Cognizant one of the world’s leading professional services companies, announced its first quarter 2023 financial results.
“Our accelerated bookings growth in the quarter, which included several large deals and a healthy mix of new and expansion work, reflects the strengths of our services, our brand, and the longstanding relationships we have with our clients. I am also encouraged by the continuing reduction in our voluntary attrition,” said Ravi Kumar S, Chief Executive Officer. “Clients recognize how deeply we understand their businesses and how well positioned we are to create value for them at the intersection of technology and industry use cases. Having spent more than three months assessing the business, meeting with over a hundred clients and thousands of employees, I firmly believe Cognizant has a strong foundation for accelerating growth.”
“We were pleased to deliver first quarter revenue above the high-end of our guidance range and strong free cash flow that supports our capital allocation priorities,” said Jan Siegmund, Chief Financial Officer. “In 2023, we expect to return approximately $1.4 billion to shareholders through share repurchases and dividends, including approximately $800 million of share repurchases. The NextGen program announced today will help fund continued investments in our people, growth opportunities and realignment of our real-estate to reflect our hybrid work model.”
Bookings
Bookings in the first quarter grew 28% year-over-year. On a trailing-twelve-month basis, bookings grew 9% to $25.6 billion, which represented a book-to-bill of approximately 1.3x.
Employee Metrics
Total headcount at the end of the first quarter was 351,500, a decrease of 3,800 from Q4 2022 and an increase of 11,100 from Q1 2022. Voluntary attrition – Tech Services on a trailing-twelve-month basis, declined to 23% from 26% in Q4 2022 and 30% in Q1 2022.
Return of Capital to Shareholders
The Company repurchased 3.2 million shares for $200 million during the first quarter under its share repurchase program. As of March 31, 2023, there was $2.6 billion remaining under the share repurchase authorization. In May 2023, the Company declared a quarterly cash dividend of $0.29 per share, a 7% increase year-over-year, for shareholders of record on May 19, 2023. This dividend will be payable on May 30, 2023.
NextGen Program
In the second quarter of 2023, we initiated the NextGen program aimed at simplifying our operating model, optimizing corporate functions and consolidating and realigning office space to reflect the post-pandemic hybrid work environment. Our drive for simplification will include operating with fewer layers in an effort to enhance agility and enable faster decision making. We expect the savings generated by the program to help fund continued investments in our people, revenue growth opportunities and the modernization of our office space.
In connection with the NextGen program, we expect to record costs of approximately $400 million with approximately $350 million of such costs anticipated in 2023 and approximately $50 million in 2024. This consists of approximately $200 million of employee severance and other costs primarily related to non-billable and corporate personnel, which we expect to mostly incur in 2023, and approximately $200 million of costs related to the consolidation of office space, with approximately $150 million in 2023 and $50 million in 2024.
We do not expect the NextGen program to drive meaningful cost savings until the second half of 2023 and the real estate actions will not begin to generate savings until 2024. By 2025, we expect to reduce our annual real estate costs by approximately $100 million versus 2022. This reduction in real estate costs is net of investments to expand our real estate footprint in smaller cities, primarily in India, in support of our hybrid work strategy.
We expect the personnel-related actions of this program to impact approximately 3,500 employees, or approximately 1% of our workforce.
Second Quarter and Full-Year 2023 Guidance
Second quarter revenue is expected to be $4.83 – $4.88 billion, a decline of 0.6% to 1.6%, or a decline of 1.0% to flat in constant currency.
Full-year 2023 revenue is expected to be $19.2 – $19.6 billion, or a decline of 1.2% to growth of 0.8%, or a decline of 1.0% to growth of 1.0% in constant currency.
Full-year 2023 Adjusted Operating Margin2 is expected to be in the range of 14.2% to 14.7%.
Full-year 2023 Adjusted EPS2 is expected to be in the range of $4.11 to $4.34
Select Client and Partnership Announcements
- Announced a new 5-year agreement to support and transform the technology operations of global retailer, Nike. Building on its 14-year collaboration, Cognizant will support Nike’s customers, partners and employees worldwide, delivering several key capabilities, including new self-service capabilities, improved service productivity and significant cost savings.
- Selected by Horizon Healthcare Services, New Jersey’s oldest and largest health insurer, to support its government healthcare programs. As part of a 7-year renewal agreement, Cognizant will manage Horizon’s claims processing, encounters submissions to the state, provider configuration, and enrollment services for its 1.2 million Medicaid and Dual Eligible Special Needs Plan members.
- In partnership with Guidewire, successfully migrated claims to the cloud for regional property & casualty insurer, FCCI Insurance Group, maximizing efficiency and accelerating growth.
- In partnership with Veeva, selected by Boehringer Ingelheim, a leading research-driven biopharmaceutical company, to unify their data in a connected technology ecosystem, helping to advance the speed and quality of medicinal therapy development.
- Expanded long-standing healthcare collaboration with Microsoft to integrate Cognizant’s TriZetto healthcare products with Microsoft Cloud for Healthcare, giving healthcare payers and providers easy access to cutting-edge technology solutions, streamlining claims management, and improving interoperability to optimize business operations.
- Selected by the UK Department for the Environment, Food and Rural Affairs to support the delivery of business change.
- In partnership with Amazon Web Services, achieved Travel and Hospitality Consulting Competency status. By leveraging AWS technologies, Cognizant helped Australian airline, Jetstar, provide personalization and travel recommendations for its customers.
- Selected by Volkswagen Group Ireland, the multinational automotive manufacturer headquartered in Germany, to transform VWG Ireland’s digital customer service landscape.
- Selected by DSB, Denmark’s state railway operator, as the provider of offshore IT consulting services to accelerate, to scale and improve DSB’s ability to deliver against its digital strategy.
- Launched the Data Intelligence Toolkit as a pre-built solution for Snowflakes’s Telecom Data Cloud, designed to help telecommunications service providers accelerate digital transformation for the Telecom industry, enable superior customer experiences, maximize operational efficiency and monetize new data services.
Select Analyst Ratings and Company Recognition
- Named to the Fortune list of America’s Most Innovative Companies 2023
- Recognized by Forbes as one of America’s Best Management Consulting Firms in 2023
- Recognized as a Top Employer in Canada and Portugal by LinkedIn
- Named as a Top Employer in Europe by Top Employers Institute for the 9th consecutive year
- Cognizant Consulting Named a Leader for Business Consulting Services by ISG
- Recognized as a Market Leader in Automation Services by HFS Research
- Recognized as a Leader by Everest Group in Capital Markets Operations
- Recognized as a Leader by Everest Group of Healthcare Cloud-Based Core Administration
- Recognized as a Leader by Everest Group for Marketing Services
- Named by Everest Group as a Healthcare Revenue Cycle Management Platform Leader
- Named a Leader in Application and Digital Services Insurance by Everest Group
- Named a Leader in Advanced Analytics & Insights Services by Everest Group
Conference Call
Cognizant will host a conference call on May 3, 2023, at 5:00 p.m. (Eastern) to discuss the Company’s first quarter 2023 results. To listen to the conference call, please dial (877) 810-9510 (domestic) or +1 (201) 493-6778 (international) and provide the following conference passcode: “Cognizant Call.”
The conference call will also be available live on the Investor Relations section of the Cognizant website at http://investors.cognizant.com
For those who cannot access the live broadcast, a replay will be available. To listen to the replay, please dial (877) 660-6853 (domestically) or +1 (201) 612-7415 (internationally) and enter 13736815 beginning two hours after the end of the call until 11:59 p.m. (Eastern) on Thursday, May 17, 2023.