US-based information technology (IT) services firm Cognizant Technology Solutions beat the Street and its revenue estimates for the first quarter of 2025, on the back of large deals in health sciences and financial services.
Revenue came in at $5.1 billion, up 7.5 percent year-over-year or 8.2 percent in constant currency (CC), above the high end of its guidance range and analyst estimates of $5.07 billion, the Teaneck-headquartered firm said on May 1.
Net profit was up 21 percent at $663 million for the first quarter ended March 31, 2025. Cognizant, unlike its Indian peers, follows the calendar year.
“Growth was broad-based across… as recently won large deals more than offset discreetly spending pressures,” chief executive officer Ravi Kumar S told analysts after declaring the results.
While the Nasdaq-listed IT company retained its annual revenue guidance for 2025 in the 3.5 percent-6 percent range in constant currency (CC) terms, its second quarter guidance was lower than the first, 5 percent- 6.5 percent, in CC terms.
Chief financial officer (CFO) Jatin Dalal said the company saw no major impact from macro uncertainties or any customer cancellations in the first quarter. However, April brought some slowdown in client decision-making, particularly in segments like health services.
The impact, so far, appears isolated in Q2, while demand in the financial services segment remains strong.
“This has been due to the slowdown with select clients in certain segments, including health services and products and services. We believe the impact has been isolated, so far, in the second quarter and we are closely monitoring development,” Dalal told analysts.
After the earnings announcement, the stock was half a percent up in after-hours trading on the tech-heavy NASDAQ index.
Recent acquisitions of Belcan and Thirdera contributed approximately 400 basis points to YoY growth in revenue, which is in-line with the low-single digit numbers that Cognizant's Indian peers have posted in their quarterly earnings.
Also read: Four out of India’s top five IT firms add staff in FY25, total workforce grows by 12,718
The performance also came on the back of an 11.4 percent CC growth in the health sciences vertical in Q1.
The company said its bookings increased 3 percent YoY to $26.7 billion, indicating a book-to-bill of approximately 1.3x. However, bookings in the first quarter declined 7 percent YoY. During the quarter, the company signed 4 large deals, down from 10 in the previous quarter, each with total contract value (TCV) of $100 million or more.
This included one mega deal, worth over $500 million, in the quarter.
“Sharing AI-led hyper-productivity has been among the key differentiators for us in originating large deals led by productivity and lowering technology deployment costs,” Kumar told analysts.
The IT major’s operating margin increased 210 basis points (bps) year-on-year to 16.7 percent.
“We started the year on a strong note, delivering revenue and adjusted operating margin ahead of our expectations," Kumar was quoted as saying in the release. He added that productivity and cost reduction were helping clients wade through the near-term uncertainty and aim for longer-term AI-led transformation.
The company’s headcount decreased 500 sequentially and by 8,300 from the year-ag period.
Revenue Guidance
The company said in February that the full-year guidance assumes approximately 250 basis points of inorganic contribution from its Belcan acquisition.
In June 2024, Cognizant agreed to acquire the digital engineering, research, and development (ER&D) firm for nearly $1.3 billion in cash and stock.
“We are pleased with a strong first quarter performance but as you know, the macro environment changed sharply in early April and continues to evolve in real-time,” Kumar said.
The acquisition increased Cognizant’s footprint in the aerospace and defence industries with an attractive blue-chip client base
“We have seen early pipeline opportunities and identified the potential for new joint offerings in areas such as model-based systems in systems engineering,” Kumar said in October while addressing analysts.
Vertical Play
Revenue from the health sciences vertical increased by 11.4 percent YoY to $1.57 billion in CC terms, while the financial services vertical increased by 6.5 percent to $1.46 billion.
This is the sixth consecutive quarter of financial services trailing the health sciences vertical. In the fourth quarter of 2023, revenue from the financial services vertical lagged health sciences for the first time in 30 years of Cognizant’s history.
The management was upbeat about the recovery of financial services, as well as the recovery in the European market after North America.
“Financial services have demonstrated resilience across capital markets, cards and payments,” Kumar told analysts.
In the December quarter, the company was confident that the financial services vertical was getting back on track. “Financial services have a very different muscle, I think we have now stabilised, and we do believe that we are winning wallet share,” Kumar had said then.
Revenue from the products and resources vertical increased 13.6 percent to $1.28 billion for the quarter under consideration.
Geography-wise, the company grew its share of revenue from North America by 9.7 percent to $3.85 billion, while the European region increased by 3 percent to $950 million.
“We are outperforming many of our peers on an organic basis and achieved top-tier revenue growth in the region this year,” Dalal added.
Employee Metrics
The company ended Q1 with approximately 3,36,300 employees, the vast majority of which are located in India. Attrition increased by 2.7 percentage points to 15.8 percent on a trailing twelve-month basis.
The company’s utilisation rate decreased by 3 percentage points to 85 percent in the quarter. “The future of IT services will be powered by the double-engine transformation of AI technologies, both for hyper-productivity and innovation-led opportunities,” Kumar added.
He also said approximately 10,000 more are waiting to return to the IT major after 13,000 former Cognizant employees rejoined the company in 2024.
The Gen AI Picture
The company now has approximately 1,400 early Gen AI projects, up from 1,200 in the previous quarter.
Cognizant’s work will be aimed at accelerating the cross-industry adoption of AI technology in five key areas: enterprise AI agents, industry-specific large-language models, digital twins for smart manufacturing, foundational infrastructure for AI, and its new AI platform for integration of NVIDIA AI technology and orchestration.
The software major has developed over 20 agentic AI solutions, working with Google and other models, and addressing many of healthcare's most pressing challenges, it said.
Recently, Cognizant achieved a milestone in LLM uncertainty estimation. “This weighted spending technology allows us to set uncertainty thresholds on LLM outputs to manage hallucination, and on a case-by-case basis, fall back to rules-based code for human intervention, making multi-agent systems safer and more consistent,” Kumar said.
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