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.

Cognizant Dec qtr income pips forecast at $4.13 bn; Brian Humphries new CEO

Cognizant Technology Solutions Corp on Wednesday beat Wall Street estimates for quarterly revenue, benefiting from higher spending by clients in the healthcare and financial industries.
The company also said Francisco D'Souza, its chief executive officer since 2007, will give up the role and become executive vice chairman. Brian Humphries, CEO of Vodafone Business, will replace D'Souza, effective April 1.

The consulting and outsourcing services provider reported net income of $648 million, or $1.12 per share, in the fourth quarter ended December 31, compared with a net loss of $18 million, or 3 cents per share, a year earlier.
Revenue rose to $4.13 billion from $3.83 billion and narrowly beat the average analyst estimate of $4.11 billion, according to IBES data from Refinitiv.

Cognizant Q2 net profit declines 3.6%, cuts full year revenue guidance

While Information Technology (IT) services major Cognizant's third quarter earnings met street expectations on the revenue front, its net profit was below projections. The Teaneck-headquartered company also cut the top end of its full-year growth guidance, indicating a slower pace of revenue growth in the coming quarter.
During the quarter ended September, the Nasdaq-listed firm reported 3.6 per cent decline in its net profit on year-on-year basis at $477 million owing to higher net non-operating foreign exchange losses arising from rupee depreciation. However, net profit rose 4.6 per cent sequentially.

Revenue of the firm, which competes fiercely with large Indian IT firms including TCS and Infosys, rose 8.3 per cent to $4.08 billion as compared to $3.77 billion reported in the same period of last year. In sequential terms, the revenues went up by 1.74 per cent. According to Bloomberg estimates, revenue for the quarter was projected at $4.08 billion, while profit was estimated to be $658.15 million.
As compared to Cognizant, market leader Tata Consultancy Services (TCS) reported a better dollar term revenue growth of 10 per cent on YoY basis in the July-September period, while Infosys's dollar revenue grew at 7.1 per cent.
"Cognizant delivered strong third quarter results in three of our four business segments. We made continued progress in our shift to digital by building new capabilities and helping our clients excel with digital services and solutions," said Francisco D’Souza, Chief Executive Officer and Vice Chairman of the Board at Cognizant. During the September quarter, revenue from digital services grew around 20 per cent on YoY basis.
On the operating margin (non-GAAP) front, Cognizant witnessed 110 basis points improvement in margins at 21.1 per cent on YoY basis, but sequentially margins contracted by 90 bps. The company said higher levels of utilisation, optimization of employee mix and cost control measures were the factors driving its strong margin profile. In the September quarter, while TCS's operating margin improved 150 bps sequentially to 26.5 per cent, it remained flat for Infosys at 23.7 per cent.
"We delivered solid performance in the third quarter as we continued to focus on sustainable revenue growth while increasing margins,” said Karen McLoughlin, Chief Financial Officer at Cognizant.
For the full year, the US-listed firm has revised its revenue guidance downwards with cut at the top end of the range. The company now expects its revenue to be in the range of $16.09 billion to $16.13 billion in 2018 as compared to its previous guidance of $16.05 billion to $16.30 billion.
Its revised guidance will translate into around 9 per cent growth in revenue for the year as compared to its earlier projections of 8-10 per cent for 2018.
In the September quarter, the financial services business, which accounts to 35.9 per cent of its overall revenue, saw a YoY growth of 2.6 per cent. Cognizant's communications, media & technology vertical grew by 17.1 per cent, while healthcare vertical rose 9.6 per cent on YoY basis.
The IT services firm added 5,300 employees in the quarter to take its total headcount to 274,200. Its attrition level stood at 22.3 per cent, down 30 basis points on sequential basis. Its offshore utilization level remained at 83 per cent, while on site utilization remained flat at 93 per cent in the September quarter.

Investigation, legal expenses towards FCPA violation costs Cognizant $63 mn

Nasdaq-listed IT services company Cognizant has said that the investigation and legal expenses towards the alleged violation of the US Foreign Corrupt Practice Act (FCPA) towards improper payments made in India has cost the company total $63 million so far in calendar 2016 and 2017.
In September 2016, the Cognizant had voluntarily disclosed before the US Department of Justice and the Securities and Exchange Commission (SEC) that the company was investigating payments related to company-owned facilities in India that were possibly made improperly and in violation of FCPA and other applicable laws. The disclosure was also followed by the exit of the then president Gordon Coburn, widely seen as a fallout of the investigation.
In its annual filing with US market regulator Securities and Exchange Commission on Wednesday, Cognizant said it was expecting to incur more expenses towards the investigation and lawsuits related to the investigation. “In 2017, we incurred $36 million in costs related to the FCPA investigation and related lawsuits in addition to the $27 million we incurred in 2016. We expect to continue to incur expenses related to these matters in 2018,” it said.
The expenses towards the investigation and associated expenses are also proving to be a costly affair for the company given that so far it has identified only around $6 million in payments made between 2009 and 2016 which could be improper.
“The outcome of the putative class action litigation, derivative lawsuit, or any other litigation is necessarily uncertain.
We could be forced to expend significant resources in the defence of these lawsuits or future ones, and we may not prevail,” the company added in the statutory regulatory filing.
The company said that it is fully cooperating with the US Department of Justice and SEC in the investigation process which is being conducted under the oversight of the Audit Committee with the assistance of outside counsel.
We had approximately 260,000 employees at the end of 2017, with approximately 50,400 in North America, approximately 13,800 in Europe and approximately 195,800 in various other locations throughout the rest of world, including 180,000 in India. We are not a party to any significant collective bargaining agreements. We consider our relations with our employees to be good.
Teaneck-headquartered Cognizant employs 260,000 people globally of which a vast majority of 180,000 are located across its different centres in India.