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COGNIZANT TECHNOLOGY SOLUTIONS CORP (CTSH)·Q1 2025 Earnings Summary

Executive Summary

  • Revenue $5.115B (+7.5% YoY; +8.2% CC), above the high end of guidance, and Adjusted EPS $1.23 (+10% YoY); both exceeded S&P Global consensus (Revenue $5.063B*, EPS $1.20*) .
  • GAAP operating margin expanded to 16.7% (+210 bps YoY) aided by a one-time $62M gain (+120 bps); Adjusted operating margin was 15.5% (+40 bps YoY) on NextGen savings and higher utilization .
  • FY25 guidance largely maintained (3.5–6.0% CC revenue growth; Adj. OM 15.5–15.7%), but Adjusted EPS raised to $4.98–$5.14 on FX tailwinds and lower share count; Q2 revenue guided to $5.14–$5.21B .
  • TTM bookings $26.7B (+3% YoY; ~1.3x book-to-bill); quarterly bookings fell 7% YoY; management flagged April decision-making slowness, isolated mainly in Health Sciences and Products & Resources, with tariff-related caution in P&R .

What Went Well and What Went Wrong

What Went Well

  • Revenue and margin outperformed guidance: “We started the year on a strong note, delivering revenue and adjusted operating margin ahead of our expectations” (CEO) .
  • Segment and geographic breadth: Health Sciences +11.4% CC, Financial Services +6.5% CC; North America +9.7% CC, Europe +3.0% CC CC .
  • Operational rigor: “Adjusted operating margin…improved by 40 bps YoY…driving adjusted EPS growth of 10%” (CFO), with utilization ~85% and NextGen savings .

What Went Wrong

  • One-time boost to GAAP margin: the $62M gain on India office sale added ~120 bps to GAAP margin, diluting quality of headline margin expansion .
  • Bookings softness and macro caution: Q1 bookings −7% YoY; April slowdown in client decision-making, with tariff exposure weighing on Products & Resources and caution in parts of Health Sciences .
  • Communications, Media & Technology down −2.7% YoY; DSO rose to 81 days (+3 q/q, +3 y/y) on mix .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Billions)$4.760 $5.082 $5.115
GAAP Diluted EPS ($)$1.10 $1.10 $1.34
Adjusted Diluted EPS ($)$1.12 $1.21 $1.23
GAAP Operating Margin (%)14.6% 14.8% 16.7%
Adjusted Operating Margin (%)15.1% 15.7% 15.5%
Revenue Consensus Mean ($USD Billions)$4.721*$5.070*$5.063*
Primary EPS Consensus Mean ($)$1.11*$1.13*$1.20*

Notes: Values marked with * retrieved from S&P Global.

Segment breakdown (Q1 2025):

SegmentRevenue ($MM)% of TotalYoY %YoY CC %
Health Sciences$1,571 30.7% 10.9% 11.4%
Financial Services$1,462 28.6% 5.6% 6.5%
Products & Resources$1,278 25.0% 12.8% 13.6%
Communications, Media & Technology$804 15.7% (2.7%) (1.9%)
Total$5,115 100%7.5% 8.2%

Geography (Q1 2025):

GeographyRevenue ($MM)% of TotalYoY %YoY CC %
North America$3,854 75.3% 9.5% 9.7%
Europe (UK + Continental)$950 18.6% 1.2% 3.0%
Rest of World$311 6.1% 3.7% 7.1%
Total$5,115 100%7.5% 8.2%

KPIs and cash flow:

KPIQ4 2024Q1 2025
TTM Bookings ($B)$27.1 $26.7
Book-to-Bill (TTM, x)~1.4x ~1.3x
Quarterly Bookings YoY+11% (7%)
Operating Cash Flow ($MM)$920 $400
Free Cash Flow ($MM)$837 $393
DSO (days)78 81
Headcount (000s)—336.3
Attrition (TTM, Tech Services)15.9% 15.8%
Blended Utilization (ex trainees)82% 85%

Non-GAAP note: GAAP margin and EPS include positive impact from $62M asset sale; Adjusted metrics exclude this item .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue growth (CC)FY 20253.5%–6.0% 3.5%–6.0% Maintained
Reported Revenue ($)FY 2025—~$20.5–$21.0B Newly specified (FX tailwind)
Adjusted Operating MarginFY 202515.5%–15.7% 15.5%–15.7% Maintained
Adjusted Diluted EPSFY 2025$4.90–$5.06 $4.98–$5.14 Raised
Adjusted Effective Tax RateFY 202524%–25% 24%–25% Maintained
Share Count (diluted)FY 2025~497M ~491M Lowered (repurchases)
RevenueQ2 2025—~$5.14–$5.21B; +5.9%–7.4% YoY CC New
DividendQ1 2025Raised to $0.31 per share Declared $0.31 payable May 28, 2025 Maintained
Net Interest IncomeFY 2025Discontinued metric; prior 2024 guide ~$65M Not guided Discontinued

