Key financial results
- Third quarter revenue grew 4.8% year-over-year in constant currency to $5.7 billion.
In Q3, revenue grew 4.8% year-over-year in constant currency to $5.7 billion.
- Adjusted operating margin reached 16.3%, up 30 basis points year-over-year, marking the seventh consecutive quarter of year-over-year expansion.
adjusted operating margin increased year-over-year to 16.3%, the seventh consecutive quarter of year-over-year expansion.
- Adjusted diluted EPS was $1.49, up 7% year-over-year.
Third quarter adjusted EPS was $1.49, up 7% year-over-year
- Free cash flow for the third quarter was $925 million, bringing year-to-date free cash flow to $1.6 billion.
Third quarter free cash flow was $925 million, bringing year-to-date free cash flow to $1.6 billion.
Business segment results
- Financial Services: Financial Services accelerated to 12% year-over-year constant currency growth, marking its third consecutive quarter of double-digit growth.
Financial Services accelerated to 12% year-over-year constant currency growth, its third consecutive quarter of double-digit growth.
- Health Sciences: Health Sciences revenue growth was constrained by regulatory and funding changes affecting discretionary spending, leading to the unification of payer and provider businesses.
In Health Sciences, uncertainty caused by regulatory and funding changes continues to constrain discretionary spending.
- Products and resources: Products and resources remained pressured in retail, consumer goods, and travel and hospitality sectors due to geopolitical uncertainty and supply chain disruption.
products and resources remain pressured as clients in retail, consumer goods and travel and hospitality continue to contend with geopolitical uncertainty
- Communications, Media and Technology: Communications, Media and Technology grew double digits, driven by organic contributions from Atria and strong technology client spending.
Communications, Media & Technology also grew double digits, driven by organic contributions from Austria, and strong spending from technology clients.
Capital allocation
- During the third quarter, the company deployed over $250 million on share repurchases, buying back 4.9 million shares at an average price of approximately $53 per share.
During the third quarter, we deployed over $250 million on share repurchases and bought back 4.9 million shares at an average price of approximately $53 per share.
- Year-to-date, Cognizant has deployed $2.3 billion to shareholders through share repurchases and dividends and remains on pace to deploy about $2.6 billion for the full year.
Year-to-date, we have deployed $2.3 billion to shareholders through share repurchases and dividends and remain on pace to deploy about $2.6 billion for the full year.
- The company ended the quarter with cash and short-term investments of $1.6 billion.
Finally, we ended the quarter with cash and short-term investments of $1.6 billion.
Industry trends and dynamics
- Macroeconomic uncertainty began to weigh more on discretionary spending in the fourth quarter, particularly in healthcare and consumer-facing sectors.
we are seeing the macro uncertainty weigh more on discretionary spending in the fourth quarter, particularly in hair and consumer-facing sectors.
- AI adoption is accelerating, with more than 50% of software development estimated to be AI-assisted by the end of the third quarter and over 8,500 AI engagements underway.
To the end of quarter 3, we estimate more than 50% of our software development was AI-assisted and we have over 8,500 AI engagements.
- Service lines benefiting from AI tailwinds account for approximately 40% of the business and are growing at roughly 2 to 3 times the rate of total organic services revenue.
Competitive landscape
- Management noted that the company continues to deliver revenue growth ranking among the top of its peer group despite a complex demand environment.
Despite these factors, we are still delivering revenue growth that ranks among the top of our peer group.
- More than 45,000 associates have earned over 95,000 certifications across frontier AI platforms, with another 65,000-plus in progress.
More than 45,000 Cognizant associates have earned more than 95,000 certifications across frontier AI platforms and another 65,000-plus are in progress.
- Trailing 12 months bookings increased 4%, with new versus expanded business growing over 10 percentage points year-over-year to 60%.
Trailing 12 months bookings increased 4% with the mix of new versus expanded business growing over 10 percentage points year-over-year to 60.
Macroeconomic environment
- While macroeconomic conditions were largely stable in the third quarter, increased macro uncertainty and regulatory pressures in healthcare impacted discretionary spending.
Although macroeconomic conditions were largely stable in the third quarter, we are seeing the macro uncertainty weigh more on discretionary spending in the fourth quarter
- Geopolitical uncertainty, supply chain disruption, and elevated oil prices continued to pressure clients in retail, consumer goods, and travel and hospitality.
clients in retail, consumer goods and travel and hospitality continue to contend with geopolitical uncertainty, supply chain disruption and elevated oil prices.
Growth opportunities and strategies
- The company's AI Builder strategy focuses on four areas: reimagining work, engineering enterprise-grade AI, building capacity to help clients absorb AI, and compounding institutional intelligence.
Our AI Builder strategy is designed to bridge this gap between AI capability and enterprise value through 4 connected areas.
- Cognizant identified four strategic growth priorities for disproportionate growth: modernization, reimagining core business operations, secure AI, and data center and workplace services.
Accordingly, we have identified 4 strategic growth priorities that we believe can drive disproportionate growth. Modernization identifying core business operations, secure AI and data center and workplace services.
Financial guidance and outlook
- For the fourth quarter, revenue is expected to grow 3.2% to 4.7% year-over-year in constant currency, including approximately 200 basis points from recently completed acquisitions.
For the fourth quarter, we expect revenue to grow 3.2% to 4.7% year-over-year in constant currency. This includes approximately 200 basis points from our recently completed acquisitions.
- Full year constant currency revenue growth guidance was updated to 4% to 4.4%, compared to 4% to 5.5% previously.
Our full year guidance is now 4% to 4.4% growth in constant currency compared to 4% to 5.5% previously.
- Full year adjusted operating margin guidance was narrowed to approximately 16.1%, representing 30 basis points of year-over-year expansion.
We are narrowing our adjusted operating margin guidance to approximately 16.1%, which is midpoint of our prior range and represents 30 basis points of year-over-year expansion.
- Full year adjusted EPS guidance was narrowed to a range of $5.72 to $5.79, representing 8% to 10% growth.
We are narrowing our full year EPS guidance range to $5.72 to $5.79, representing 8% to 10% growth.
Q3 2026 results
| Metric | Result | Change |
|---|---|---|
| Revenue | $5.7 billion | +4.8% in constant currency |
| Adjusted Operating Margin | 16.3% | +30 basis points year-over-year |
| Adjusted EPS | $1.49 | +7% year-over-year |
| Book-to-bill | 1.3 | Not stated |
How management sounded
Balanced (+25 on our -100 to +100 scale). Management expressed confidence in their AI strategy and long-term growth potential despite acknowledging near-term macro headwinds that necessitated a guidance revision. Management sounded more upbeat than on 6% of the 302 calls we cover; most companies sound positive on their own calls, so the comparison says more than the label.
Read the analyst Q&A summary and guidance and outlook for this call.
What to watch before the next call
- Macroeconomic stability in consumer-facing sectors and healthcare.
- Regulatory updates regarding the potential India primary offering and secondary listing.
- The impact of discretionary spending recovery on 2027 growth.
Earlier calls
- Q2 FY2026 (Jul 29, 2026), tone Balanced: Cognizant reported second quarter revenue of $5.5 billion, up 4.1% year-over-year in constant currency, driven by strong growth in Financial Services and large deals.
