Cognizant Q4 profit down 2% at $416 million

The US-based Cognizant Technology Solutions reported a two per cent drop in net profit to $416 million for fourth quarter ended December 31, 2016 against $423 million for the same quarter last year.

In contrast, its three major Indian competitors – TCS, Infosys and Wipro – posted growth in December quarter.

Cognizant’s quarterly revenue rose to $3.46 billion, up 7.1 per cent from the year-ago quarter and 0.3 per cent sequentially. For full year ending December 2016, net profit declined marginally to $1.55 billion ($1.62 billion).

Annual revenue increased to $13.49 billion, up 8.6 per cent from $12.42 billion in 2015. Ongoing demand for its cloud services led to increased revenue.

However, 2016 revenue was slightly lower than the range of $13.65 billion to $14.20 billion that the company anticipated while announcing December 2015 quarterly results.

While announcing September 2016 quarter results, the company scaled down its annual guidance in the range to be $13.47 billion to $13.55 billion. The US-based software company with development centres in India said that first quarter 2017 revenue is expected to be in the range of $3.51-3.55 billion and full year 2017 revenue expected to be in the range of $14.56-14.84 billion.

Key factors On the reasons for the drop in net profit, Karen McLoughlin, CFO, Cognizant, told BusinessLine , “Our non-GAAP operating margins in Q4 were below our normal range due to certain investments that we made in 2016 in our digital operations practice area and certain geographies as well as approximately $20 million of costs incurred in the quarter due to the ongoing FCPA investigation.”

Cognizant said that to stay relevant to evolving client demand, it will aggressively scale its digital capabilities across geographies and industry segments through both organic investments, in areas such as re-skilling and new technology practices, and through acquisitions.

The company is intensifying its M&A efforts to expand intellectual property, industry expertise, and platform and technology capabilities, by focusing primarily on strategic tuck-in acquisitions.

As a result of the company’s strategic planning process and after reviewing its operational and corporate cost structures with a top-tier consulting firm, the company will accelerate the pursuit of high-value digital transformation work, drive leverage in its cost structure, execute on opportunities to improve operational efficiency and aggressively employ automation to optimise traditional services.

The company believes that these actions are necessary in order to preserve the ability to invest for growth while enhancing shareholder value.

The company’s plan is to expand its non-GAAP operating margins as it continues to invest and scale its operations, with a non-GAAP operating margin target of 22 per cent in 2019, the release said.

The company’s board has approved a plan to return $3.4 billion to shareholders over the next two years through a combination of share repurchases and dividends.

As part of this plan, the company expects to commence a $1.5-billion accelerated share repurchase programme in the first quarter of 2017, initiate a regular quarterly cash dividend of $0.15 per share commencing in the second quarter of 2017, and repurchase shares of $1.2 billion in the open market during 2017 and 2018, the release said.

McLoughlin told analysts that during the quarter, Cognizant had approximately 4,400 net employee additions. The company ended the quarter with approximately 260,200 employees globally.

Francisco D’Souza, CEO, Cognizant, said the company’s digital revenue represents work with clients to help them win in the digital economy by applying technology and analytics to change.

Digital revenue for the full-year 2016 represented approximately 23 per cent of total revenue and is growing well above the company average. “Going forward, we expect that trend — growth weighted toward digital — to accelerate; we will periodically break out our digital revenue to give you a sense of how that shift is progressing,” he said.

3 directors appointed Meanwhile, Cognizant said it has entered into a “cooperation agreement” with activist shareholder Elliott Management and appointed three independent directors to its board.

“Pursuant to the terms of the cooperation agreement, the Cognizant board of directors has agreed to continue the ongoing process of refreshing the board by appointing three new independent directors,” Cognizant said in a statement.

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