After withdrawing its revenue guidance for this year owing to the Covid-19 crisis, Cognizant sees most of the impact of the pandemic and Maze ransomware attack to be felt in the second quarter of this year. However, the IT services firm is confident of weathering the storm on the back of its strong balance sheet and higher share of business coming from banking and healthcare verticals. In a conversation, Brian Humphries, CEO of the Nasdaq-listed company tells Debasis Mohapatra that the firm continues to invest in human resources and will onboard around 20,000 fresh graduates this year. Edited excerpts:
Will Covid-19 put a brake on Cognizant's turnaround plan?
We have performed well. The value of contracts we've bagged grew more than 30 per cent in first quarter, which is our best number since 2017. This indicates the green shoots of Cognizant's turnaround continue to grow. Our win rates are increasing and deal pipeline is strong. There are a lot positives. Unfortunately, there is Covid-19 and we had (to face) a ransomware hack. Otherwise, we had a strong quarter.
How do you see the ransomware attack impacting your revenues in 2020?
The impact will be around $50-70 million during the second quarter (April-June period), and this will be mostly contained in Q3. There will be some expenses in Q3 and Q4. Also, we have already informed our clients that the attack has been contained.
Are clients apprehensive about giving new projects due to this attack?
We really feel good about the way we have handled it with constant client communication. We don't see any impact on client engagement due to this attack.
Cognizant has seen revenue contraction in Q1 on sequential basis. Do you see this intensifying?
Every industry in the world has been impacted due to Covid-19. But, I am confident that we will weather this storm. I am saying this due to few reasons. We have very strong balance sheet and liquidity. That's why, we continue to be active in merger & acquisitions (M&As) as you have seen with our acquisition of 'Collaborative Solutions' recently. In addition to that, our business combination is such that we are better placed than others to withstand Covid-19. Firstly, most of our business is with globally top 2,000 clients, which are much more resilient to crisis. Also, over 60 per cent of our business is from healthcare and banking, which tend to be less exposed to this pandemic. Thirdly, most of our business is from North America and North America tends to do better than other geographies in the face of crisis. It also recovers faster. We also feel pretty good about our strength in digital as this will be much in demand during the down time. We are also investing in people as we are onboarding 20,000 fresh graduates this year.
While the onboarding is for the offers you had given last year, do you intend to go for campus interviews this year as well?
Yes, we will do that. We will continue to invest in people but I can't give a number (of fresh graduates we are planning to hire this year) now. Lateral hiring will happen mostly on exception basis. Because, we are going through a great uncertainty. So, we will priortise.
After seeing rise in operating margin for past few quarters, it has contracted this quarter. What is your margin outlook given that clients are asking for huge price discount now?
We have seen similar kind of pressure (like the industry) such as extended payment term, furloughs. But, the margin pressure this quarter came from the change in sudden change in revenue trajectory that happened in March and we were not able to change our cost structure that quickly. Revenues were impacted by $30-35 million due to Covid-19, which impacted the bottom line and margin. Also, the bonuses accrued this year was higher than last year.