Cognizant Q3 net profit rises to USD 497 mln; to slash up to 7,000 jobs

IT major Cognizant on Thursday posted a 4.1 percent increase in net profit at USD 497 million for the September quarter and announced plans to slash up to 7,000 jobs in the next few months as part of cost-reduction efforts. Besides, the US-based company -- which has around two lakh employees in India -- would partially exit from content operations business and the move would impact another 6,000 jobs.

Cognizant's total headcount stood at 2,89,900 at the end of September. The company did not provide details about the geographies where the jobs would be impacted. Since India accounts for the biggest share of the company's staff, the impact of these layoffs is expected to be significant.

In the 2018 September quarter, Cognizant reported a net profit of USD 477 million. The company's revenue grew 4.2 percent to USD 4.25 billion in the latest September quarter. In the year-ago period, the same stood at USD 4.07 billion, according to a statement.

Cognizant will remove about 10,000-12,000 mid-to-senior level associates worldwide from their current roles in the coming quarters. This would include a net reduction of about 5,000 to 7,000 roles (about 2 percent 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 during an earnings call.

Another 6,000 roles will be impacted by Cognizant's decision to exit a subset of its content operations business. "... our work is largely focused on determining whether certain content violates the client's standards and can involve objectionable materials. We've determined that this subset of work is not in-line with our strategic vision for the company," Cognizant CEO Brian Humphries said.

He noted that the company would work with partners to explore ways to transition these roles to alternative vendors, thereby reducing the impact on the associates and also reducing any associated charge. "While we intend to exit this work, we recognize the cleansing, the web of objectionable content is a worthy cause and one in which companies have a role to play.

"For this reason, we have decided to allocate USD 5 million to fund research aimed at increasing the level of sophistication of algorithms and automation, thereby reducing users' exposure to objectionable content," he said. The optimization of cost structure is expected to result in total charges of approximately USD 150-200 million, primarily related to severance and facility exit costs.

The move is expected to result in an annualized gross savings run rate of approximately USD 500-550 million in the year 2021, the company said. Cognizant raised the lower end of its revenue growth outlook to 4.6-4.9 percent for 2019 in constant currency terms. The earlier guidance was 3.9-4.9 percent. It expects revenue to go up 2.1-3.1 percent in the December quarter.

In the three months ended September, Cognizant's revenue was higher by 5.1 percent on a constant currency basis, exceeding its guidance of 3.8-4.8 percent revenue growth given for the third quarter. The company saw its financial services segment -- which accounted for over 35 percent of the total revenues -- registering a 1.9 percent growth in constant currency terms, while revenues from healthcare vertical fell 1.2 percent.

"Looking ahead, we see a clear path to unlock the organization'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. He announced a simplification of its operating model and a cost reduction program that would the company to fund investments in growth.

"Our 2020 Fit for Growth Plan is expected to run for two years. This program is designed to simplify the way we work, reduce our cost structure and fund investments in the business which will enable growth," he said.