Why did GAAP EPS fall so sharply despite revenue and adjusted earnings growth?

GAAP diluted EPS fell to $0.56 from $1.17 mainly because of a one-time, non-cash income tax expense of $390 million (about $0.80 per share). It stems from the July 2025 One Big Beautiful Bill Act, which repealed the requirement to capitalize U.S. R&E costs. As a result, management no longer believes it is more likely than not that it will realize a $390 million deferred tax asset tied to previously capitalized R&E costs outside the U.S. Adjusted EPS, which excludes this charge, rose 11% to $1.39.

Is the growth slowing going into Q4 2025?

Guidance implies a deceleration. Q4 revenue is expected at $5.27-$5.33 billion, or 3.8%-4.8% reported growth and 2.5%-3.5% constant-currency growth, compared with 6.5% constant-currency growth in Q3. Full-year constant-currency growth guidance of 6.0%-6.3% was raised, but that range reflects the strong first three quarters rather than a Q4 acceleration.

How much of the growth came from acquisitions, and how durable is it?

Acquisitions, primarily Belcan, contributed about 250 basis points to Q3 year-over-year revenue growth and about 350 basis points to year-to-date growth. Belcan added roughly 900 basis points to the Products and Resources segment in Q3. Organic growth is positive, but acquisition contribution is expected to fade as the deal laps, which is a key consideration for the Q4 and 2026 outlook.

What do the bookings trends suggest about future revenue?

Trailing twelve-month bookings rose 5% to $27.5 billion, with a book-to-bill of about 1.3x, which supports revenue visibility. However, Q3 bookings alone fell 5% year-over-year, and the company notes that quarterly bookings are lumpy and depend on a small number of large contracts. Year-to-date large-deal TCV grew 40%, with 16 large deals signed year-to-date.

Was there any one-time item that flattered GAAP results this year?

Yes. In Q1 2025 Cognizant recorded a gain of about $62 million pre-tax on the sale of an office complex in India, which lifted year-to-date GAAP operating income and the GAAP operating margin. The company excluded this gain from adjusted operating margin and adjusted EPS. Year-to-date GAAP EPS of $3.22 includes both this gain and the $0.79 tax charge, so GAAP and adjusted results are not directly comparable.

CTSH 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed October 29, 2025. Cited figures are marked; the original filing is the authoritative source.

Cognizant (CTSH) reported third-quarter 2025 results that beat the top of its own revenue guidance, with reported revenue of $5.415 billion^a, up 7.4% year-over-year (6.5% in constant currency) and up 2.8% sequentially in constant currency.

The company describes this as its fifth consecutive quarter of year-over-year organic growth and its strongest sequential organic growth since 2022. Acquisitions, primarily Belcan, contributed roughly 250 basis points to Q3 growth. Adjusted operating margin expanded 70 basis points year-over-year to 16.0%, and adjusted diluted EPS rose to $1.39^b from $1.25, up about 11% year-over-year.

Trailing twelve-month bookings were $27.5 billion^c, up 5%, though Q3 bookings alone declined 5% year-over-year. GAAP results were materially weaker than the adjusted figures. GAAP diluted EPS fell to $0.56 from $1.17 because of a one-time, non-cash income tax charge of $390 million (about $0.80 per share) tied to the July 2025 OBBBA legislation, which eliminated the requirement to capitalize U.S. R&E costs and led management to conclude a related $390 million deferred tax asset is unlikely to be realized.

Investors should weigh this charge as non-recurring, while recognizing that a Q1 2025 gain on sale of property (about $62 million^d pre-tax) flattered year-to-date GAAP operating income and was excluded from adjusted metrics. Management raised its full-year 2025 constant-currency revenue growth guidance to 6.0%-6.3%, with reported revenue of $21.05-$21.10 billion, and guided Q4 revenue to $5.27-$5.33 billion, implying 2.5%-3.5% constant-currency growth, which points to a deceleration from Q3.

Full-year adjusted operating margin is expected at about 15.7%, and adjusted diluted EPS at $5.22-$5.26. The company also returned capital, repurchasing $450 million of stock in the quarter and declaring a $0.31 quarterly dividend, and reported net cash of $1.77 billion at quarter-end.

02—Key points

Key Highlights

Q3 2025 revenue of $5.415B, up 7.4% YoY reported and 6.5% in constant currency, above the high end of guidance; Belcan acquisition contributed about 250 bps.
Adjusted operating margin of 16.0%, up 70 bps YoY; GAAP operating margin of 16.0%, up 140 bps YoY.
GAAP diluted EPS of $0.56 (down from $1.17) reflects a one-time, non-cash $390M tax expense (~$0.80/share) from OBBBA; adjusted EPS of $1.39 rose 11%.
Full-year 2025 constant-currency revenue growth guidance raised to 6.0%-6.3%; adjusted EPS guidance of $5.22-$5.26; adjusted operating margin ~15.7%.
Q4 2025 revenue guidance of $5.27-$5.33B implies 2.5%-3.5% constant-currency growth, a sequential slowdown from Q3's 6.5%.
Trailing twelve-month bookings of $27.5B (+5% YoY, book-to-bill ~1.3x), though Q3 bookings declined 5% YoY; six large deals signed in the quarter.
Capital returns: $450M in Q3 buybacks, $1.5B returned YTD, $2.2B remaining authorization, and $0.31 quarterly dividend declared; free cash flow of $1.16B in Q3.

03—Questions

Frequently Asked Questions

Why did GAAP EPS fall so sharply despite revenue and adjusted earnings growth?
GAAP diluted EPS fell to $0.56 from $1.17 mainly because of a one-time, non-cash income tax expense of $390 million (about $0.80 per share). It stems from the July 2025 One Big Beautiful Bill Act, which repealed the requirement to capitalize U.S. R&E costs. As a result, management no longer believes it is more likely than not that it will realize a $390 million deferred tax asset tied to previously capitalized R&E costs outside the U.S. Adjusted EPS, which excludes this charge, rose 11% to $1.39.
Is the growth slowing going into Q4 2025?
Guidance implies a deceleration. Q4 revenue is expected at $5.27-$5.33 billion, or 3.8%-4.8% reported growth and 2.5%-3.5% constant-currency growth, compared with 6.5% constant-currency growth in Q3. Full-year constant-currency growth guidance of 6.0%-6.3% was raised, but that range reflects the strong first three quarters rather than a Q4 acceleration.
How much of the growth came from acquisitions, and how durable is it?
Acquisitions, primarily Belcan, contributed about 250 basis points to Q3 year-over-year revenue growth and about 350 basis points to year-to-date growth. Belcan added roughly 900 basis points to the Products and Resources segment in Q3. Organic growth is positive, but acquisition contribution is expected to fade as the deal laps, which is a key consideration for the Q4 and 2026 outlook.
What do the bookings trends suggest about future revenue?
Trailing twelve-month bookings rose 5% to $27.5 billion, with a book-to-bill of about 1.3x, which supports revenue visibility. However, Q3 bookings alone fell 5% year-over-year, and the company notes that quarterly bookings are lumpy and depend on a small number of large contracts. Year-to-date large-deal TCV grew 40%, with 16 large deals signed year-to-date.
Was there any one-time item that flattered GAAP results this year?
Yes. In Q1 2025 Cognizant recorded a gain of about $62 million pre-tax on the sale of an office complex in India, which lifted year-to-date GAAP operating income and the GAAP operating margin. The company excluded this gain from adjusted operating margin and adjusted EPS. Year-to-date GAAP EPS of $3.22 includes both this gain and the $0.79 tax charge, so GAAP and adjusted results are not directly comparable.

04—Continue

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