IT major Cognizant has withdrawn its full-year revenue guidance for 2020, citing an unpredictable business situation created by the COVID-19 pandemic.

“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,” the Cognizant statement said.

Q1 guidance maintained but full-year uncertainty remains:

In February, the company had said that it expected a 2.4 percent growth in revenues for the whole of 2020, after factoring a drop of 110 basis points due to exit from certain content services business. For the first quarter (January-March), the company had forecast a 2.8-3.8 percent growth in revenues in constant currency terms.

The company has retained and further narrowed its guidance for the first quarter to 3.4-3.6 percent, year-on-year

“First quarter revenue is expected to be $4.22-$4.23 billion, up 2.7-2.9 percent (3.4-3.6 percent in constant currency)1 from the prior-year quarter, including a negative 50 basis point impact from the exit of certain content services,” Cognizant said.

It said financial performance in the first two months of the quarter was on track to exceed previous guidance, driven by strong performance across the North America market. But COVID-19 has changed that.

“During the latter part of March, COVID-19 increasingly affected Cognizant's business due largely to; 1)Delays in project fulfillment as delivery, particularly in India and the Philippines, shifted to work-from-home. 2)Reduced client demand, primarily in the travel and hospitality industries”

Entering the second quarter, Cognizant expects the pandemic to further reduce client demand as its societal and economic impact causes broader disruptions across industries.

Cognizant reaffirmed its long-term fundamentals, but said the uncertainty in the environment has forced it to withdraw its guidance.

"Our priorities remain the health and safety of our associates and the business continuity of our clients," said Brian Humphries, Chief Executive Officer.

"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. I am pleased with our business momentum in the first two months of the quarter and grateful for the dedication and professionalism of our associates in March, both of which enabled us to meet our previously announced revenue guidance. 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.”

Actions to Strengthen Financial Flexibility:

Cognizant says that it 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 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 major repayment obligations until 2023.

"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," said Karen McLoughlin, Chief Financial Officer. "The execution of our 2020 Fit for Growth program 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."

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 programs.

Additional pay for associate level employees & standardizing leaves:

Cognizant had earlier announced that it will provide an additional payment of 25 percent of base salary on the month of April for those at the Associate level and below. Additionally, Cognizant has standardized 14 days sick-leave coverage globally for COVID-19 cases or self-quarantine without impacting other sick leave or vacation programs.

First Published:Apr 9, 2020 5:26 PM IST