Cognizant reports 2.3% year-on-year decline in revenue in December quarter

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Teaneck-based IT services provider Cognizant posted a revenue decline of 2.3 percent to $4.2 billion year-on-year for the quarter ending December 2020.

Net income was down to $316 million in Q4 FY20 from $395 million for the same quarter last year. Cognizant follows the calendar year for its fiscal.

The company reported a 24 percent drop to $1,329 million year-on-year in net profit for the year ended December 2020. The company’s net profit stood at $1,842 million for the same period last year. Revenue stood at $16.65 billion for the year, down 0.7 percent compared to the year ending December 2019.

This decline comes at a time when its Indian peers TCS,Infosys, Wipro and HCL Tech have seen a significant growth in the quarter ending December 2020.

For TCS, the sequential growth in December 2020 quarter was at a nine-year high. Infosys' reported its highest ever deal wins of $7.13 billion in a  quarter. Even Wipro, whose growth is lagging its peers, reported dollar revenue growth that was a 36 quarter high under its new leader Theirry Delaporte.

These firms are looking to end FY21 on a strong note at the back of robust deal wins in contrast to Cognizant's year-on-year decline.

This decline in part could be attributed to the anticipated exit of large financial services provider in Q4 and Cognizant’s exit from the content service business. The impact in the year due to these exits was 250 basis points and 120 basis points respectively.

Cognizant said in the earnings statement that it made an offer in the fourth quarter to settle and exit a large customer engagement in the financial services segment in Continental Europe. The offer includes a proposed one-time payment of $140 million. “As a result of this offer, in the fourth quarter of 2020, we recorded a reduction of revenue of $107 million and additional expenses of $33 million, primarily related to the impairment of long-lived assets,” the company added.

Apart from the banking and financial services, the company saw significant growth in other sectors like healthcare, products and platforms and communication, media and technology. The company expects the revenue to be in the range of $17.6-$18.1 billion for year ending December 2021.

In the earnings call, Brian Humphries, CEO, said, “Excluding the impact from the anticipated exits from this engagement, we executed well in the quarter and delivered against our expectations and our guidance. We maintained our momentum in the quarter with full-year 2020 bookings growth in the mid-teens.”

The company expects the growth momentum to come in 2021 and has plans for more hiring in Q1 FY21. “In fact, we’re on track to bring in more new hires in Q1 than ever before as we ramp our hiring capacity to accommodate our growth plans for 2021 and beyond.”

However the market for skilled digital talent is intensely competitive creating demand/supply imbalances for certain skills, he said.

“This coupled with other factors including our more rigorous approach to merit-based promotions and salary adjustments have led to meaningful sequential increases in voluntary attrition,” Humphries said.

Voluntary attrition stood at 16 percent in the quarter compared to 10 percent between July and September 2020. Total attrition for the quarter was 19 percent. Some of its Indian peers reported an all low attrition rate in the last quarter.

Cognizant has made a net addition of 6,400 employees in the quarter. Its headcount stood at 2,89,500 from 2,83,100.