- Full-year revenue guidance of 2-4% growth in constant currency withdrawn
- Client businesses in retail, travel, consumer goods, media and entertainment significantly impacted
- $30-$35 million impact on revenues in Q1
IT major Cognizant withdrew the full-year guidance for 2020 provided by the company in February owing to the macro economic uncertainty due to coronavirus. Earlier the company had guided a revenue growth of 2-4% in constant currency ($17.11- $17.45 billion) and operating margins in the range of 16 -17%. Speaking over an investor call after the announcement to withdraw the guidance, CEO Brian Humphries said even though the company had a strong start to the first quarter (follows Jan-Dec calendar), it was in March that the macro challenges got more pronounced. "Over the last few weeks we have seen everything from incremental opportunities that were not expected to the other extreme of project deferrals, request for furloughs, temporary rate concessions, deferred payment terms and I don't think anybody can reliably predict how long this macroeconomic environment will persist.
We ultimately felt it was the responsible thing to withdraw 2020 financial guidance," said Humphries. Elaborating on the business visibility, Cognizant said that the slowdown seems to be broad based with significant impact to the client businesses in retail, consumer goods, travel and hospitality as well as media and entertainment segments. "Of course we are also seeing disruption in other industries that serve those such as financial services," he added .
The company said that over the past few weeks the crisis management and business continuity teams have ensured all support for employees to work from home. "The efforts included things like providing laptops to employees who might typically work on desktops, encrypting desktops and transporting them to the employees' homes, enhancing security protocols to enabling BYOD (bring your own device), increasing internet bandwidth or providing internet cards, obtaining necessary approvals from clients to enable work from home. So this has been a really tremendous effort on the part of our team," said Karen McLoughlin, Chief Financial Officer.
The company believes that most of the concern around fulfillment would be over in the coming weeks. "We believe that the disruptions related to Covid impacted revenue in the later part of the first quarter by 30 to 35 million," added Karen . The company which earlier guided first quarter revenues growth to be in the range 2.5-3.5 percent ($4.21-4.25 billion) now expects the revenues to be in the range of $4.22-$4.23 billion up 2.7-2.9% y-o-y.
However, even under the current circumstances Cognizant reiterated its cost structure optimisation plans to be on track "Of course against an uncertain backdrop we will prepare for the worst and hope for the best, we remain committed to optimising our cost structure and connecting that pipe into our revenue curves. But we also want to protect key skills and embrace a high performance culture," said Humphries.