Cognizant reports record growth in Q3

(By Tola Sargeant, Tuesday 3 November 2009, 15:30) New Jersey-headquartered, India-based SI Cognizant has revealed a very strong set of Q3 figures and raised its guidance for FY2009. Quarterly revenue rose to $853.5m, up an impressive 16% from the year-ago quarter and 10% sequentially as the volume of business (rather than prices) increased. In fact, the sequential revenue increase of $76.9m was the highest in the company’s history. Profits were also up: GAAP net income was $136.6m, compared to $112.8m in Q308, and the non-GAAP operating margin was 20.2%, above the company's targeted 19-20% range.

Thanks to fairly broad-based growth across all horizontals, verticals and geographies, Cognizant now expects FY09 revenue to be at least $3.25b, up 15.5% or more compared to 2008 and ahead of equity analysts’ previous consensus estimate of $3.16b. Areas of particular growth in the quarter include the banking and financial services sector (which has stabilised and returned to growth – up 9.5% sequentially); retail (+15% sequentially) and Infrastructure Management and BPO (up 18% sequentially on a combined basis).

Like other Indian players, Cognizant appears to be benefiting from the global economic slowdown and claims more clients are thinking about offshore and optimising their offshore processes as a result. Interestingly, however, Cognizant has seen conversations with its clients broaden beyond cost and labour arbitrage to include discussions about how the Indian-based player can help them improve their business processes and innovate. These increasingly strategic conversations with clients are bringing it more into competition with traditional consulting and SI firms, as well as its Indian peers.

Going into 2010, Cognizant is assuming customers’ budgets will be ‘flat to slightly up’ and is not expecting a repeat of the record growth it has seen in Q3. Nevertheless, the company will be looking at opportunities to promote non-linear growth by developing more transaction and outcome-based pricing models across its horizontal and vertical businesses. It is also still open to small ‘tuck under’ acquisitions like the purchase of UBS’ captive Indian service centre announced in October (see Cognizant snares UBS captive).