Cognizant’s Executive Leadership Talks About the Company’s Q3-2014 Performance and Growth Outlook

Following Cognizant’s announcement of its third quarter 2014 financial results, the company’s executive leadership spoke with the media about the company’s performance and growth outlook.

“We see strong demand for the new wave of digital technologies both in healthcare and across all industries that we serve,” Francisco D’Souza, CEO, Cognizant, told Fox Business Network. “Across the industry and in healthcare, we see what we call the dual mandate. Healthcare firms are increasingly being called upon to be, on the one hand, more efficient, more effective, and drive costs down, and on the other hand, to innovate, to bring new digital technologies to give patients and consumers better access to healthcare and more transparency. Our healthcare clients need to both innovate and drive new digital technologies and at the same time drive costs down. We think the TriZetto acquisition will allow us to fundamentally transform healthcare in very important ways.”

“I’m really excited about the new areas of growth and new ways of working,” CRN.com quoted D’Souza as saying. “We’re confident in our strategy.” Moving forward, D’Souza said, Cognizant is looking into ways to expand its offering beyond the CIO to marketing departments, and exploring new ways to distill and apply meaning from data using data science and artificial intelligence. He said a large number of multi-tower, integrated deals in the pipeline should fuel good organic growth heading into 2015. “The fundamentals for demand are strong,” D’Souza said.

“We had a great quarter,” Gordon Coburn, President, Cognizant, told The Street. “We are quite pleased that we exceeded our revenue guidance for the third quarter and raised our full year revenue guidance. IT spending is alive and well, but there is a big shift going on. Our clients are trying to do two things at once—we refer to it as the dual mandate. They have to reduce cost of their core IT and process operations—we refer to that as ‘run better’. At the same time, they have to start to innovate, apply digital technologies and better analytics, and start growing their top line again. We refer to that as ‘run different’. What clients are doing is they are shifting IT spend away from ‘run better’ and towards ‘run different’.”

Coburn added, “The reason why I think Cognizant is doing well in this environment is because we have been investing for years in our consulting capability and our industry knowledge. As clients want to start innovating, you have to understand their industries well. We are well positioned to service that increased spend on the ‘run different’ and innovation.”

“I expect Europe over long term to bring higher percentage of revenues than today, particularly Continental Europe,” Coburn told The Economic Times. “When I look at our penetration rates, particularly Germany and France, I think there is quite a significant opportunity. And that is why we have made significant investments.”

Coburn said the company was seeing “very healthy demand” in Horizon 3 services, including SMAC (social, mobility, analytics and cloud) and digital. “It is on the top of agenda of everybody, across industries. We have been investing heavily over the years. So we are very pleased with the growth in newer technologies. Certainly the growth is well above the company average,” he said.

Commenting on Cognizant’s acquisition of TriZetto, Coburn noted, “TriZetto is a leader. They have almost half of the U.S. population on their systems. They have some of the best people that understand the U.S. healthcare industry. It is positioned for the future. There is a big opportunity. They have a traditional model of engagement and we will add a new path. We are thrilled with TriZetto.”

“We’re thrilled about the technology and capabilities,” CRN.com quoted Coburn as saying about Cognizant’s TriZetto acquisition and Health Net deal. “We plan to take something that’s good, and make it even better,” said Coburn.

“We have always said we are going to maintain margin in the 19-20 per cent range, and we continue to stay there,” Rajeev Mehta, Chief Executive Officer for IT Services at Cognizant, told Business Standard. “We continue to feel good about having our operating margins in that range and whatever surplus we have, we continue to reinvest in the business. We are seeing a healthy demand in the digital technology space, so we continue to invest to make sure these new technologies become a significant revenue piece for Cognizant.” When asked about Europe, Mehta said, “We have made significant investments in continental Europe and we continue to do that. It is a strong growth area for us.”

“The last quarter was good for us,” Mehta told The Times of India. “The revenue came on the higher end of the guidance. We’ve raised our full year guidance. The overall demand environment looks stronger. If you look at the growth for the full year, it’s pretty much industry-leading growth. We have a great model that is helping us to continue to outperform and I think we see a tremendous opportunity going ahead.”

Mehta added, “Clients want us to continue to drive efficiency and effectiveness. And they are now also saying, help us ‘run better’. In SMAC and digital, we see a greater pie that Cognizant can go after, which provides us optimism for the next year. The IT demand is healthy and we have seen good win rates in a lot of deals.”

“Our results this quarter were solid and slightly ahead of the guidance we provided at the end of last quarter. We now expect full-year 2014 revenues to be between $10.13 billion and $10.16 billion, reflecting our performance this quarter and our improved outlook for the remainder of the year,” R. Chandrasekaran, Executive Vice Chairman, Cognizant India, told Mint. “We are seeing a significant technology shift and a business model change, driven by the ongoing volatility in major economies on one hand and the advent of new digital technologies on the other. The only way for businesses to adapt in this new era is to simultaneously improve efficiency and scale with existing systems while driving business innovation through newer technologies. We refer to this as the dual mandate and we see the effects of the dual mandate playing across industries and geographies.”

He added, “Our addressable market of IT (information technology) services and BPO (business process outsourcing) is large, worth over $1 trillion, growing and highly fragmented. A large, fragmented market creates significant opportunity for us to take share. Additionally, we are going through a once-in-a-decade shift in technology, which is providing more opportunity. Because of our reinvestment strategy, we expect to post strong results on an organic basis. We are still confident in our underlying investment thesis and our ability to produce sustained industry-leading growth over the long-term. We continue to invest significantly to build out capabilities, service mix, geographies, allowing us to stay relevant to our clients. These ongoing investments position us well to meet our clients’ dual mandate of driving efficient operations (Run Better) and transforming their operations (Run Different) to meet the secular challenges that they face today. If we do this, we should be able to continue to deliver industry leading growth.”

In an interview with Financial Chronicle, Chandrasekaran said, “Our revenue guidance has been raised from what we forecast last quarter. We are pleased that we are able to increase guidance by at least $50 million despite having to absorb a currency headwind of approximately $40 million since our previous guidance. We are confident in our strategy and as we start planning for 2015, we find that our “run better, run different” value proposition is firmly in step with the needs of the market,” he said.

“Our growth came in above the guidance,” he told The Financial Express. “We feel pretty good about the healthy demand environment and the deal win rate. Overall, we remain very optimistic for the rest of the year. Our strategy is to help our customers 'run better' and 'run different'. 'Run better' is helping our customers bring in operational efficiencies and reduce the total cost of business. It is focused on creating synergies and guaranteed business benefits. Under 'run different', with the advent of digital technologies, many of our customers are wanting to differentiate themselves leveraging these. The investments that we have made in creating digital capability within Cognizant are helping us win a fair share of deals from existing and new customers.”

“The dual mandate of ‘running better’ and ‘running different’ has required Cognizant to gain efficiencies in legacy technology and invest in new digital capabilities,” Malcolm Frank, Executive vice President of Strategy at Cognizant, told CRN.com. “With digital, you can't just show up with a technology. You have to understand how it translates to an industry.” Frank said that Cognizant has invested heavily over the past decade in its management consulting division to engage in business-centric conversations across the executive suite.