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COGNIZANT TECHNOLOGY SOLUTIONS CORP (CTSH)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue of $5.42B grew 7.4% YoY (6.5% CC) and 3.2% QoQ, above the high end of guidance; adjusted operating margin expanded to 16.0% (+70 bps YoY) and adjusted EPS rose 11% to $1.39, while GAAP EPS of $0.56 reflected a one-time, non-cash $0.80 tax charge from U.S. legislation .
  • Results beat S&P Global consensus on revenue and EPS; revenue $5.42B vs $5.32B* and EPS $1.39 vs $1.30*, aided by broad-based growth (notably North America) and cost discipline; large-deal momentum continued with six >$100M TCV deals signed and TTM bookings at $27.5B (book-to-bill ~1.3x) .
  • Full-year guidance raised: CC revenue growth to 6.0–6.3% (from 4.0–6.0% prior) and adjusted EPS to $5.22–$5.26 (from $5.08–$5.22), with adjusted operating margin now ~15.7% (high end of prior range) .
  • Management emphasized the “AI builder” strategy, productivity gains (revenue/employee +8%), and a growing pipeline for both productivity-led consolidation and AI-led innovation deals; Q4 revenue guided to $5.27–$5.33B (2.5–3.5% CC growth), all-organic .

What Went Well and What Went Wrong

  • What Went Well

    • Broad-based growth and execution: Revenue rose 6.5% CC with all segments growing YoY; North America led (+7.8% YoY CC) and adjusted operating margin expanded to 16.0% (+70 bps YoY) .
    • Large deals and pipeline: Six large deals in Q3; TTM bookings +5% YoY to $27.5B (book-to-bill ~1.3x). CEO: “fifth consecutive quarter of year-over-year organic revenue growth… strongest sequential organic growth since 2022” .
    • AI builder strategy traction: CEO cited 3,500 AI engagements and rising nonlinearity; revenue/employee +8% and adjusted operating income/employee +10% YoY as fixed-price and outcome-based mix increases .

  • What Went Wrong

    • Quarterly bookings lumpiness: Q3 bookings declined 5% YoY after a strong Q2 (+18% YoY), reflecting timing of large deals .
    • Margin dilution from M&A mix: CFO flagged Belcan as dilutive to margins, partially offsetting operational levers (utilization 85%, pyramid, AI-led productivity) .
    • Macro caution on discretionary spend: Clients are carefully evaluating tech investments; pressure in certain discretionary areas (e.g., Products & Resources pockets) despite segment growth; geopolitical/tariff uncertainty cited outside North America .

Financial Results

Revenue, EPS, and Margins

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($B)$5.044 $5.115 $5.245 $5.415
Primary EPS Consensus Mean ($)1.146*1.199*1.260*1.302*
Revenue Consensus Mean ($B)4.993*5.063*5.189*5.318*
GAAP EPS ($)$1.17 $1.34 $1.31 $0.56
Adjusted EPS ($)$1.25 $1.23 $1.31 $1.39
GAAP Operating Margin (%)14.6% 16.7% 15.6% 16.0%
Adjusted Operating Margin (%)15.3% 15.5% 15.6% 16.0%

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

Key comparisons and drivers:

  • Q3 revenue +7.4% YoY; +3.2% QoQ; all segments up YoY, with Products & Resources strongest (+12.6% YoY; Belcan contributed ~900 bps to P&R growth) .
  • Adjusted EPS $1.39 beat consensus $1.30*; GAAP EPS impacted by a one-time, non-cash $390M ($0.80) tax expense from OBBBA enactment .
  • Adjusted operating margin +70 bps YoY to 16.0% on cost discipline and AI-enabled delivery; utilization steady at 85% .

Segment & Geography Breakdown (Q3 2025)

SegmentRevenue ($M)Mix %YoY %CC YoY %
Health Sciences1,604 29.6% 5.9% 5.1%
Financial Services1,578 29.2% 6.2% 5.4%
Products & Resources1,383 25.5% 12.6% 11.4%
Communications, Media & Tech850 15.7% 4.2% 3.6%
GeographyRevenue ($M)Mix %YoY %CC YoY %
North America4,028 74.4% 7.8% 7.8%
Europe (Total)1,042 19.2% 7.8% 2.7%
United Kingdom503 9.2% 4.4% 0.7%
Continental Europe539 10.0% 11.1% 4.6%
Rest of World345 6.4% 0.9% 2.6%

KPIs and Cash Flow

KPIQ3 2024Q2 2025Q3 2025
TTM Bookings ($B)26.2 27.8 27.5
Book-to-Bill (TTM)1.3x 1.4x ~1.3x
Q3 Bookings YoY—+18% (5%)
Operating Cash Flow ($M)847 398 1,227
Free Cash Flow ($M)791 331 1,160
Headcount (000s)—343.8 349.8
Voluntary Attrition – Tech Svcs (TTM)14.6% 15.2% 14.5%
Share Repurchases ($M)242 368 463
Dividend/Share ($)0.31 0.31 0.31 (declared)

Guidance Changes

MetricPeriodPrevious Guidance (as of Q2’25)Current Guidance (as of Q3’25)Change
Revenue ($B)FY 2025$20.7–$21.1 $21.05–$21.10 Raised midpoint/low end
Revenue Growth (CC)FY 20254.0%–6.0% 6.0%–6.3% Raised
Adjusted Operating MarginFY 202515.5%–15.7% ~15.7% High end affirmed
Adjusted EPS ($)FY 2025$5.08–$5.22 $5.22–$5.26 Raised
Adjusted Tax RateFY 202524%–25% 24%–25% Maintained
Revenue ($B)Q4 2025—$5.27–$5.33 (2.5%–3.5% CC YoY) New quarterly guide

