Cognizant Banks On Acquired Digital Practices for ’16 Growth, Despite Slow Q1

Touting the company's newest acquisitions to boost its digital services offerings, Cognizant CEO Francisco D'Souza said the solution provider giant is counting on more business throughout the rest of the year following a slow first quarter.

Consolidation in the health care space following Implementation of Affordable Care Act, as well as IT investment hesitation in the banking industry caused by financial market volatility, led customers to postpone projects that Cognizant -- No. 8 on CRN’s Solution Provider 500 list – was counting on for first-quarter revenue, D'Souza told analysts Friday.

But the financial markets have since calmed, he added, and integration projects generally follow consolidations, leaving management optimistic about the rest of the year, especially its digital practices.

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"As we've seen over the last several quarters, digital transformation continues to be a strong driver of demand as clients look for new solutions that allow them to defend their businesses against digital disruptors while innovating to create new areas of growth," he said.

D'Souza noted that Teaneck, N.J.-based Cognizant's digital practice, Digital Works, is dedicated to helping clients develop digital roadmaps for their businesses with strategies, technologies and industry expertise. The segment focuses on helping customers modernize processes, including back-end migrations to modern, cloud-based infrastructures and software, management-level updates that utilize outcome-based business models and front-of-house enhancements via new technology such as Internet of Things infrastructure.

To help Cognizant develop an interdisciplinary and differentiated approach to digital infrastructure, D'Souza said the company has been focusing on building that practice through acquisitions such as its most recent purchase of a 49 percent stake in human science consultancy ReD Associates, of New York.

ReD focuses on analyzing information captured from Internet of Things devices to better understand how people are engaging with technology to develop new business strategies and go-to-market approaches.

"ReD and Cognizant will provide a unique and compelling approach for business to help them reframe their challenges for the digital era," D'Souza said.

The company also acquired leading Oracle cloud channel partner KBACE Technologies, of Nashua, N.H., in January to help Cognizant accelerate its cloud strategy and consulting services. In February, it launched a digital healthcare platform, and is winding up its 2014 acquisition of Englewood, Colo.-based health care IT provider TriZetto, which, according to D'Souza, is surpassing expectations. Cognizant spent $2.4 billion to buy TriZetto.

For the first quarter, Cognizant reported $3.2 billion in revenue, up 10 percent from the first quarter of 2015. Meanwhile, net income soared 15 percent, from $383.9 million to $441.2 million. Revenue fell short of analyst expectation while net income beat expectations.

D'Souza said the quarter went according to plan, as Cognizant had forecast the softness in health care and financial services.

Following the earnings report, Cognizant stock rose 5.1 percent Friday to close at $60.55.

D'Souza said that although the quarter represented a "soft start," to the year, Cognizant is confident the rest of the year will pick up.

During the quarter, he added, the company increased its headcount by 11,300 and is looking at more tuck-in acquisitions to boost Cognizant’s new technologies, industry expertise and software services.