Cognizant says its sequential growth was well ahead of guidance, driven by strong organic growth in its core business.
Cognizant says its sequential growth was well ahead of guidance, driven by strong organic growth in its core business. R Chandrasekaran, executive vice-chairman, Cognizant India, says in a conversation with Sajan C Kumar that the results demonstrate that its strategy, investments and solutions are strongly aligned with the evolving market. Excerpts
Going by first quarter’s performance, what are your views on revenue for the full year?
Our first quarter growth of 6.2% quarter-on-quarter and 20.2 % year-on-year was better than we expected. The sequential growth was well ahead of previous guidance, driven by strong organic growth in our core business, coupled with solid in-line performance in the TriZetto business. Notably, despite a strong currency headwind versus 2014, growth was solid across industry segments. If not for the current headwind, our growth would have been higher by 1.1 percentage points.
The overall demand environment remains strong and we have a very healthy order pipeline. As a result, we have increased our full-year revenue guidance to at least $12.24 billion and non-GAAP EPS guidance by two cents to $2.93.
How are the US and Europe, your biggest markets, doing?
Both North America and Europe did very well. While North America grew 7.4% sequentially, Europe grew 0.2% quarter-over-quarter after a 4.8% negative currency impact. The European currencies declined significantly against the US dollar during the first quarter. While the UK grew 2.3% on a reported basis, it saw a negative currency impact of 3.7%. Likewise, Continental Europe declined 2.9% as it saw a negative currency impact of 6.3%. We expect solid growth in the Continent over the coming years as we increasingly benefit from the structural shift toward larger, multi-year projects.
Is rising healthcare spend in the US accruing benefits for the company?
Absolutely. Our healthcare segment, which primarily consists of our health insurance, pharmaceutical, biotech and medical device clients, grew 13.8% sequentially and 42.7% year-on-year, including the impact of TriZetto, which we acquired in the last quarter of 2014. For our health insurance clients, cost optimisation is still a key driver while clients are also looking to leverage analytics to drive profitability and improve customer retention.
The health insurance sector is undergoing fundamental changes, driven by a changing regulatory environment, increasing focus on medical costs and consumerisation. We believe these changes create longer-term opportunities that we are well positioned to capture. The integration of TriZetto is on track and our combined offerings are clearly resonating with clients.
We have added 500 consultants — who are either already deployed or trained and ready-to-deploy — to help drive revenue synergies. In addition, we have added 300 people at our global delivery centres to accelerate product development on TriZetto platforms. These are already paying off.
In the first quarter alone, we were selected for synergy deals with a total contract value of $200 million and a number of additional deals in our pipeline. Within our pharma business, we continue to see a trend towards multi-service deals across infrastructure and IT services, leveraging cloud technologies and platforms. Additionally, we are seeing steady demand driven by vendor consolidation and cost optimization across many existing and new clients.
What are the growth prospects for 2015? What will be the factors contributing to your momentum?
We are in the midst of a once-in-a-decade shift in the technology landscape, which is creating significant opportunities for services firms such as Cognizant that have the right portfolio. Our results demonstrate that our strategy, investments, and solutions are strongly aligned with the evolving market demand.
Today, more than ever, our clients are grappling with the dual mandate to drive not just better efficiencies, but also greater innovation for the needs of tomorrow. Our ‘run better, run different’ value proposition is resonating well with them. On one side of the dual mandate, the shift towards digital is front and centre for our clients. As clients deploy digital technologies, we are seeing not only strong traction for our digital offerings, but also greater demand for our traditional services in areas such as legacy modernisation and integration.
On the other side of the dual mandate, clients continue to drive down costs in their core operations. They are adopting our traditional service offerings more broadly and driving demand for integrated, multi service deals while exploring new frontiers of cost and operating efficiency through new as-a-service, utility models.
We had seen this coming and embedded in the company a systematic capability, in the form of our three-horizon model, to rapidly identify changing market demands and capitalise on them. As a result, we now have a solid, comprehensive portfolio of services for the current needs of our clients as well as a robust mechanism to ensure that we have the organisational agility to make the right investments to remain relevant.
You recently undertook the re-organisation of the digital and cloud computing businesses, creating a new unit called DigitalWorks. How do you see the digital strategy playing out for the company?
Our differentiated approach, which we call Digital Works, has seen great traction and our recent digital acquisitions like Cadient, Odecee and itaas have helped us round out our digital services and geographic footprint. Having worked with clients on hundreds of digital projects, it’s clear that winning in the new digital era requires a new engagement model.
The shift to a digital enterprise is also driving demand for our traditional services. No digital transformation is complete without integration with the enterprise’s legacy systems and business processes. Existing IT infra, systems and applications, and business processes often need to be re-tooled to accommodate the explosion of users, data, devices, and sensors that often accompany digital deployments.