Cognizant Q1 net falls 16.7 pc to USD 367 mn; sees challenging demand environment in 2020

IT company Cognizant has reported a 16.7 per cent drop in its March quarter net income at USD 367 million, and said it expects a challenging demand environment throughout 2020 amid the coronavirus pandemic.

Cognizant follows January-December as financial year. Its net profit was at USD 441 million in the March 2019 quarter.

The US-headquartered company, which has about 2 lakh employees based in India, had previously withdrawn its FY20 guidance amid uncertainties on account of COVID-19 pandemic.

It remains confident that its strong business mix, balance sheet and liquidity will help the company weather the COVID-19 storm.

The quarterly revenue was at USD 4.2 billion, up 2.8 per cent (3.5 per cent rise in constant currency) from the year-ago period.

"We executed well in what was a challenging quarter, and posted our strongest quarterly signings since 2017," Cognizant CEO Brian Humphries said.

He added that amid the pandemic's unprecedented human and economic challenges, the company remains focused on the health and safety of its associates, whilst maintaining business continuity for clients.

"While we expect a challenging demand environment throughout 2020, we believe the pandemic is accelerating the secular trends of core modernisation and cloud migration as companies shift to digital business models," he said.

These and other related IT trends play directly to Cognizant's strategy, Humphries said expressing confidence that the company will emerge from this crisis in a position of strength.

The company said qualified pipeline growth was strong in the first quarter, and especially robust in larger deals, where it had solid double-digit qualified pipeline growth versus the year-ago period.

It noted that since over 60 per cent of its business is in financial services and healthcare, it is less exposed to some of the hardest hit industries, including travel, hospitality, retail and automotive.

Cognizant said coronavirus-related disruptions reduced revenue in March, reflecting delays in project fulfillment as Cognizant rapidly enabled the shift to work-from-home capabilities across its delivery teams.

Entering the second quarter, the pandemic and resulting economic slowdown are dampening demand across industries, most significantly within the travel, hospitality, retail, automotive, energy, media and entertainment, it added.

The company noted that the pivot to digital is accelerating as companies look to quickly modernise and increase their competitiveness, migrate more of their workloads to the cloud, and fundamentally rethink their core business processes.

Talking about the Maze ransomware attack it faced last month, Cognizant said it believes it has contained the attack and that the actor is no longer operating in the company's environment.

"Since becoming aware of the attack, the company has taken decisive actions to remediate the threat while keeping clients regularly informed. The company believes these measures enabled it to continue its operations in a timely and secure manner," it said.

In an investor presentation, the company said in addition to demand challenges, it anticipates the impact of the ransomware to be around USD 50-70 million.

In 2020, the company plans to continue investments in developing digital skills, build out commercial team, and correct the employee pyramid by onboarding about 20,000 entry-level hires.

However, it also aims to significantly decrease other costs including corporate overhead, travel, marketing, relocations, and non-commercial lateral hires, it said.