OREANDA-NEWS. Following the announcement of Cognizant’s third quarter 2015 results on November 4, 2015, the company’s executive leadership spoke with the media about the company’s performance and growth outlook for the rest of the year. Excerpts: 

“We had a very strong Q3. On the back of our Q3 results, we have taken our guidance up for the third time this year. Our Q3 revenue grew 3.3 percent sequentially and 23.5 percent year over year. We beat guidance for Q3 by about USD 45 million. So it was overall a very strong quarter with broad-based growth across the business. We are happy with our performance. We are in a once-in-a-decade shift in the technology landscape and there is tremendous amount of opportunity for us at Cognizant to help our clients manage and make that transition. We are winning in the digital space because of the investments that we have made, the fact that we are innovating at scale and the broad set of integrated capabilities that we have built in the company to help our clients make the transition from the last wave of technology to the new wave of digital transformation. We feel great about the business and the performance that we have had year to date.

Success and winning in digital today requires a broad set of integrated capabilities to address the market demand. There are four key investment areas that I would point out. The first is the actual digital capabilities. Whether it is technology, strategy, design or data science, we are spending a lot of time building those core capabilities out. The second is our consulting business. Consulting plays an absolutely integral part in helping clients navigate these big shifts in the technology landscape. The third area is capabilities to help optimize and integrate digital businesses with our clients’ current legacy systems. The legacy environments form the backbone on top of which digital businesses get built. The fourth area is what we call platform-based solutions where we can create shared utilities across an industry or even across multiple industries so that investments get shared across multiple clients.

We will continue to look at M&A, as we always have, on an active basis. Our focus has always been and will continue to be primarily on small, tuck-in acquisitions that help us either add a specific capability to the business, grow our geographic footprint or increase the depth in particular industries that we serve.

Our approach has always been to keep our operating margins on a non-GAAP basis in a 19-20 percent range and reinvest everything above that back into the business. You are going to see us continue that strategy going forward and margins remain in the 19-20 percent range. This is the time when it is important for us to continue to invest organically in the business because of all of the opportunities that are available out there.”

 

“We had another strong quarter. We raised our guidance for the third time this year on the back of that strong Q3 performance. I think that our outperformance is driven by three things. First, we have a unique integrated set of capabilities that position us very well to address the current market demand. Second, we are winning in digital because we are innovating at scale. Our philosophy of reinvesting in the business is helping us win in this new digital era. Third, we are helping clients succeed in their digital transformations because we are able to combine the strengths that we have in digital technologies with optimizing of our clients’ legacy environments. We feel good about the strength of the business because we are winning in digital and the growth of the business is broad-based.

“We are taking our revenue guidance up for the full year as a result of the fact that we feel good about the demand environment. The fundamentals continue to remain strong in our view.

“North America continues to be a pillar of strength for the company but we are growing nicely in Europe and in Asia. In fact, those geographies had solid growth this quarter. We continue to diversify the business, make the investments that we need in other parts of the world, while at the same time continuing to make investments in North America to solidify our position of strength.

“We are at the cusp of a big shift in technology and this is going to drive a sustained period of demand over the next several years of clients investing in technology. That’s why we are seeing growth in discretionary spending. I think it is very important here is to understand that our strength doesn’t come just from our strength in digital. It comes from our ability to integrate digital with the core legacy backbones of our clients. That ability of taking the new and integrating it with the old is such a critical element of being successful in today’s digital environment. That’s why we are winning.”

 

“We experienced another quarter of strong performance, building on our solid momentum in the first half of the year. Cognizant’s portfolio of services is ready to take advantage of the global shift companies are making from consuming IT services that are ‘keeping the lights on’ toward services that drive innovation and growth in the digital space. Our portfolio of services is well positioned to meet their needs and capture a disproportionate share of the market.

“Cognizant is looking at acquisition targets that would supplement its growth based on geography and gaps in Cognizant’s portfolio. I wouldn’t expect to see M&A slow down, but maybe (see) a little acceleration in the pace as we become bigger. Our pipeline is as robust as it has ever been, maybe even a little stronger.”

 

“We are seeing strong demand across the business. Clients are more and more spending on innovation, or running their businesses differently. Cognizant, over the years, has invested very heavily in consulting capability, analytics capability and digital capability. So as this shift in spend is happening, we are capturing a disproportionate share of the market. We have raised our guidance three times now this year, which is almost unprecedented and it is because of the demand we are seeing on the digital side and Cognizant’s ability to meet what we refer to as a dual mandate—helping clients reduce their cost of operations by running better and freeing up dollars for them to spend on improving their businesses by running different. There are only a few companies in the world that can effectively serve both sides of that dual mandate and that’s one reason why Cognizant is consistently outgrowing the industry on a year-over-year basis. We have a very healthy pipeline. We continue to win good business, particularly on the digital side, because of our consulting capability and the capabilities have built out to help clients both in the idea and design phase, and in the build phase of digital. There are very few companies that can do that.

“Operationally, it has been a home run this year. We have taken utilization up materially for two quarters in a row. That has allowed us to do something very important. We want to share our success with our employees. We have significantly increased our bonus accrual. We are going to pay bonuses well above last year to our employees around the world. We would pay well above 100% payout this year. Cognizant is growing faster and we have the obligation and the opportunity to provide better career opportunities, better growth and sharing in the success.

“In the end, no one is going to have a competitive advantage on compensation on campus among the major IT players. Students are going to choose based on where the greater career opportunities are. Let me give you an interesting statistic. At the schools where we have a Day 1 slot and students have multiple offers from other Tier 1 companies, 75% of the time they choose to come to Cognizant rather than one of our competitors. Money is equal for everyone. In the end, they see greater opportunities at Cognizant than the other players in the industry. And that’s a part of our culture and part of the reason why we are so successful with our customers. We have really engaged the employees who want to do the right thing and we are attracting great talent.”

Rajeev Mehta, CEO, IT Services, Cognizant

“We are very pleased with our overall performance this quarter and for the year. I think a lot of this has been possible because of our unique and integrated capabilities to address the market demand. We are winning in digital by innovating at scale. We are helping our clients to go through the digital transformation by optimizing their legacy systems.

“We are comfortable having our operating margin between 19 and 20 percent. The rest we would like to reinvest in the business. That is important to us and that is why we are witnessing industry-leading growth.

“There is a significant cross-currency movement in Europe. We had to absorb that impact during the quarter. We see strong pipeline of deals across Europe, including the UK. Apart from the traditional application development and maintenance, and infrastructure services business, we are being invited for many opportunities on the digital side. Most of that is possible because of our strong consulting practices and deep domain expertise.

“In terms of the demand environment, it is very positive across all our geographies and all our service lines. We are very excited. As I talk to you, I am in San Francisco for the Fortune Global Forum conference. Many of our clients are here and they are all talking about how digital disruptions are disrupting their business. There is a tremendous demand for digital. Obviously, clients are looking to bring down the total cost in one part of the business to free up dollars in order to be able to invest them in digital disruptions. As we enter the next year, we have a great strategy and we are winning on both sides.

“Cognizant provides great opportunities to its associates to participate in the company’s industry-leading growth. When we are growing, both sides benefit. We have done extremely well this year in both revenues and margins and this will get reflected in the bonus for this quarter. We are also re-skilling and retraining many of our associates to participate in the next-generation of demand opportunities. We have many programs in place to encourage and motivate employees.”