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COGNIZANT TECHNOLOGY SOLUTIONS CORP (CTSH)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 revenue of $5.245B grew 8.1% YoY (7.2% CC), exceeding the high end of guidance; GAAP and adjusted operating margin were 15.6%, and GAAP diluted EPS was $1.31, up 15% YoY .
  • Bookings accelerated: TTM bookings reached $27.8B (book-to-bill ~1.4x); Q2 bookings rose 18% YoY, including two ~$1B mega deals, signaling durable demand and pipeline conversion .
  • FY25 guidance was tightened/higher: revenue $20.7–$21.1B (4.0–6.0% CC), adjusted OM 15.5–15.7%, adjusted EPS $5.08–$5.22; capital return plan raised to $2.0B (from $1.7B) for 2025 .
  • Wall Street consensus: CTSH beat Q2 EPS ($1.31 vs $1.260*) and revenue ($5.245B vs $5.189B*) and FY25 consensus sits near the top of guidance (revenue ~$21.087B*, EPS normalized ~$5.253*)—bias to modest estimate fine-tuning given management’s tightened range. Values retrieved from S&P Global.
  • Near-term watch: one-time, non-cash $$400M tax expense in Q3 from OBBBA ($0.82 GAAP EPS impact) offsets cash tax and lifts OCF, while mega deals and AI-led productivity can keep margins expanding within guided range .

What Went Well and What Went Wrong

What Went Well

  • “Our second quarter revenue performance exceeded the high end of our guidance range,” driven by “investments in talent, platforms and AI infrastructure” and two ~$1B mega deals .
  • Adjusted operating margin expanded 40 bps YoY to 15.6%, with EPS growth outpacing revenue; bookings TTM $27.8B, Q2 bookings +18% YoY, six large deals including two mega deals .
  • Segment strength: Products & Resources +16% YoY (Belcan-led), Financial Services +6.9% YoY, Health Sciences +6.2% YoY; North America +8.1% YoY with broad-based growth .

What Went Wrong

  • Margin headwinds from large deal ramps and compensation increases, partially offset by NextGen savings and INR depreciation, kept GAAP OM at 15.6% vs Q1’s 16.7% .
  • Health Sciences near-term caution from U.S. Medicaid changes and life sciences tariff uncertainty; management expects productivity-led demand but flagged discretionary pressure .
  • DSO rose to 83 days (+2 seq, +3 YoY) and headcount increased by 7,500 QoQ (campus hires), requiring ongoing utilization and pyramid discipline to preserve gross margin .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Billions)$4.850 $5.115 $5.245
GAAP Operating Margin (%)14.6% 16.7% 15.6%
Adjusted Operating Margin (%)15.2% 15.5% 15.6%
GAAP Diluted EPS ($)$1.14 $1.34 $1.31
Adjusted Diluted EPS ($)$1.17 $1.23 $1.31
Q2 2025 Actual vs ConsensusActualConsensus*Beat/Miss
Revenue ($USD Billions)$5.245 $5.189*Beat
Diluted EPS ($)$1.31 $1.260*Beat
# of Estimates (Revenue / EPS)—20 / 22*—
Values retrieved from S&P Global.

Segment revenue and YoY

SegmentQ2 2025 Revenue ($USD Millions)% of TotalYoY (Reported)YoY (CC)
Health Sciences$1,551 29.6% 6.2% 5.3%
Financial Services$1,547 29.5% 6.9% 6.0%
Products & Resources$1,306 24.9% 16.0% 14.7%
Communications, Media & Tech$841 16.0% 3.1% 2.2%

KPIs and Cash Flow

KPIQ2 2025Prior Period
TTM Bookings ($USD Billions)$27.8; Book-to-bill ~1.4x $26.7 (Q1 TTM), 1.3x
Q2 Bookings YoY+18% —
Free Cash Flow ($USD Millions)$331 $183 (Q2 2024)
Operating Cash Flow ($USD Millions)$398 $262 (Q2 2024)
Voluntary Attrition – Tech Services (TTM)15.2% 15.8% (Q1 2025)
Headcount343,800 336,300 (Q1 2025)
Share Repurchases4.5M shares; $354M 2.3M; $190M (Q1)
Dividend Declared$0.31/share $0.31/share (Q1)

Belcan contribution note: ~400 bps to overall revenue growth and ~1,600 bps to P&R segment YoY (primarily North America, some U.K.) .

