Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Cognizant Technology Solutions Corp (CTSH, Financial) reported a strong start to 2025 with revenue growth of 8.2% year-over-year in constant currency, reaching $5.1 billion.
• The Health Sciences segment led revenue growth with an increase of over 11% year-over-year in constant currency, driven by large deals that offset discretionary spending pressures.
• Financial Services segment showed resilience, growing 6.5% year-over-year in constant currency, with healthy discretionary spending on cloud and data modernization.
• Adjusted operating margin improved by 40 basis points year-over-year to 15.5%, aligning with the company's full-year guidance for margin expansion.
• Cognizant Technology Solutions Corp (CTSH) is making significant investments in AI, with approximately 1,400 early Gen AI engagements, positioning the company to capitalize on AI-led productivity and innovation opportunities.

Negative Points

• April saw a slowdown in client decision-making and discretionary spending, particularly affecting the Health Sciences and Products and Resources segments.
• Despite strong first-quarter results, the macroeconomic environment remains uncertain, impacting client spending and decision-making.
• Bookings declined 7% year-over-year, driven by a decline in the Rest of the World region, which had significant deals in the prior year period.
• The Products and Resources segment experienced weak demand due to discretionary spending pressure and the impact of tariff policies.
• The company faces intense pricing pressure in large deals, requiring a focus on AI-led productivity to maintain competitive pricing.

Q & A Highlights

Q: Can you discuss any shifts in the quality of bookings or growth projects being replaced by cost-cutting projects? Are there any trends in pricing and margin for larger deals? A: Ravi Kumar S, CEO: We are leading in AI-driven productivity gains, which allows us to originate and sole-source deals, especially in financial services where discretionary growth work is returning. We announced a mega deal this quarter, and the TCV of large deals is higher than last year. Jatin Dalal, CFO: Winning large deals depends on solution strength, execution history, and AI-led productivity. Pricing is more about solution quality than rate cards, and while initial margins may be lower, they improve over time as part of a portfolio approach.

Q: With utilization moving up, is there more room for improvement in productivity and headcount? A: Ravi Kumar S, CEO: Utilization increased from 82% to 85%. We plan to hire more freshers to optimize the pyramid structure, which will require some room for utilization to adjust. We are focusing on intertwining AI productivity, utilization, and pyramid optimization to manage human capital costs effectively.

Q: Can you elaborate on the April slowdown in decision-making and its impact? A: Jatin Dalal, CFO: Financial services remain strong, while health sciences and products/resources show caution due to policy changes and tariffs. The impact is isolated to specific segments and geographies, and we are monitoring developments closely.

Q: How is the labor market affecting your operations, particularly regarding attrition and wage inflation? A: Jatin Dalal, CFO: Attrition is stable and slightly down, with no undue pressure on wages or project delivery. Ravi Kumar S, CEO: We have strong fulfillment capabilities, with a high acceptance rate of offers and a significant number of returners, which supports discretionary projects.

Q: How sustainable is Cognizant's position in the "Winner Circle"? A: Ravi Kumar S, CEO: Sustaining our position requires consistent performance over multiple quarters. We have built a broad-based, all-weather portfolio across four service pillars and multiple industries, which provides resilience and opportunities for consistent growth.

Q: What is the outlook for organic growth and headcount in the coming quarters? A: Jatin Dalal, CFO: The April uncertainty is factored into Q2 guidance, leading to a slight deceleration in organic growth. We have improved utilization significantly, and the gap between revenue and headcount growth is due to better resource utilization and AI-driven productivity.

Q: Can large-scale cost takeout deals be signed and contribute to revenue before year-end? A: Ravi Kumar S, CEO: While there may be some lumpiness, the current uncertain market is ideal for cost takeout deals. We are well-positioned to lead in technology-led cost reductions, and these deals are likely to be prioritized by clients.

Q: What are you seeing in the pricing environment and competitive behavior? A: Jatin Dalal, CFO: Pricing intensity is high, but it's driven by the ability to reduce total cost of ownership through AI-led solutions rather than rate card negotiations. We believe we have an early mover advantage in deploying Gen AI capabilities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.