Cognizant income down 29% at $361 mn, revenue declines 3.4% in June qtr

IT major Cognizant has reported 29 per cent drop in June quarter net income at $361 million (around Rs 2,701 crore), but is confident of logging strong growth in the coming quarters on the back of strong bookings and demand for digital services.

The US-based company, which posted a net income of $509 million in June 2019 quarter said it expects its FY2020 revenue to be in the range of $16.4-16.7 billion.

For the June 2020 quarter, Cognizant's revenue saw 3.4 per cent decline (2.5 per cent in constant currency) at $4 billion from $4.14 billion in the year-ago period.

Cognizant - which has about 200,000 employees based in India - follows January-December as financial year.

"We delivered a solid second quarter performance whilst continuing to improve our competitiveness. Against an uncertain economic backdrop, we remain steadfast in investing in our clients and our associates, and in executing our digital strategy to position Cognizant for accelerated momentum," Cognizant CEO Brian Humphries said.

The company said its revenue across business segments was negatively impacted by the Covid-19 pandemic and the ransomware attack, primarily in the month of April.

Talking to PTI, Humphries said the the resurgence is "broad-based" across geographies and industries and the trend is expected to continue.

 

"We anticipate to actually continue to make progress in all verticals in the second half of the year...A year ago our growth rates, relative to the competitors, were substantially off...I'm very confident we're regaining our mojo and starting to enter the competition again," he said.

Humphries said the company continues to invest in hiring resources and building further on the double-digit pipeline growth, and bookings.

"...in the first half of the year (we saw) tremendous progress in digital, where bookings are up almost 50 per cent. So, generally I feel we're doing everything to show strong leading indicators for growth in the second half of the year and beyond," he said.

Bookings were up 14 per cent in the first half of 2020. The second quarter revenue included a negative 210 basis points impact from the exit of certain content services business and the ransomware attack.

Cognizant expects its 2020 revenue to decline by 0.5-2 per cent on constant currency basis and be in the range of $16.4-16.7 billion. In FY2019, the company had posted a revenue of $16.8 billion.

The company also announced that Jan Siegmund will be appointed the chief financial officer, effective September 1, 2020. He will succeed Karen McLoughlin, who will continue in the CFO role till August 31 and will remain with the company in an advisory role till December 31 this year. She has worked with Cognizant since 2003 and served as CFO for eight years.

Siegmund most recently served as CFO of Automatic Data Processing, a global human capital management technology and service provider.

Humphries said there are a few more changes that are happening from an executive committee point of view.

"...we've upgraded the profile of the Managing Director role in India to be a direct report to the Executive Committee, to me. And therefore, we have a search underway, and that will ensure we have somebody based in India who will represent our 200,000 employees in India. We'd expect to fill that in the coming months," he added.

Earlier this month, Cognizant India Chairman and MD Ramkumar Ramamoorthy resigned after 22 years in the company.

In terms of verticals, Cognizant saw its financial services (34.9 per cent of revenues) revenue decline 5.2 per cent year-on-year, or 4.3 per cent in constant currency, driven by fall in both banking and insurance.

"North America saw mixed trends with relatively better performance in banking, driven by regional banks. We continue to see weakness across global banking accounts and capital markets," it said.

Revenue of Healthcare, which accounts for 28.9 per cent of the total revenues, grew 2 per cent year-on-year, or 2.2 per cent in constant currency. The segment's revenue growth was driven by increases from life sciences clients, specifically by revenues from the acquisition of Zenith, it said.

Products and Resources revenue was down 6.5 per cent year-on-year, or 5 per cent in constant currency. The decline was driven by retail, consumer goods, travel and hospitality clients that were particularly adversely affected by the pandemic, partially offset by double-digit constant currency growth in manufacturing, logistics, energy and utilities, Cognizant said. Products and Resources accounted for 21.7 per cent of the total revenue.

Communications, Media and Technology revenue fell 4.4 per cent year-on-year, or 3.2 per cent in constant currency, driven by a negative 790 basis point impact from Cognizant's 2019 strategic decision to exit certain content-related services. Excluding that impact, it said the segment grew approximately 5 per cent in constant currency.

Communications, Media and Technology contributed 14.5 per cent of the total revenue.

The company said Communication and Media was flat, with the growth of certain communications clients offset by weakness with entertainment clients exposed to studios, cable TV and theme parks.

"We made progress against our cost structure initiative allowing us to fund investments aligned to our long-term growth strategy and delivered solid operating performance in a challenging environment. Strong free cash flow further strengthened our balance sheet and provides us with ample financial flexibility," Cognizant CFO Karen McLoughlin said.

The company said Covid-related charges stood at $25 million in the quarter, primarily related to the previously announced one-time salary adjustment in April that was given to certain employees in India and the Philippines.