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Cognizant (CTSH) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· Apr 29, 2026

Source: earnings call transcript

Executive summary

Cognizant Q1 FY26 — Strong Bookings and Margin Expansion Amidst Macro Uncertainty

Cognizant delivered a solid first quarter, with revenue growth in the upper half of its guidance range and robust bookings, driven by its AI builder strategy. Despite a complex macroeconomic environment and cautious discretionary spending, the company expanded adjusted operating margins and saw strong EPS growth. The launch of Project LEAP aims to accelerate the transition to an AI-enabled operating model, funding future growth and further margin expansion.

Highlights

5

  • Revenue grew 3.9% year-over-year in constant currency, landing in the upper half of guidance.

  • Financial Services segment grew over 10% year-over-year in constant currency.

  • Q1 bookings grew 21% year-over-year, including 7 large deals (TCV > $100M) and 1 mega deal (TCV > $500M).

  • Adjusted operating margin expanded by 10 basis points year-over-year to 15.6%.

  • Adjusted EPS increased 14% year-over-year to $1.40.

Concerns

5

  • Market conditions have become more complex with heightened macroeconomic uncertainty expected to persist in the near term.

  • Health Sciences growth was negatively impacted by approximately 300 basis points year-over-year due to lower third-party product revenue.

  • Q1 gross margin decreased by 80 basis points year-over-year due to investment in bench, integrated offering costs, and compensation.

  • DSO increased 3 days sequentially and year-over-year to 84 days.

  • Annual contract value was flat due to increased deal duration and softness in smaller discretionary projects.

Guidance & targets

CategoryTargetConfidence
Q2 FY26 Revenue growth
3.2% to 4.7%
high materiality
High
Full-year FY26 Revenue growth
4% to 6.5%
high materiality
Medium
Full-year FY26 Adjusted operating margin
16% to 16.2%
high materiality
High
Project LEAP savings
$200M to $300M
medium materiality
High
Project LEAP full year savings
Full year benefit
medium materiality
High
Project LEAP costs
$230M to $320M
medium materiality
High
Full-year FY26 Free cash flow conversion
90% to 100%
medium materiality
High
Full-year FY26 Tax rate
25% to 26%
medium materiality
High
Full-year FY26 Weighted average diluted share count
Approximately $473M
low materiality
High
Full-year FY26 EPS growth
7% to 9%
high materiality
High
Full-year FY26 Capital return
Approximately $1.6B
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Financial Services
Led segment performance with over 10% year-over-year growth in constant currency, balanced across banking, financial services, and insurance customers. Benefited from healthy discretionary spending and sustained large deal momentum, particularly in North America.
—10%+——
Health Sciences
Performance remained resilient. Growth was negatively impacted by approximately 300 basis points year-over-year due to lower revenue from third-party products associated with the integrated offering strategy. Excluding this impact, services grew at a similar level to the company.
—Similar to company (excluding impact)——
Products and Resources
Stable despite headwinds from macro geopolitical and trade policy uncertainty. Seeing emerging client demand in areas like predictive supply chains, agent commerce, and hyper personalization.
—Stable——

CTSH operating KPIs by quarter

CTSH operating KPIs stated on its earnings calls, by fiscal quarter
KPIThis call Mar 2026 Q1 FY26 Jun 2026 Q2 FY26Change vs prior quarter
Book-to-bill ratio Trailing 12-month
1.4 On a trailing 12-month basis, bookings grew 11% and represented a book-to-bill of 1.4. Source: earnings call transcript
1.3 On a trailing 12-month basis, bookings grew 5% and represented a book-to-bill of 1.3. Source: earnings call transcript
-7.1%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Q1 Bookings 21% Q1 FY26

YoY growth

One of the strongest in recent history.

Trailing 12-month bookings 11% Q1 FY26

YoY growth

Book-to-bill 1.4 Q1 FY26

On a trailing 12-month basis.

Large deals (TCV > $100M) 7 Q1 FY26

Signed 7 large deals with TCV of $100 million or greater.

Mega deals (TCV > $500M) 1 Q1 FY26

Includes 1 mega deal valued at more than $500 million.

Product announcements

ProductTypeDetails
Cognizant Innovation Networklaunch
AI Builder career programlaunch
SkillSpringlaunch
Cognizant WorkNEXTexpansion
Autonomous customer engagement with Googlelaunch
TriZetto product portfolio partnership with Palantirexpansion

Deals & partnerships

Atria Global IT managed services provider specializing in AI infrastructure build-out, data center infrastructure, enterprise networks, and digital workplace technology.

Definitive agreement announced. Expected to add a critical layer to Cognizant's AI Builder technology stack.

Palantir Strategic partnership to advance an outcomes-based intelligence platform that embeds AI-driven decisioning directly into healthcare operations, building on the TriZetto product portfolio.

Aims to create opportunities to drive healthcare payer control points for medical loss ratio performance, payment integrity, real-time cost intelligence, and network performance.

Google Partnership for autonomous customer engagement to support outcome-based human AI workforce models across industries.

Part of business operations-led offerings, expanding AI-enabled services.

Anthropic Claude Strategic partnership for AI-powered autonomous software engineering.

Part of differentiated approach to autonomous software, rooted in engineering-led productivity.

