Cognizant has reported a decline of 16.78% in net income at $367 million for the quarter ended March 31, 2020, as compared to $441 million in the same period a year ago.
US-based IT services major Cognizant Technology Solutions, which has significant workforce in India, on Friday said it will continue to invest in the business, while decreasing certain costs in the wake of the Covid-19 pandemic wrecking havoc in the global marketplace. Expecting a challenging demand environment throughout 2020, the company plans to invest in developing digital skills while correcting the employee pyramid, by on-boarding close to 20,000 entry-level hires.
Cognizant believes that against today’s Covid-19 backdrop, the traditional industry bench policies do not adequately address the interests of impacted employees. Consequently, any employees impacted by demand-supply imbalances may benefit from extended medical coverage and exit packages through the end of the third quarter.
Releasing its first quarter 2020 results, the company said it aims to significantly decrease other costs including corporate overhead, travel, marketing, relocations and non-commercial lateral hires. It expressed confident that its strong business mix, balance sheet and liquidity will help it weather the Covid-19 storm. Since more than 60% of its business is in financial services and healthcare, it believes that the company is less exposed to some of the hardest hit industries, including travel, hospitality, retail and automotive.
Cognizant has reported a decline of 16.78% in net income at $367 million for the quarter ended March 31, 2020, as compared to $441 million in the same period a year ago. However, its revenue grew by 2.8% to $4.22 billion during the quarter compared to $4.11 billion a year ago, after a negative 50 basis points impact from the exit of certain content services business it had announced earlier. Cognizant had in last month communicated that given the continued uncertainty around the duration of the Covid-19 pandemic and its impact, the company was withdrawing its full-year guidance.
Cognizant CEO Brian Humphries said: “Amid the pandemic’s unprecedented human and economic challenges, we remain focused on the health and safety of our associates whilst maintaining business continuity for our clients and supporting our communities. 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. These and other related IT trends play directly to Cognizant’s strategy. I am confident we will emerge from this crisis in a position of strength.”
The highest growth in revenue during the quarter came from communications, media and technology, which grew 5.2%t to $626 million. Financial services and healthcare, which contribute around 34.3% and 28.3% of its revenues, grew by 1% and 2.5 %, respectively. Products and resources grew 4.4% to $954 million.
Growth in banking was driven by the contribution of the previously announced partnership with three Finnish financial institutions to transform and operate a shared core banking platform and regional banks in North America.
CFO Karen McLoughlin said:“We entered 2020 with a strong balance sheet and further strengthened our financial flexibility in the first quarter. Against an uncertain economic backdrop, we will continue with our 2020 Fit For Growth Plan to streamline the company’s operating model and reduce costs to fund growth investments that align to our long-term growth strategy.”
The company said that the Covid-19-related disruption reduced revenue in March, reflecting delays in project fulfillment while the company shifted to work-from-home capabilities. On the business outlook, Cognizant said that the international markets, which tend to rebound more slowly, represent just 25% of its business, and the company is primarily exposed to Global 2000 clients.
The company while betting on the strength of the balance sheet and liquidity said that it will be prudent in the uncertain economic backdrop. However, it will nonetheless invest in M&A to accelerate the capabilities.Cognizant said that clients are looking for ways to modernise their business, accelerate innovation, increase their competitiveness, become more elastic and agile in the face of business uncertainty, and generally reimagine their businesses for the new normal.
Major IT trends such as core modernisation, data modernisation and cloud adoption will accelerate. The post-Covid world will create new norms and hasten trends to highly mobile, virtual and personal world.
“We will not just be talking about teleworking but rather-remote everything — from digital workflow, to design, to e-commerce, banking, education and telemedicine. Against this backdrop, our strategy to win in the digital battlegrounds of AI and analytics, digital engineering, cloud and IoT becomes more relevant than ever,” it said.