What Cognizant Technology Solutions (CTSH) Said on Its Q3 Earnings Call

Key Points

• Q3 performance improved: Revenue rose 4.8% year over year in constant currency to $5.7 billion, while adjusted EPS increased 7% to $1.49 and adjusted operating margin reached 16.3%, its highest level in four years.
• AI and financial services drove growth: Financial services revenue grew 12%, and AI-related businesses represented about 40% of the portfolio while expanding at roughly two to three times the company’s overall organic services growth rate.
• 2026 guidance was reduced: Cognizant lowered its full-year constant-currency revenue growth outlook to 4%–4.4% because of weaker discretionary spending in healthcare and consumer-facing markets, although it reduced the expected cost of its Project Leap restructuring program.

Cognizant Technology Solutions NASDAQ: CTSH reported third-quarter 2026 revenue of $5.7 billion, up 4.8% from a year earlier in constant currency, as growth in financial services and contributions from recent acquisitions helped offset pressure in healthcare and consumer-facing industries.

Chief Executive Officer Ravi Kumar said revenue was in line with the company’s expectations and adjusted operating margin reached 16.3%, which he described as Cognizant’s highest level in four years. The margin result marked the company’s seventh consecutive quarter of year-over-year expansion, excluding costs tied to its Project Leap restructuring program.

Adjusted earnings per share rose 7% year over year to $1.49. Third-quarter free cash flow totaled $925 million, bringing year-to-date free cash flow to $1.6 billion. Cognizant repurchased 4.9 million shares during the quarter for more than $250 million, at an average price of about $53 per share.

Financial Services Leads Growth

Financial services revenue grew 12% year over year in constant currency, marking the segment’s third consecutive quarter of double-digit growth. Kumar said clients in the sector are increasingly using artificial intelligence to support modernization and new innovation initiatives.

Communications, media and technology also posted double-digit growth, aided by the Astreya acquisition and spending by technology clients. North America led the company’s geographic growth, while the U.K. benefited from public-sector demand.

However, Cognizant said uncertainty related to regulation and funding continued to limit discretionary spending in healthcare. The products and resources segment also remained under pressure as retail, consumer goods, travel and hospitality clients navigated geopolitical uncertainty, supply-chain disruption and elevated oil prices.

Chief Financial Officer Jatin Dalal said businesses benefiting from AI-related demand—including business process outsourcing, infrastructure, cybersecurity and industry solutions—represented about 40% of Cognizant’s portfolio year to date and were growing at roughly two to three times the rate of the company’s total organic services revenue.

Bookings and AI Strategy

Trailing 12-month bookings increased 4%, producing a book-to-bill ratio of 1.3x. The company signed three large deals valued at more than $100 million each, while the combined trailing 12-month value of large deals rose 9% year over year.

New and expansion business accounted for 60% of bookings, up more than 10 percentage points from a year earlier. Kumar said the growing share of new business should translate into revenue more quickly than renewals.

Cognizant continued to emphasize its “AI Builder” strategy, which is focused on helping clients deploy AI at enterprise scale. Kumar said more than 50% of the company’s software development was AI-assisted at the end of the third quarter, and Cognizant had more than 8,500 AI engagements.

The company said more than 45,000 associates have earned over 95,000 certifications across frontier AI platforms, with another 65,000 certifications in progress. Cognizant also expanded its Google Cloud relationship through a Gemini Frontier Capability Group involving more than 18,000 dedicated associates.

Cognizant identified four strategic growth priorities: modernization, agentifying core business operations, secure AI, and data center and workplace services. Kumar said the company sees these areas as representing a multibillion-dollar opportunity over the coming years.

During the quarter, the company introduced AI-enabled claims workflow processing for its TriZetto healthcare platform and cited work across finance, logistics, insurance and utilities. Cognizant also announced plans to acquire Australia-based DyFlex Solutions, an SAP Platinum Partner, with the transaction expected to close in the first quarter of 2027.

Guidance Reduced on Discretionary Spending Pressure

Cognizant lowered its full-year constant-currency revenue growth outlook to 4% to 4.4%, from a previous range of 4% to 5.5%. The company said the revision reflects greater-than-expected macroeconomic pressure on discretionary spending in healthcare and consumer-facing sectors, a lower expected contribution from third-party product resale activity, and a greater impact from fourth-quarter furloughs.

For the fourth quarter, Cognizant expects constant-currency revenue growth of 3.2% to 4.7%, including roughly 200 basis points from recently completed acquisitions. Full-year guidance continues to include approximately 150 basis points of inorganic growth.

The company narrowed its adjusted operating margin outlook to approximately 16.1%, representing 30 basis points of expansion from the prior year. It also narrowed adjusted EPS guidance to $5.72 to $5.79, implying growth of 8% to 10%.

Project Leap Costs Lowered

Cognizant revised the expected total cost of Project Leap, its restructuring and workforce transformation initiative, to $180 million to $250 million, down from $230 million to $320 million. Dalal said the reduced estimate reflects lower expected severance and personnel costs as the company has been able to reskill and redeploy more employees than originally anticipated.

The company expects about $200 million in 2026 savings from the program, with the initiative now expected to run through the first quarter of 2027. Cognizant incurred approximately $51 million in Project Leap costs during the third quarter.

Dalal also said Cognizant does not expect the U.S. Department of Labor’s suspension of new permanent labor certification applications for certain companies to materially affect its talent strategy or operations. The company had approximately 32,000 U.S. employees at the time of the call.

Regarding a potential primary offering and secondary listing in India, Dalal said Cognizant is awaiting proposed regulatory updates and expects to make a decision after reviewing the final framework.

About Cognizant Technology Solutions (NASDAQ:CTSH)

Cognizant Technology Solutions Corporation is a global information technology services and consulting company that helps organizations modernize their technology infrastructure, operations and customer experiences. The company serves businesses across industries including financial services, healthcare, life sciences, manufacturing, retail and communications.

Cognizant's services include consulting, application development and modernization, cloud computing, data and artificial intelligence, digital engineering, cybersecurity and business process services.

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