Cognizant has kicked off its NextGen program in the second quarter of 2023. As a part of the plan it will be laying off 3,500 employees in corporate non-billable functions or roughly 1 per cent of the workforce. The company will also be realigning office space and giving up close to 11 million square feet of office space in top tied cities in India.
As per the earning state, this move is aimed at simplifying the company’s operating model, optimising corporate functions and consolidating operations. The savings generated is expected to help fund continued investments in people, revenue growth opportunities and the modernisation of office space. By 2025, Cognizant expects to reduce our annual real estate costs by approximately $100 million compared to expenses incurred in 2022. The company also plans to expand its real estate footprint in smaller cities, primarily in India, in support of hybrid work strategy.
Jan Siegmund, Chief Financial Officer said, “In 2023, we expect to return approximately$1.4 billion to shareholders through share repurchases and dividends, including approximately $800 million of share repurchases. The NextGen program announced today will help fund continued investments in our people, growth opportunities and realignment of our real-estate to reflect our hybrid work model.”
In connection with the NextGen program, it expects to record costs of approximately $400 million with approximately $350 million of such costs anticipated in 2023 and approximately $50 million in 2024. This consists of approximately $200 million of employee severance and other costs primarily related to non-billable and corporate personnel and approximately $200 million of costs related to the consolidation of office space. That said, Cognizant does not expect the NextGen program to drive meaningful cost savings until the second half of 2023 and the real estate actions will not begin to generate savings until 2024.
In terms of the order pipeline, bookings in the first quarter grew 28 % year-on-year for Cognizant. On a trailing-twelve-month basis, bookings grew 9% to $25.6 billion, which represented a book-to-bill of approximately 1.3x. “Our accelerated bookings growth in the quarter, which included several large deals and a healthy mix of new and expansion work, reflects the strengths of our services, our brand, and the longstanding relationships we have with our clients,” said Ravi Kumar S, Chief Executive Officer.
2023 Guidance
The company clocked $4.8 billion billion revenue in the first quarter of 2023. It targets revenue growth to be flat in Q2 around $4.83 – $4.88 billion. For the full-year, its 2023 revenue is expected to be $19.2-19.6 billion, which indicates a potential decline of 1.2% YoY. The full-year 2023 Adjusted Operating Margin is expected to be in the range of 14.2-14.7% and the Adjusted EPS for 2023 is seen between $4.11-4.34.