Why did GAAP operating margin decline while adjusted margin was stable?

GAAP operating margin fell to 15.6% from 16.7%, primarily because Q1 2025 included a $62 million one-time gain on the sale of an office complex in India. Excluding that gain, adjusted operating margin was 15.6%, up 10 basis points from 15.5% a year earlier. Q1 2026 had no Project Leap charges, which begin to affect GAAP results in later periods.

What is Project Leap and what will it cost?

Project Leap is a transformation program intended to move Cognizant to a more AI-enabled operating model through workforce resizing and reskilling, optimized technology footprint, and investments in AI and partnerships. The company expects $230-320 million of costs, substantially all in 2026, consisting of $200-270 million of severance and personnel costs and $30-50 million of other charges. It expects $200-300 million of in-year 2026 savings, net of reinvestment.

How does the guidance change affect the outlook?

Full-year 2026 constant currency revenue growth guidance is unchanged at 4.0-6.5%, and reported revenue guidance is $22.11-22.64 billion. Adjusted operating margin guidance was raised to 16.0-16.2%, and adjusted EPS guidance of $5.63-$5.77 excludes the Project Leap charges. Investors should note that GAAP EPS will be reduced by those charges, which are expected to be roughly $0.49-$0.68 per share pre-tax, or about $0.36-$0.50 after tax.

Is the bookings strength a sign of future revenue growth?

Bookings are a leading indicator of potential future revenue, and Q1 bookings rose 21% with TTM bookings at $29.6 billion and a book-to-bill of about 1.4x. However, bookings are total contract value and can be lumpy, and most contracts are terminable by clients on short notice. Also, Q2 guidance implies revenue growth of only 3.8-5.3% reported, so the bookings strength has not yet translated into an acceleration in revenue.

Why did free cash flow and net cash decline so sharply?

Operating cash flow fell to $274 million from $400 million, driven by a $680 million outflow from changes in operating assets and liabilities. Free cash flow dropped to $198 million from $393 million, which also included a $70 million property sale in Q1 2025. Net cash fell to $949 million from $1,338 million after a $730 million acquisition payment (3Cloud) and $444 million in share repurchases and dividends, indicating heavier near-term capital deployment.

CTSH 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed April 29, 2026. Cited figures are marked; the original filing is the authoritative source.

Cognizant (CTSH) reported first quarter 2026 results on April 29, 2026.

Revenue was $5.41 billion^a, up 5.8% year-over-year as reported and 3.9% in constant currency, landing in the upper half of guidance. Bookings were the standout: Q1 bookings rose 21% year-over-year, trailing-twelve-month bookings reached $29.6 billion (up 11%, book-to-bill about 1.4x), and the company signed seven large deals including one mega deal. Financial Services was again the strongest segment at +12.4% reported growth, while Health Sciences was essentially flat (+0.5%, or -0.9% in constant currency).

Profitability was mixed. GAAP operating margin fell 110 basis points to 15.6%, but adjusted operating margin was flat-to-up at 15.6% (+10 bps, excluding a $62 million^b gain on sale of property in Q1 2025). GAAP diluted EPS rose 3.7% to $1.39 and adjusted EPS rose 13.8% to $1.40.

Cash generation weakened: operating cash flow was $274 million^c versus $400 million a year earlier, free cash flow was $198 million versus $393 million, and net cash fell to $949 million from $1,338 million, partly reflecting a $730 million acquisition payment (3Cloud). The company repurchased $427 million of stock and paid $159 million in dividends. The most significant announcement is Project Leap, a restructuring program expected to generate $200-300 million of in-year 2026 savings, against $230-320 million of charges (mostly severance) that will be recognized largely in 2026.

Management used the net savings to raise its 2026 adjusted operating margin guidance to 16.0-16.2% (from 10-30 bps of expansion to 20-40 bps). Full-year revenue guidance was unchanged at 4.0-6.5% constant currency growth, with adjusted EPS guidance of $5.63^d-$5.77. The GAAP impact of Project Leap will depress reported GAAP EPS in 2026 by roughly $0.49-$0.68 pre-tax per share before tax effects.

02—Key points

Key Highlights

Revenue of $5.41B grew 5.8% YoY (3.9% constant currency), in the upper half of guidance; Financial Services grew 12.4% while Health Sciences was flat.
Q1 bookings grew 21% YoY with seven large deals (including one mega deal); TTM bookings of $29.6B (+11%) imply a book-to-bill of about 1.4x.
Project Leap announced: $230-320M of charges (mostly severance) largely in 2026, targeting $200-300M of in-year savings.
2026 adjusted operating margin guidance raised to 16.0-16.2% (20-40 bps expansion, up from 10-30 bps), despite the program's upfront costs.
Adjusted diluted EPS of $1.40 rose 13.8% YoY; GAAP EPS of $1.39 rose 3.7%. FY2026 adjusted EPS guidance is $5.63-$5.77 (7-9% growth).
Cash flow weakened: operating cash flow of $274M (vs. $400M) and free cash flow of $198M (vs. $393M); net cash declined to $949M from $1,338M.
Capital return continued with $427M of buybacks in Q1 and a $0.33 quarterly dividend declared; $1.5B remains on the repurchase authorization.

03—Questions

Frequently Asked Questions

Why did GAAP operating margin decline while adjusted margin was stable?
GAAP operating margin fell to 15.6% from 16.7%, primarily because Q1 2025 included a $62 million one-time gain on the sale of an office complex in India. Excluding that gain, adjusted operating margin was 15.6%, up 10 basis points from 15.5% a year earlier. Q1 2026 had no Project Leap charges, which begin to affect GAAP results in later periods.
What is Project Leap and what will it cost?
Project Leap is a transformation program intended to move Cognizant to a more AI-enabled operating model through workforce resizing and reskilling, optimized technology footprint, and investments in AI and partnerships. The company expects $230-320 million of costs, substantially all in 2026, consisting of $200-270 million of severance and personnel costs and $30-50 million of other charges. It expects $200-300 million of in-year 2026 savings, net of reinvestment.
How does the guidance change affect the outlook?
Full-year 2026 constant currency revenue growth guidance is unchanged at 4.0-6.5%, and reported revenue guidance is $22.11-22.64 billion. Adjusted operating margin guidance was raised to 16.0-16.2%, and adjusted EPS guidance of $5.63-$5.77 excludes the Project Leap charges. Investors should note that GAAP EPS will be reduced by those charges, which are expected to be roughly $0.49-$0.68 per share pre-tax, or about $0.36-$0.50 after tax.
Is the bookings strength a sign of future revenue growth?
Bookings are a leading indicator of potential future revenue, and Q1 bookings rose 21% with TTM bookings at $29.6 billion and a book-to-bill of about 1.4x. However, bookings are total contract value and can be lumpy, and most contracts are terminable by clients on short notice. Also, Q2 guidance implies revenue growth of only 3.8-5.3% reported, so the bookings strength has not yet translated into an acceleration in revenue.
Why did free cash flow and net cash decline so sharply?
Operating cash flow fell to $274 million from $400 million, driven by a $680 million outflow from changes in operating assets and liabilities. Free cash flow dropped to $198 million from $393 million, which also included a $70 million property sale in Q1 2025. Net cash fell to $949 million from $1,338 million after a $730 million acquisition payment (3Cloud) and $444 million in share repurchases and dividends, indicating heavier near-term capital deployment.

04—Continue

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