Cognizant Sept quarter net up 4.1% at $497 million; to cut 12,000 jobs

IT major Cognizant on Thursday posted 4.1 per cent increase in net profit to $497 million for September 2019 quarter, and said it will slash up to 7,000 jobs in the next few months as part of a cost reduction programme.

The US-based company, which has a significant portion of its workforce based in India, had posted a net profit of $477 million in the year-ago period.

It has also raised its annual revenue growth outlook to 4.6-4.9 per cent for 2019.

Its revenue grew 4.2 per cent to $4.25 billion in the third quarter, compared to $4.07 billion in the year-ago period, Cognizant said in a statement.

The topline rose 5.1 per cent on constant currency basis, exceeding the guidance of 3.8-4.8 per cent revenue growth given for the third quarter.

The company has also raised the lower-end of its annual revenue growth guidance. It now expects its topline for the fiscal to grow 4.6-4.9 per cent in constant currency basis, from its previous expectation of 3.9-4.9 per cent.

It expects its October quarter year-on-year revenue growth to be in the range of 2.1-3.1 per cent in constant currency basis.

"Over the past few months, we've sharpened Cognizant's strategic posture and begun executing plans aimed at improving our competitive positioning," Cognizant CEO Brian Humphries said.

He added that the company is now announcing a simplification of its operating model and a cost reduction programme that will allow it to fund investments in growth.

Cognizant will remove about 10,000-12,000 mid-to-senior level associates worldwide from their current roles in coming quarters, it said.

The gross reduction is expected to lead to a net reduction of approximately 5,000 to 7,000 roles (about 2 per cent of its total headcount) and re-skilling and redeployment of about 5,000 of the total associates impacted.

"We expect the remaining 5,000-7,000 associates to exit the company by mid-2020 either through attrition or role elimination," Cognizant CFO Karen McLoughlin said.

The company has not detailed out the geographies that would be impacted by the reductions.

However, given that India accounts for the biggest share of the company's headcount, the impact of these layoffs is expected to be significant.

Cognizant's total headcount stood at 2,89,900 people at the end of September 2019 quarter. The company had recently stated that its headcount in India has crossed the two-lakh mark.

"Looking ahead, we see a clear path to unlock the organisation's full growth potential, win in our key digital battle-grounds, and return Cognizant to its historical position of being the bellwether of the IT services industry," Humphries said.

The optimisation of cost structure is expected to result in total charges of approximately $150-200 million, primarily related to severance and facility exit costs.

This is expected to result in an annualised gross savings run rate of approximately $500-550 million in year 2021, the company said.

Cognizant saw its financial services segment - which accounted for over 35 per cent of the company's revenues - posting 1.9 per cent growth in constant currency terms, while healthcare decreased 1.2 per cent.