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Cognizant beats estimates as Obamacare boosts revenue

06 November, 2013

IT services firm Cognizant Technology Solutions Corp reported a better-than-expected 22 per cent rise in revenue, helped by contracts from insurers setting up online exchanges as part of President Barack Obama’s healthcare reforms.

Cognizant’s shares rose as much as 4 per cent to a life high of $90.70 in early trading on Tuesday.

The company, which also raised its full-year forecast for both profit and revenue, said it would focus on winning more business from governments.

“In the United States, for example, there’s a lot of work for the state level and the federal level because of healthcare,” Chief Financial Officer Karen McLoughlin told Reuters. “In the United Kingdom, we’re seeing opportunity in healthcare and financial services.”

Revenue in the healthcare business jumped 24 per cent to about $600 million in the third quarter.

Online insurance exchanges opened on October 1 as part of Obama’s healthcare reform, often called “Obamacare”, to offer health insurance plans to millions of uninsured Americans.

Cognizant supports the operators of these exchanges by providing services such as connecting payers to the exchanges and call center operations to handle customer queries.

Revenue from its biggest market, North America, rose 18.5 per cent to $1.78 billion.

Cognizant said an uptick in discretionary spending from Europe, particularly in the UK, boosted revenue from the region by 37 per cent to $414.7 million.

For most of last year, companies had cut back on IT spending, delayed deals and signed fewer large contracts.

Indian IT rivals Infosys Ltd and Tata Consultancy Services also reported a jump in quarterly profit, helped like Cognizant by growing demand from financial clients and from Europe.

Europe gains

Instability in Europe has forced companies there to cut costs by outsourcing. Cognizant, which operates on lower margins than its rivals, has been able to win a larger share of the business.

“We continue to also see healthy demand in the sort of traditional outsourcing types of businesses on the continent,” Chief Executive Francisco D’Souza said on the conference call.

Cognizant’s third-quarter sales rose 22 per cent to $2.31 billion.

The company’s net income rose to $319.6 million, or $1.05 per share in the third quarter, from $276.9 million, or 91 cents per share, a year earlier.

Analysts on average had expected earnings of $1.01 per share on revenue of $2.26 billion, according to Thomson Reuters I/B/E/S.

The company said it expects earnings of at least $4.01 per share on revenue growth of at least 20.3 per cent to $8.84 billion.

It had previously forecast earnings of at least $3.96 per share on revenue growth of at least 19 per cent to $8.74 billion.

Analysts on average were expecting earnings of $3.98 per share on revenue of $8.76 billion.

Shares of Teaneck, New Jersey-based Cognizant, which has most of its employees in India, were up 3 per cent at $89.41 on the Nasdaq on Tuesday.


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Cognizant beats estimates as Obamacare boosts revenue

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