flow.
Is the company changing its full-year outlook?
No. Full-year 2024 guidance was unchanged, with revenue of $18.9-$19.7 billion (-2.2% to +1.8% as reported), Adjusted Operating Margin of 15.3%-15.5%, and Adjusted EPS of $4.50-$4.68. The guidance assumes up to 100 basis points of inorganic contribution, mainly from the Thirdera acquisition.
What do the bookings figures suggest about future demand?
Mixed signals. Trailing-twelve-month bookings rose 1% to $25.9 billion, with a book-to-bill of about 1.3x, and eight deals of at least $100 million were signed in the quarter. However, Q1 bookings alone fell 6% year-over-year, and management cited clients limiting discretionary spending.
How is Cognizant managing costs and capital?
Cost discipline is driving margin gains, with the NextGen program contributing to the 50 basis point expansion in Adjusted Operating Margin. The company has about $1.7 billion left on its buyback authorization and declared a $0.30 quarterly dividend, but net cash fell to $1.61 billion, so cash generation will be important to sustaining returns.
04—Continue