Guidance Changes

MetricPeriodPrevious Guidance (4/30/25)Current Guidance (7/30/25)Change
Revenue ($USD Billions)Q3 2025—$5.27–$5.35; 4.6–6.1% YoY (3.5–5.0% CC) New Q3 guide
Revenue ($USD Billions)FY 2025$20.5–$21.0 $20.7–$21.1; 4.7–6.7% YoY (4.0–6.0% CC) Raised low end/tightened
Adjusted Operating Margin (%)FY 202515.5–15.7 15.5–15.7 Maintained
Adjusted Diluted EPS ($)FY 2025$4.98–$5.14 $5.08–$5.22 Raised
Adjusted Effective Tax Rate (%)FY 2025—24–25% New disclosure
Return of Capital ($USD Billions)FY 2025$1.7 $2.0 Raised by $0.3
One-time Non-cash Tax Expense (OBBBA)Q3 2025—$$400M ($0.82 GAAP EPS impact FY25) New disclosure

Earnings Call Themes & Trends

TopicQ4 2024 (Prev Mentions)Q1 2025Q2 2025Trend
AI/Agentic strategy1,200 early GenAI engagements; vector framework (productivity, industrialize AI, agentification) ~1,400 engagements; AI-written code >20%; partnerships incl. NVIDIA; productivity first ~2,500 engagements; ~30% code AI-generated; launch Agent Foundry; “IP on the edge” differentiation Accelerating
Large deals/bookings29 large deals in 2024; TTM B2B 1.4x 4 large deals; mega deal >$500M; TTM B2B 1.3x Six large deals incl. two ~$1B mega; TTM B2B ~1.4x; ACV up Strengthening
Margins/productivityAdjusted OM 15.7% in Q4; NextGen savings; utilization improvement Adjusted OM 15.5%; gain on asset sale; utilization ~85% Adjusted OM 15.6%; large-deal ramp investments; balancing utilization/pyramid Stable to improving
Health Sciences>10% growth; TriZetto momentum +11% CC; caution on Medicaid/tariffs +5% CC; payer/provider discretionary cautious; mega deal wins offset Mixed
Tariffs/macroP&R pressured by tariff uncertainty P&R weak organically; tariff impacts noted P&R growth led by Belcan; discretionary still cautious Improving mix (inorganic-led)
Regulatory/tax——OBBBA repeal drives ~$400M non-cash tax in Q3; boosts FY25 OCF by ~$200M New factor

Management Commentary

  • CEO: “Our second quarter revenue performance exceeded the high end of our guidance range… our investments… drove our fourth-straight quarter of organic year-over-year revenue growth… and helped us accelerate bookings, including two $1 billion deals” .
  • CEO on AI: “The three vector AI opportunity… is resonating… we launched Cognizant Agent Foundry… IP on the edge… [is] a very important differentiator” .
  • CFO: “Q2 revenue grew 7.2% YoY in CC… Belcan contributed ~400 bps… adjusted operating margin improved 40 bps YoY… demand visibility remains limited but large deal ramps offset discretionary pressure” .
  • Capital return: “We now expect to return approximately $2.0B to shareholders this year” .

Q&A Highlights

  • Bookings mix and pipeline: Balanced new vs renewals; ACV rising; combination of productivity- and innovation-led deals; two ~$1B mega deals; pipeline replenishment for 2H .
  • Gross margin outlook: Manage utilization, pyramid, and large-deal ramp investments; stable to slightly improving gross margin sequentially .
  • AI pricing/IP: Moving toward outcome-based pricing; bundling “IP on the edge” to create stickiness and premium; agent development lifecycle evolving versus traditional SDLC .
  • Capital allocation: FY25 return raised to $2.0B ($1.4B buybacks; $0.6B dividends); ~$500M capacity for M&A in 2H .
  • Health care outlook: Limited exposure to Medicaid/Medicare; productivity-led AI transformations seen as offsets; one ~$1B healthcare mega deal .

Estimates Context

  • Q2 2025: EPS $1.31 vs consensus $1.260*; revenue $5.245B vs $5.189B*—both beats with ~22 EPS and ~20 revenue estimates*. Values retrieved from S&P Global.
  • FY 2025: Consensus revenue ~$21.087B* and normalized EPS ~$5.253* sit near/above guidance midpoints ($20.9B, $5.15), implying modest potential downward consensus calibration if management maintains a conservative demand view. Values retrieved from S&P Global.
  • Target price consensus ~$84.83* based on ~24 estimates*. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Mega-deal momentum and ACV expansion underpin revenue visibility; mix shifting from solely productivity to include innovation-led “agentification” spend—supportive for multi-quarter bookings cadence .
  • Margin execution remains disciplined within 15.5–15.7% adjusted OM guide; watch near-term ramp costs versus utilization/pyramid initiatives and AI-led efficiency gains .
  • One-time OBBBA tax charge (~$0.82 GAAP EPS impact) is non-cash and boosts FY25 operating cash flow by ~$200M—supports the raised $2.0B capital return plan .
  • Inorganic tailwinds (Belcan) meaningfully lift P&R and North America growth; organic growth strongest in Financial Services and Health Sciences; life sciences/payers may see selective discretionary caution .
  • CTSH beat Q2 Street estimates and tightened/higher FY guide; consensus near the top end suggests limited upside unless demand improves—monitor large-deal conversion and AI-led program scaling. Values retrieved from S&P Global.
  • Near-term trading: Positive catalyst from bookings/mega deals and raised capital returns; risk from discretionary softness in certain verticals and large-deal ramp timing .
  • Medium term: AI “IP on the edge” and Agent Foundry can support differentiation, pricing power, and TAM expansion into operations workloads, sustaining growth and margin resilience .