Drivers: stronger North America, continued large-deal momentum, and cost discipline; Q4 includes merit cycle headwind offset by seasonal margin strength per CFO .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q-3)Trend
AI builder strategy and platformsQ1/Q2 emphasized AI-led productivity (Flowsource), platform/IP on “edge,” early large deals; partnerships (e.g., hyperscalers) 3,500 AI engagements; revenue/employee +8%, adj. operating income/employee +10%; shift to fixed-price/outcome-based; Anthropic partnership highlighted Strengthening
Large deals/bookingsQ2: TTM bookings $27.8B, Q2 bookings +18% YoY, two $1B+ mega deals Q3: Six large deals; TTM bookings $27.5B, Q3 bookings (5%) YoY (timing-related), pipeline healthy Strong but lumpy
Pricing/mixQ2: margin discipline; shift to outcome-based models Pricing increasingly productivity-led; more fixed-price/transaction models; AI pass-through supports pricing on innovation swimlane Supportive
Margins and leversQ1/Q2: margin expansion, utilization up, NextGen savings 16.0% GAAP OM; utilization 85%; Belcan dilutive; levers include AI productivity, pyramid, utilization Stable/improving
Macro/discretionaryQ2: dynamic environment; selective pressure Clients cautious on discretionary in certain areas; tariffs/geopolitics more impactful outside NA Mixed
VerticalsQ2: BFSI and Health resilient; P&R accelerating BFSI spend shifting from consolidation to innovation; Health resilient; BPO/BPaaS +10% growth momentum Positive breadth
PartnershipsQ2: platform/hyperscaler collaborations New Rubrik BRaaS partnership; Anthropic Claude adoption internally and for clients Expanding

Management Commentary

  • CEO: “Fifth consecutive quarter of year-over-year organic revenue growth… strongest sequential organic growth since 2022… three vector AI builder strategy is gaining traction” .
  • CFO: “Revenue was well above our guidance… 70 bps YoY adjusted operating margin expansion… increased full-year revenue guidance… deployed $1B through buybacks through Q3” .
  • On productivity and mix: “Revenue per employee rose 8% YoY while adjusted operating income per employee grew 10%… fixed price managed services up from 43% to ~47%” .
  • On margins: “Gross margin largely maintained organically; reduction YoY from Belcan consolidation… levers are AI-led productivity, pyramid, utilization (85%)” .
  • On bookings: “After strong Q2 (+18% YoY), Q3 bookings declined ~5% YoY; backlog remains healthy; sustained large-deal momentum provides visibility” .
  • Tax item: “Recorded a one-time non-cash income tax expense of $390M ($0.80/share) due to U.S. budget bill/OBBBA” .

Q&A Highlights

  • Pipeline and deal mix: Large deals balanced between consolidation/productivity and AI-led innovation; discretionary small AI projects returning in BFSI/Healthcare .
  • Productivity metrics: Revenue/employee +8% and margin/employee +10% as outcome-based/transaction models grow; internal AI code assist ~30% of code, aiming higher .
  • Gross margin outlook: Organic GM maintained; Belcan dilutive as expected; margin levers include AI productivity, pyramid build-out, and 85% utilization .
  • Partnership strategy: Broader lens including frontier model companies (e.g., Anthropic), hyperscalers, SaaS; building platforms + IP to deliver enterprise-grade agentic AI .
  • Vertical trends: BFSI spend pivoting to AI reinvention; insurance improving; healthcare BPaaS and TriZetto multi-agent workflows highlighted .

Estimates Context

  • Q3 beat vs S&P Global consensus: Revenue $5.415B vs $5.318B* (+1.8%); Primary EPS $1.39 vs $1.30* (+7%) .
  • Prior quarters: Q2 revenue $5.245B vs $5.189B*; EPS $1.31 vs $1.26*; Q1 revenue $5.115B vs $5.063B*; EPS $1.23 vs $1.20* .
  • EBITDA also ran above consensus in Q3 ($1.001B actual vs $0.964B*), reflecting operating leverage and cost control despite M&A mix .

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

Key Takeaways for Investors

  • Quality beat with broad-based growth and margin expansion; adjusted EPS and revenue exceeded consensus, and FY25 guidance was raised—key positive catalysts .
  • AI builder strategy is translating into operating leverage and pricing power on innovation-led work; early evidence via revenue/employee and fixed-price mix gains .
  • Deal momentum remains strong (six large deals), but quarterly bookings can be lumpy; TTM book-to-bill ~1.3x supports medium-term visibility .
  • Near-term watch items: Belcan margin dilution, Q4 merit-cycle headwind, and macro/tariff uncertainty outside North America .
  • Cash generation inflecting: Q3 FCF $1.16B; capital returns tracking to $2.0B in 2025 with $2.2B repurchase authorization remaining .
  • For model updates: Raise FY25 revenue and EPS toward the new guidance ranges; maintain adjusted margin near ~15.7%; incorporate Q4 revenue of $5.27–$5.33B and adjusted tax rate of 24–25% .

Appendix: Additional Context and Non-GAAP Adjustments

  • One-time non-cash tax charge ($390M; $0.80/share) in Q3 from OBBBA enactment; adjusted EPS excludes this; Q1 GAAP margin/EPS benefited from a $62M gain on sale (excluded from adjusted metrics) .
  • Belcan contributed ~250 bps to Q3 YoY revenue growth, and ~900 bps to Products & Resources segment growth, primarily in North America .
  • Strategic partnerships: Rubrik BRaaS for cyber resilience; Anthropic Claude for scaled AI adoption internally (up to 350k associates) and for clients .