Cognizant reports decline in Q1 profits amid client spending slowdown

Cognizant, a major player in IT services, has reported a decrease in net profit by 5.9% compared to the same period last year, reaching $546 million in the first quarter of fiscal year 2024 which ended in March. This decline is attributed to a persistent slowdown in client spending on optional services. 

The company's revenue for the quarter also experienced a drop of 1.1% year-on-year, falling to $4.76 billion from $4.81 billion in the same period last year. In constant currency terms, the revenue decline stood at 1.2%, which falls within the company's projected range of $4.68-$4.76 billion for the quarter, indicating a decline ranging from -2.7% to -1.2%. 

Looking ahead to the second quarter of fiscal year 2024, ending in June 2024, Cognizant anticipates revenue growth in the range of 0-1.5%. 

The growth observed in the first quarter was primarily driven by the communications, media, and technology sector, which saw a revenue increase of 5.7% year-on-year in constant currency. Meanwhile, products and resources experienced nearly 1% growth. Conversely, financial services declined by 6.5%, and health sciences declined by 1.3% year-on-year in constant currency. 

Ravi Kumar S, Chief Executive Officer of Cognizant, expressed satisfaction with the first-quarter results, stating, "During the first quarter, we delivered revenue above the high-end of our guidance range and continued to make progress against our strategic priorities." He highlighted the company's success in securing eight large deals during the quarter, each valued at over $100 million, supporting clients in navigating uncertain economic conditions and driving operational efficiencies. 

Among these deals, notable agreements include a partnership with Telstra, Australia's leading telecommunications and technology company, aimed at enhancing software engineering capabilities and improving customer experience. Additionally, an expanded partnership with Microsoft is set to leverage both companies' expertise to facilitate generative AI implementation for enterprise customers. 

Cognizant also secured a new agreement with McCormick & Company, Inc., a global flavor leader, to transform and manage their global technology infrastructure, with an emphasis on AI-driven automation to deliver predictable business outcomes. 

In terms of workforce dynamics, Cognizant reported a decrease in voluntary attrition rate to 13.1% in the March quarter, down from 13.8% in the previous quarter and 23% in the same period last year. Total headcount at the end of the first quarter stood at 344,400, representing a decline of 3,300 quarter-on-quarter and 7,100 year-on-year.