Earnings Call Themes & Trends

TopicQ3 2024 (Q-2)Q4 2024 (Q-1)Q1 2025 (Current)Trend
AI initiatives/platforms1,000 early GenAI engagements; Flowsource/Neuro IT Ops traction; NVIDIA/AWS/ServiceNow partnerships 1,200 engagements; applied AI across org; TriZetto AI boosts productivity ~1,400 engagements; deepened NVIDIA partnership; agentic AI opportunities; uncertainty threshold tech Increasing scope and client adoption
Tariffs/macroMuted discretionary in CMT; cautious spending More pro-business tone, improving budgets; GCC trend April slowdown in decisions; tariff impact in P&R Deteriorated in April; mixed by segment
Regional momentumU.K. public sector wins; APAC large deals Europe momentum; Canada BFS growth NA +10% CC; U.K. sequential growth ~4% CC; Europe +3% CC North America leads; Europe improving
Health Sciences+7.6% CC; broad-based >10% YoY; TriZetto strong +11.4% CC; broad-based across payer/provider/life sciences Sustained strength
Financial ServicesReturn to growth (+0.5% CC) ~+3% YoY; discretionary improving +6.5% CC; healthy discretionary spend Accelerating
Bookings/large dealsFlat quarterly bookings; TTM 1.3x +11% quarterly bookings; TTM 1.4x −7% quarterly bookings; TTM 1.3x; 4 large deals incl. mega deal >$500M Mixed; pipeline healthy

Management Commentary

  • “The breadth and depth of our portfolio…position us well as a strategic partner for clients in an increasingly complex macroeconomic environment” (CEO) .
  • “We exceeded the high end of our revenue guidance range and expanded adjusted operating margin by 40 basis points year-over-year, driving adjusted EPS growth of 10%” (CFO) .
  • “In 2025, we expect to return about $1.7 billion to shareholders through buybacks and dividends” (CFO) .
  • On AI strategy: “We now have approximately 1,400 early Gen AI engagements…we see the development of AI playing out in 3 distinct vectors” (CEO) .
  • On macro: “In April, we did begin to see some slowdown in client decision-making and discretionary spending…more pronounced…in health sciences and products and resources” (CFO) .

Q&A Highlights

  • Mix shifting toward cost takeout and productivity-led large/mega deals; pricing driven by AI-enabled total cost reduction, with early margin dilution offset over time as portfolios mature .
  • April slowdown seen as isolated; tariff exposure impacting P&R; Financial Services and CMT demand relatively stable (CFO) .
  • Utilization rose to ~85%; plan to hire freshers to optimize pyramid while intertwining AI productivity with utilization to sustain margins (CEO) .
  • Backlog coverage solid with TTM book-to-bill ~1.3x; margin expansion to be led by cost discipline and SG&A leverage near term (CFO) .
  • Conversion of cost-takeout deals could be lumpy; uncertain markets may accelerate closing as clients seek best value (CEO) .

Estimates Context

  • Q1 2025 beat: Revenue $5.115B vs consensus $5.063B*; Adjusted EPS $1.23 vs $1.20* .
  • Prior quarters: Q4 2024 Revenue $5.082B vs $5.070B*; Adj. EPS $1.21 vs $1.13* . Q1 2024 Revenue $4.760B vs $4.721B*; Adj. EPS $1.12 vs $1.11* .
  • FY25 Adjusted EPS guidance raised to $4.98–$5.14, implying estimate revisions higher, supported by FX tailwinds, lower share count, and cost leverage .

Notes: Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Execution delivered a clean top- and bottom-line beat versus consensus and guidance; Adjusted margins expanded despite macro uncertainty .
  • Quality caveat: GAAP margin uplift from $62M property gain; Adjusted metrics better gauge underlying performance .
  • Health Sciences and Financial Services momentum (double-digit HS, accelerating FS) plus Belcan/Thirdera contribution (~400 bps to growth) support near-term revenue resilience .
  • Pipeline and large/mega deals remain healthy, but bookings volatility and April caution (tariffs, decision delays) warrant monitoring—near-term mix skews to cost takeout/productivity .
  • FY25 outlook intact on CC growth and margins; EPS raised—share count reduction and FX provide incremental tailwind; watch Q2 revenue guide ($5.14–$5.21B) for trajectory .
  • Operational levers (utilization ~85%, pyramid optimization, AI-led delivery) should underpin margin stability; SG&A discipline key near term .
  • Catalysts: conversion of mega deals, continued HS/FS strength, AI platform wins (NVIDIA/ServiceNow), GCC engagements; risks: tariff exposure in P&R, discretionary pauses, bookings lumpiness .