Cognizant's Big Bet On Health-Care Vertical Paying Off, Earnings Show

Over the past year, Cognizant has positioned itself to capitalize on a massive health-care opportunity, and it is starting to pay off.

The solution provider, No. 10 on the CRN SP500 list, has ramped up its push into the health-care vertical, with a blockbuster $2.8 billion acquisition of TriZetto and the announcement of a master services agreement with Health Net last fall.

The company's health-care vertical's fourth-quarter revenue grew 26 percent year-over-year to $772 million. For the full year, Cognizant's health-care vertical grew 18.7 percent to $2.7 billion, representing 26.2 percent of Cognizant's overall sales, second only to financial services.

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That growth was propelled by the advance in health-care digital technology, consumerization and Cognizant's "dual mandate" to drive new levels of efficiencies and innovation, said Malcolm Frank, Cognizant’s executive vice president of Strategy & Marketing, in a call with CRN after the earnings report. That's a strategy that's unmatched by any other solution provider in the market, he said.

"We think this has positioned us quite well," Frank said. "We wanted to be a leader in the health-care market and that's starting to manifest itself; clients recognize it and they can turn to us to help them navigate," he continued.

Cognizant also provided an update on its earnings call into the integration of the TriZetto acquisition, which closed for $2.8 billion on Nov. 20. TriZetto's client account teams are now integrated with Cognizant and there are "detailed plans in place" to drive sales synergies, President Gordon Coburn said on the earnings call. Coburn said he anticipates Cognizant to begin taking on projects that integrate the TriZetto platforms, as well as take advantage of cross-selling opportunities for consulting, hosting and services to existing TriZetto clients.

"I think one of the trends that I'm quite excited about is this notion of clients looking to us in various forms to create these large integrated deals ... After the announcement of the TriZetto acquisition, we've seen an increase in conversations with clients about the potential of those kinds of deals. I would characterize the pipeline of those types of deals as early-stage, certainly, but active conversations are going on right now with clients as to what those deals would look like," CEO Francisco D'Souza said on the call.

While health care continues to grow for Cognizant, the company posted strong overall earnings for the fourth quarter and the full year. For the fourth quarter, sales rose 16.4 percent to $2.74 billion, with earnings rising 11.9 percent to $362.9 million over the same quarter the year before.

For the full year, Cognizant sales rose to $10.26 billion, an increase of 16.1 percent over 2013. Earnings for the year were up 17 percent to $1.44 billion.

Other than health care, Cognizant saw strong demand with "terrific growth" for financial services, the solution provider's largest vertical, Frank said. The sector grew by 12.4 percent in the quarter to $1.1 billion in sales, and by 15.3 percent for the full year to $4.3 billion. Similar to health care, Frank said the company's "dual mandate" to increase efficiencies and innovation has been a "healthy driver" for the vertical.

For the coming year, Cognizant predicted revenue to exceed $12.21 billion, a jump of 19 percent over this year. The solution provider predicted the first-quarter revenues would exceed $2.99 billion.

Frank said he expects Cognizant to see growth, in particular, for infrastructure services, business process services and management consulting. On top of that, he said digital technologies will grow across all of those services businesses. "We see lots of opportunities up and down our services stack, and you'll see us continue to invest there," he said.

Frank said verticals will also continue to be a focus for Cognizant, particularly health care, as well as geographical growth. Again, Frank said he expects digital technologies to drive growth across both verticals and geographies.

To achieve those goals, Frank said the company will continue to invest in growing its talent base, after passing 200,000 employees this year, as well as evaluate potential acquisition opportunities that "make sense ... to fill out the portfolio."

"We've created a solid platform for growth and ... we're well positioned for our next phase of our journey," CEO D'Souza said on the earnings call about the company outlook.

PUBLISHED FEB. 4, 2015