Cognizant net profit rises 24%, lowers full-year revenue guidance

Cognizant on Wednesday reported a 24 per cent rise in net profit at $371.9 million for the quarter ended June 30, but the IT services major struck a cautious note as it lowered full year revenue guidance to at least 14 per cent from 16.5 per cent earlier.

In the April-June quarter of 2013 fiscal, it had posted a net profit of $300.4 million.

The New Jersey-headquartered firm also expanded its stock repurchase programme by $500 million to $2 billion.

Revenue for the second quarter of 2014 rose by 16.5 per cent to $2.52 billion from $2.16 billion. The results are on GAAP basis. It follows January-December fiscal.

Commenting on the lowered revenue guidance, Cognizant CEO Francisco D'Souza said: "Due to weakness at certain clients and longer than anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year and revising our 2014 revenue guidance to growth of at least 14 per cent over the prior year."

The firm said that third quarter revenue is expected to be between $2.55-2.58 billion, while fiscal 2014 revenue expected to be up at least 14 per cent compared to 2013.

Earlier, Cognizant had projected fiscal 2014 revenue at $10.3 billion, up at least 16.5 per cent compared to 2013.

D'Souza added that the firm continues to believe that it has the right strategy and portfolio of services to deliver long-term industry leading growth and also meet the ever changing demands of the market.

On share repurchase, Cognizant said: "Our Board of Directors approved an increase of the company's stock repurchase program by $500 million, from $1.5 billion to $2 billion and extended the term of programme to December 31, 2015."

Since the inception of the programme, the company has repurchased over $1.1 billion of its shares, it added.

Cognizant CFO Karen McLoughlin said: "During the second quarter, we repurchased over $100 million of shares under our stock repurchase programme... reflecting our ability to generate strong cash flows, confidence in our business, and our commitment to driving shareholder value."

The firm continues to generate healthy profitability during the first half of 2014, as its non-GAAP operating margins came in higher than the targeted range of 19 to 20 per cent, she added.

"We believe this positions us well to absorb our annual wage increases in the third quarter of 2014," McLoughlin said.

Cognizant President Gordon Coburn said: "We are pleased to announce three transformational engagements for our clients totalling $3.5 billion in contract value, including a letter of intent with Health Net, California-based managed care organisation."

The Health Net engagement is a seven-year deal and following contract finalisation and applicable regulatory approval, is expected to represent approximately $2.7 billion in total contract value, the largest in Cognizant's history, he added.

"We expect these three clients to generate at least $200 million in incremental revenue in 2015. These engagements are illustrative of the success of our strategy of re-investing in our business," Coburn said.

Cash and cash equivalents stood at about $1.99 billion for the period ended June 30, 2014.

Net headcount addition for the quarter was about 8,800, the firm said.

Segment-wise, Financial Services was the top contributor followed by Healthcare and Manufacturing, Retail & Logistics.

North America was the top revenue generator in terms of geography followed by the UK, Rest of Europe and Rest of World, it added.