Cognizant (CTSH) Q3 2026: Services Growth Slows, Revenue Guidance Cut Again

Cognizant (CTSH) reported third-quarter 2026 results on October 29, 2026, in an earnings release, a 10-Q and an earnings call covering the quarter ended September 30. Revenue came in above the midpoint of guidance, but organic services growth slowed, Cognizant cut its full-year revenue guidance again, and collections did not improve [1][2][3]. Four questions mattered going into the quarter. Financial Services growth came in better than expected. Services growth excluding acquisitions and third-party resale fell below 1 percentage point, and full-year guidance was lowered again. Adjusted operating margin met its target, but mainly because of a weaker Indian rupee. Days sales outstanding (DSO), a measure of how long customers take to pay, rose again, and cash flow did not recover [1][2]. Overall, Cognizant's sources of growth are narrowing, the quality of its margin gains is modest and cash conversion is slow.

Cognizant is an IT services company headquartered in New Jersey. It reports four segments by client industry: Health Sciences, Financial Services, Products and Resources, and Communications, Media and Technology, with North America accounting for about 75% of revenue [4]. It charges enterprise clients for services on a time-and-materials, fixed-price or transaction basis, delivers mainly from offshore centers in India and also resells third-party software and hardware [4].

Services growth fell below 1 point and Cognizant cut its 2026 guidance again

Third-quarter headline growth beat guidance, but most of the increase came from acquisitions and resale. Revenue was $5.664 billion, up 4.8% in constant currency, above the midpoint of the 3.8%-5.3% guidance range [1]. Acquisitions contributed about 210 basis points and sales of third-party products about 190 basis points. On that basis, services growth excluding both was about 0.8 percentage points, down from about 1.4 points in the second quarter [1][2].

Demand weakness spread across more client groups. Health Sciences fell 0.9% in constant currency and Products and Resources fell 0.8%, while quarterly bookings declined 7% year over year, the second straight quarterly decline [1]. Management said consumer-facing clients were affected by geopolitical uncertainty and oil prices, and healthcare clients delayed discretionary spending because of uncertainty over Medicaid and Medicare funding [2][3].

Cognizant lowered its full-year guidance for the second time as a result. Full-year constant currency growth guidance moved from 4.0%-5.5% to 4.0%-4.4%, and fourth-quarter guidance calls for 3.2%-4.7% growth, including about 200 basis points from acquisitions [1][3]. According to the call transcript, the CFO said fourth-quarter organic growth would be about 2% and that the resale contribution would be similar to the year-to-date average [3]. If resale contributes about 170 basis points, as it did over the first nine months, fourth-quarter services growth excluding acquisitions and resale would be close to zero (an estimate) [1][3]. Slower services growth reduces the leverage Cognizant gets on its fixed costs.

DSO rose to 89 days and third-quarter cash flow did not recover

Collections slowed further in the third quarter. DSO was 89 days on September 30, up from 88 days in June and 82 days a year earlier [2]. The CFO attributed the increase to a change in business mix and did not break it down further [3].

Slower collections reduced cash flow in the quarter. Third-quarter free cash flow was $925 million, compared with $1.160 billion a year earlier [1]. Free cash flow for the first nine months was about 82% of net income, up from about 50% in the first half [1]. Cognizant kept its target for full-year free cash flow of 90%-100% of net income [3]. If fourth-quarter net income is similar to the third quarter's, fourth-quarter free cash flow would need to exceed net income by about 110% (an estimate).

Capital allocation has turned more conservative. Share repurchases fell to $258 million in the third quarter, below the quarter's free cash flow [1]. The $1 billion revolving credit borrowing was still outstanding at the end of September, and in October Cognizant refinanced it under a new facility maturing in 2031 [2].

Other areas: Financial Services growth and margin quality

Financial Services kept accelerating, but resale became a larger share of its growth. The segment grew 12.3% in constant currency, its third straight quarter of double-digit growth [1]. Resale contributed about 400 basis points of segment growth, leaving about 8.3 points excluding resale, a figure that does not deduct any undisclosed acquisition contribution [2]. Company-wide, Cognizant signed three deals worth $100 million or more in the quarter [1].

Adjusted operating margin hit its target, but currency contributed more than the entire improvement. Third-quarter adjusted operating margin was 16.3%, up 30 basis points year over year [1]. The weaker rupee added about 120 basis points net of hedges, and cost of revenues rose from 66.1% to 66.2% of revenue [2]. Project Leap is expected to deliver about $200 million of savings in 2026, which the company said will be used primarily to fund investments [2][3].

Conclusion

The quarter shows Cognizant's growth relying more heavily on Financial Services, acquisitions and resale, while pressure on discretionary spending is still spreading. Profit conversion met its target on the surface, but excluding currency, adjusted operating margin fell by about 90 basis points (an estimate), and the cost of delivery did not decline as a share of revenue. On cash, DSO did not come down, and borrowings have not fallen even after the slowdown in buybacks.

The fourth quarter is the next test. Whether services growth stays positive, bookings stop falling, margin expands excluding currency and year-end DSO comes down will determine whether these concerns deepen or ease. Management is counting on healthcare funding stabilizing and the macro environment improving for growth to pick up in 2027, but it has not yet given 2027 guidance.

Sources

[1] CTSH Q3 2026 8-K filed 2026-10-29 Exhibit 99.1, October 29, 2026, Cognizant Form 8-K Exhibit 99.1 (third-quarter earnings release), https://www.sec.gov/Archives/edgar/data/1058290/000105829026000039/exhibit9919302026.htm [2] CTSH Q3 2026 10-Q filed 2026-10-29 · MD&A, October 29, 2026, Cognizant Form 10-Q, Management's Discussion and Analysis, https://www.sec.gov/Archives/edgar/data/1058290/000105829026000041/ctsh-20260930.htm [3] CTSH Q3 2026 earnings call 2026-10-29 · transcript (Drillr earning_call_summary.content), October 29, 2026, Cognizant third-quarter earnings call transcript, drillr:earning_call_summary/CTSH/2026-10-29 [4] CTSH FY2025 10-K filed 2026-02-12, February 12, 2026, Cognizant 2025 annual report (Form 10-K), https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001058290&type=10-K&dateb=&owner=include&count=40