Google Gemini Strategic partnership for AI-powered autonomous software engineering.

Part of differentiated approach to autonomous software, rooted in engineering-led productivity.

Microsoft Copilot Davin Strategic partnership for AI-powered autonomous software engineering.

Part of differentiated approach to autonomous software, rooted in engineering-led productivity.

OpenAI Codecs Strategic partnership for AI-powered autonomous software engineering.

Part of differentiated approach to autonomous software, rooted in engineering-led productivity.

Capital programs

Project LEAP underway
Period spend: $230M to $320M

Benefit:Cost savings of $200M-$300M in FY26, full year benefit in FY27

Program designed to accelerate transformation to an agile, AI-enabled operating model. Costs include $200M-$270M for employee severance and personnel-related costs, and $30M-$50M for other charges. These costs will be adjusted in non-GAAP financial measures.

Risks & headwinds

Softening demand environment and macroeconomic uncertainty Near term

Persist in the near term; Q2 guidance includes a more cautious near-term view of discretionary spending.

Mitigation:Focus on AI's transformative potential and value as strategic partners; strong bookings momentum and large deal ramps expected to drive H2 performance.

Regulatory uncertainty in Health Sciences

Policy changes creating uncertainty in key areas.

Trade policy uncertainty and supply chain disruptions

Remain realities.

Client-specific dynamics in Comms and Media

Added pressure tied to strategic shifts at a large customer.

Integrated offering strategy and M&A investments impacting gross margin Q1 FY26

Q1 gross margin decreased 80 bps YoY.

Mitigation:Considered an investment mode; Project LEAP aims to drive significant cost savings and improve gross margin over time.

What to watch in Q2 FY26

Project LEAP savings realization

Next quarter and FY27
Current $200M-$300M expected in FY26
Target Progress towards full year benefit in FY27

Why it matters

Project LEAP is crucial for accelerating the operating model transformation, funding future growth, and expanding margins.

The program is expected to deliver savings in 2026 of approximately $200 million to $300 million with a full year benefit in 2027.

Find out whether CTSH delivers this. Inve re-checks your case every morning.

Q&A highlights

Inquired about the mix of new versus renewal bookings, ACV growth, and clarification on the assumption of improved discretionary spending in the second half of FY26.

Management stated that bookings growth, especially large deals, is driven by new opportunities. They confirmed that the midpoint of the FY26 guidance assumes a slightly better discretionary environment in H2, supported by large deal ramps and full contributions from recent acquisitions like Atria.

“What gives us confidence for the second half are essentially 2 things: the large deal wins that we have had in quarter 4 and in quarter 1, which continue to ramp up and will reach its full potential -- their full potential in starting June, July. And therefore, that's one lever. The second is acquisition like Estia will come full on stream from quarter 3 standpoint, it would be a partial revenue in quarter 2.”

asked by Jason Kupferberg · answered by Jatin Dalal

2 min read 6 chapters

Detailed narrative

AI Builder Strategy and Vision

Cognizant is evolving its role from a system integrator to an 'AI builder,' aiming to bridge the gap between massive AI infrastructure spend and business value realization. This involves owning the full stack of capabilities for bespoke AI systems, reimagining talent with interdisciplinary teams, shifting to outcome-based economic models, and underwriting operational results. The strategy is built on three vectors: AI-led productivity, industrializing AI, and identifying the enterprise, with over 5,000 AI engagements across these areas.

Project LEAP Initiative

The company launched 'Project LEAP' to accelerate its transformation to a future operating model, funding investments in AI capabilities, integrated offerings, and platforms. This program is designed to reshape productivity and upskill the workforce, aiming for $200M-$300M in savings in FY26, with a full year benefit in FY27. These savings will be reinvested into growth initiatives and workforce development, while also contributing to margin expansion.

Market Conditions and Demand

Despite a solid Q1, management noted a softening demand environment and heightened macroeconomic uncertainty, leading to cautious discretionary spending. However, clients recognize AI's transformative potential, driving demand for AI and analytics services. Financial Services showed robust growth, while Health Sciences faced headwinds from third-party product revenue, and Products and Resources navigated trade policy uncertainty.

Talent and Skilling

Cognizant is reimagining its talent model, moving away from a traditional pyramid towards interdisciplinary, AI-augmented teams. To support this, the company launched an integrated AI skilling stack, including the AI Builder career program and SkillSpring, an AI-native learning platform. The company plans to hire more freshers in 2026 than the 20,000 hired in 2025, aiming to build a broader pyramid with a shorter path to expertise.

Platform Strategy and Innovation Network

Platforms are central to Cognizant's AI builder stack, translating strategy into measurable client outcomes. The company's AI Labs, with 65 US and 88 global patents, translates frontier research into industry-relevant use cases. To complement internal investments, Cognizant launched the Innovation Network, a corporate investment arm backing early-stage AI startups in areas like AI, data, cybersecurity, and cloud technologies.

AI-Infused Rate Cards and Economics

Cognizant is evolving its commercial models towards fixed and outcome-based pricing, reflecting the added value of assets, IP, and accelerators. The company is seeing the emergence of AI-infused rate cards, where pricing reflects a blended model of human and digital effort. This model aims to align value creation with shared results, with some clients proposing that Cognizant manage both human and digital labor economics.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.