IT major Cognizant reported about 30 per cent drop in September quarter net income at USD 348 million (around Rs 2,578.3 crore), but said it is witnessing strong momentum in its digital business and bookings.
The US-based company, which had posted a net income of USD 497 million in September 2019 quarter, said it expects its FY2020 revenue to be "at the high end of the previously guided range of approximately USD 16.7 billion".
For the September 2020 quarter, Cognizant's revenue was almost flat at USD 4.2 billion, including a negative 130 basis points impact from the exit from certain content services.
The company, which has about 2 lakh employees based in India, follows January-December as financial year.
"We had a very strong quarter and we feel very good about the momentum that's building. We executed well, it's a tough environment...we have good actual momentum in digital, good momentum in booking, strong cash flow and gross margins. We increased our guidance," Cognizant Chief Executive Officer Brian Humphries told PTI.
He added that bookings saw 15 per cent growth year-to-date and digital bookings were up 40 per cent year-on-year, putting the company in a strong position.
"...we are optimistic about our return to growth. In fact, this quarter we grew, if you normalise it for the business that we actually exited, which means we outgrew nearly every other major competitor globally," he said.
On decline in net income, Humphries said during the third quarter of 2020, Cognizant reversed indefinite reinvestment assertion on Indian earnings accumulated in prior years and recorded USD 140 million in income tax expense.
"The net income bit is more related to a tax entry...that's a one-time, non-recurring GAAP accounting entry," he added.
Humphries said the company has invested more than USD 1 billion in digital acquisitions in 2020, and it continues to remain on the lookout for potential opportunities.
"We remain acquisitive, looking for the right deals to bring the right technology and expertise to our clients. Of course, at the right price and the right return to our shareholders. We are being really focused on digital and accelerating our digital portfolio," he said.
He added that priority areas include digital engineering, artificial intelligence (AI) and analytics, cloud and Internet of Things (IoT).
"...we truly believe that the industry is in an inflection point when it comes to digital. COVID-19 has widened the divide between the digital natives and the legacy economy companies which have struggled to adapt to a fully digital operating model and our task is to make it easier for them going forward," Humphries said.
During an investor call, Humphries said the company is "creating 2020 bonuses at higher levels than 2019".
"We're also implementing targeted merit increases and promotions in the fourth quarter. Both will hurt our cost structure in 2020 versus the prior year, but are an essential and normalised part of the cost structure in a services business," he said.
Cognizant's headcount stood at 2,83,100 at the end of the September 2020 quarter.
"...high levels of employee engagement, coupled with the current economic environments contributed to our fifth consecutive quarter of reductions in voluntary attrition. We anticipate some sequential increases in voluntary attrition in the coming quarters after this forthcoming merit based promotions and salary increase cycle," Humphries said.
Cognizant said since the beginning of the third quarter till October 27, it has returned to shareholders over USD 700 million through share repurchases and USD 120 million in dividends.
"FY2020 revenue is expected to be at the high end of the previously guided range at approximately USD 16.7 billion, or a decline of 0.4 per cent in constant currency," it added.
In FY2019, the company had posted a revenue of USD 16.8 billion.
"Our cost discipline and strong year-to-date cash flow enabled continued investments in growth initiatives. We took further actions to increase our financial flexibility in support of our strategic priorities," the firm's chief financial officer Jan Siegmund said in a statement.
Since the beginning of the third quarter, Cognizant has returned over USD 800 million of capital to shareholders through share repurchases and dividends, Siegmund added.
In terms of verticals, Cognizant saw its financial services (34.6 per cent of topline) revenue decline 1.5 per cent year-on-year, driven by declines in both banking and insurance.
Growth in regional banks and capital markets in North America was offset by weakness in select global banking accounts and in Europe, Cognizant said.
Revenue of healthcare, which accounts for 29 per cent of the total revenues, grew 4.8 per cent year-on-year, driven by life sciences.
Growth in bio pharmaceutical clients and revenue from acquisition of Zenith Technologies offset weakness in medical device clients, it said.
Products and resources revenue was down 4 per cent year-on-year. 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 21.9 per cent of the total revenue.
Communications, media and technology vertical grew 0.2 per cent year-on-year and contributed 14.5 per cent of the total revenue.
"Growth within our communications and media clients was more than offset by a negative 920 basis point impact from our 2019 strategic decision to exit certain content related services," Cognizant said.
Excluding that impact, communications, media and technology grew approximately 9 per cent in constant currency.