US-based IT services major Cognizant Technology Solutions, which has a significant chunk of workforce in India, on Thursday announced that it is withdrawing its revenue guidance for 2020 due to the adverse impact of the Covid-19 pandemic on its businesses.
The company said that the unprecedented nature of the virus crisis and uncertainty around its duration have impacted its ability to forecast its performance, leading to withdrawal of the guidance.
The company said that during the latter part of March, Covid-19 increasingly affected Cognizant’s business due to largely delays in project fulfillment as delivery, particularly in India and the Philippines, has been shifted to work-from-home and reduced client demand, primarily in the travel and hospitality industries.
In February 2020, the company had forecast a revenue growth of 2% to 4% in constant currency terms for 2020. Accenture had last month lowered its revenue forecast for FY20 to 3-6% as against the earlier guidance of 6-8%.
Cognizant, which has over two lakh employees in India, will announce its first quarter financial results on May 7. The first quarter revenue is expected to be $4.22-$4.23 billion, up 2.7-2.9% (3.4-3.6% in constant currency) from the prior-year quarter, including a negative 50 basis point impact from the exit of certain content services. Financial performance in the first two months of the quarter was on track to exceed previous guidance, driven by strong performance across th north America market.
Entering the second quarter, Cognizant expects the pandemic to further reduce client demand as its societal and economic impact causes broader disruptions across industries.
“The long-term fundamentals of our business remain strong. However, given the unprecedented nature of this crisis, uncertainty around its duration and its impact on our ability to forecast performance, the company is withdrawing its 2020 guidance that was provided on February 5, 2020,” Cognizant said in statement.
Brian Humphries, CE O, Cognizant said: “Our priorities remain the health and safety of our associates and the business continuity of our client. We are committed to helping our clients as they navigate unprecedented business challenges as well as supporting the efforts of governments globally to contain the spread of the virus.”
Cognizant has taken steps to strengthen its financial flexibility, including drawing down $1.74 billion on its revolving credit facility on March 23, 2020, bringing the company’s total cash and investment balance as of March 31 to approximately $4.7 billion, or net cash of $2.2 billion. The Company has no significant debt maturities until 2023.
“We acted decisively to limit Covid-19’s impact on our business, including rapidly enabling work-from-home capabilities across our delivery teams. We will continue to take steps to protect our associates and support the evolving needs of clients in today’s environment. In this fluid environment where uncertainty prevails, we are well-positioned with deep client relationships across more than a dozen industries, and a strong balance sheet that provides solid financial flexibility. As ever, we stand committed to help our clients manage through economic, technological and other disruptions through our innovative solutions and talented associates,” Humphries said.
During the first quarter Cognizant completed the acquisitions of Code Zero and Lev and repurchased approximately 8 million shares. Since March 31, Cognizant has not initiated any new share repurchase programmes.
Karen McLoughlin, CFO, Cognizant, said: “We are confident that the combination of our strong balance sheet, and our robust operating and cash generative business model, will enable us to weather this disruption. The execution of our 2020 Fit for Growth programme along with prudently managing our cost structure to react quickly to changes in the demand environment is critical to maintaining financial flexibility to navigate near-term headwinds while repositioning the business for long-term success.”
Cognizant, in recognition of the extraordinary continuity-of-service efforts of the company’s associates in India and the Philippines, will provide those at the associate level and below with an additional payment of 25% of their base pay for the month of April. Additionally, Cognizant has standardised 14 days sick-leave coverage globally for Covid-19 cases or self-quarantine without impacting other sick leave or vacation programmes.
The company is also contributing to the global effort to deliver immediate relief to victims of the Covid-19 pandemic. On April 1, Cognizant announced a $10 million philanthropic commitment to support communities around the world in addressing the pandemic’s immediate and long-term impacts. Cognizant and it is US and India-based foundations will provide critical resources to strengthen public health systems, education and workforce institutions, and the economic outlook of communities worldwide.