Cognizant (NASDAQ: CTSH) adjusted margin widens, but third-quarter bookings fall 7%

What happened

Cognizant Technology Solutions Corporation (NASDAQ: CTSH) reported third-quarter revenue of $5.7 billion on Oct. 29, up 4.6% from a year earlier. Constant-currency growth was 4.8%.

The quarter sent mixed signals. Adjusted operating margin widened and adjusted earnings per share grew. GAAP operating margin narrowed, and third-quarter bookings fell 7% from a year earlier.

Cognizant guided to fourth-quarter revenue of $5.49 billion to $5.57 billion. That is growth of 3.0% to 4.5%, or 3.2% to 4.7% in constant currency. Both ends of the range sit below the third quarter's growth rate, reported and constant-currency.

For 2026, it expects revenue of $22.05 billion to $22.14 billion. That is growth of 4.5% to 4.9%, or 4.0% to 4.4% in constant currency. The company revised the constant-currency range in this release.

It also guided to an adjusted operating margin of about 16.1%, up 30 basis points. Adjusted diluted EPS is expected at $5.72 to $5.79, growth of 8% to 10%.

Key numbers

Metric	Latest	Change	Source
Third-quarter revenue	$5.66 billion	from $5.42 billion, +4.6%	SEC 8-K, Exhibit 99.1
GAAP operating margin	15.4%	from 16.0%, -60 basis points	SEC 8-K, Exhibit 99.1
Adjusted operating margin	16.3%	from 16.0%, +30 basis points	SEC 8-K, Exhibit 99.1
Adjusted diluted EPS	$1.49	from $1.39, +7.2%	SEC 8-K, Exhibit 99.1
Trailing 12-month bookings	$28.7 billion	+4%	SEC 8-K, Exhibit 99.1
Nine-month free cash flow	$1.58 billion	from $1.88 billion, -16.0%	Calculated from SEC 8-K

Read more: Cognizant Technology Solutions (CTSH) company research

Margins and earnings

The two margin measures moved in opposite directions because of Project Leap, the company's restructuring program. GAAP operating margin was 15.4%, down 60 basis points from 16.0%. Adjusted operating margin was 16.3%, up 30 basis points from 16.0%. The reconciliation attributes 0.9 points of the gap to Project Leap charges of $51 million.

GAAP diluted EPS rose 148% from $0.56 a year earlier. The year-earlier quarter carried a one-time, non-cash income tax charge of $390 million, which cut its EPS by $0.80. Adjusted EPS of $1.49 rose 7.2% from $1.39. The adjusted figures exclude that tax charge.

Adjusted net income was $670 million against $675 million a year earlier. Weighted average diluted shares fell to 450 million from 487 million. So adjusted EPS grew while adjusted net income edged down, helped by the smaller share count.

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Demand, bookings and client wins

Growth came from two of four segments. Financial Services revenue grew 12.0% to $1.77 billion. Communications, Media and Technology grew 10.5% to $939 million. Health Sciences fell 1.1% to $1.59 billion, and Products and Resources fell 0.9% to $1.37 billion.

Trailing 12-month bookings rose 4% to $28.7 billion, a book-to-bill ratio of about 1.3x. Third-quarter bookings included three large deals, each with total contract value of $100 million or more.

The release lists a five-year framework with the European Bank for Reconstruction and Development, a five-year agreement with Ingenico and a five-year extension with Gilead Sciences. Cognizant also agreed to acquire DyFlex Solutions, an Australia-based SAP transformation firm.

Project Leap costs and cash

Cognizant now expects Project Leap costs of $180 million to $250 million in total. Of that, $140 million to $160 million falls in 2026 and the rest comes through the first quarter of 2027. Severance and other personnel costs make up most of the total, with other charges of $30 million to $50 million.

The program is expected to save about $200 million in 2026, more than the cost for the year. The company says it is using those savings mainly to fund investments.

Cash generation slowed. Nine-month free cash flow was $1.58 billion against $1.88 billion a year earlier, a decline of 16.0% by OptimistFi's calculation. Operating cash flow was $1.84 billion against $2.03 billion.

Cognizant spent $2.3 billion on buybacks and dividends in the nine months, more than the free cash flow it generated. It repurchased 4.9 million shares for $258 million in the third quarter and has $2.1 billion left on its authorization.

Long-term debt rose to $1.55 billion from $543 million at Dec. 31, 2025. Cash fell to $1.52 billion from $1.90 billion.

Why it matters

OptimistFi has argued that Cognizant is a cash-generative IT services franchise if its delivery scale keeps winning enterprise modernization work while protecting mid-teens GAAP operating margins. This quarter splits that test. GAAP margin slipped but stayed in the mid-teens, while cash flow and quarterly bookings both moved the wrong way.

OptimistFi's calculation shows revenue rose $249 million from $5.42 billion a year earlier, which matches the stated growth rate. The top line is growing. The fourth-quarter range points to a slower pace, and per-share gains lean partly on a shrinking share count.

Bookings are the caution. The filing says they can swing from quarter to quarter with the timing of a small number of large contracts. It also says clients can end most contracts on short notice, often without penalty. The quarterly drop sits against a trailing-year gain, so one quarter does not settle the demand question.

What's next

The next scheduled report is fourth-quarter and full-year 2026 results, measured against the fourth-quarter revenue range Cognizant set. Revenue inside that range and a return to bookings growth would support the case. Another bookings decline would weaken it. So would GAAP margin staying below its year-earlier level as Project Leap costs run through the first quarter of 2027.

The $0.33 per share quarterly dividend goes to shareholders of record on Nov. 13 and is payable Nov. 25.

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