For Cognizant’s healthcare vertical, the September quarter has bought some cheer with a pick up in growth, led by the Life Sciences segment. What's more, this is the fastest segmental growth the IT major has seen over the last few quarters.
This is important, given that healthcare accounts for about 30 percent of Cognizant's overall revenue.
The U.S.-based company, which follows a calendar year, posted $4.2 billion in revenues for the quarter ending September 30, down 0.1 percent year-on-year. Its net income during the period came down 30 percent year-on-year to $348 million.
The healthcare vertical grew 4.8 percent this quarter year-on-year - which is a welcome sign indeed. This was led by the Life Sciences segment and included the contribution of its acquisition, Zenith, in that space.
During the earnings call on October 28, Jan Siegmund, CFO, said, “After six quarters...we are pleased with early signs of improvement in the healthcare business. We see improvement in the payer segment across key accounts which is offsetting the decline in the provider market that continues to be negatively impacted by COVID.”
Decline in healthcare
From a double-digit rise in Q1 and Q2 FY18 (January to June 2018, since it follows calendar year for fiscal), growth in the healthcare sector went negative in Q2 and Q3 FY19 to -1.9 percent and -1.2 percent year-on-year respectively. Though the sector picked up in the following quarters, the growth was a marginal 1.5-2.5 percent.
In contrast, Cognizant's peers have not only gained share in this space over the last couple of quarters, but for some it is the only vertical that has witnessed growth between April and June, despite COVID-19 disruptions.
There were multiple reasons for the decline over the past few quarters. In Q2 and Q3 FY18, the company was negatively impacted by industry consolidation, contract disputes with customers and project ramp down, Cognizant said in its earnings statement then.
Leadership churn and a ransomware attack also played a role, pointed out analysts and executives Moneycontrol spoke to earlier. Chunky Satija, Practice Director – Healthcare, Everest Group, an IT consultancy firm, said in an earlier interaction that leadership churn was an impediment, as it impacted the relationships that Cognizant executives had developed with consumers, and which suffered as they left.
The ransomware attack in April and COVID-19 did not help either.
However, the company is now confident of its growth in coming quarters and also of its ability to sustain it.
“I'm very optimistic around the opportunities in life sciences at the intersection point of biopharma, medical devices, right through to Industry 4.0 healthcare, retail, and indeed health tech,” CEO Brian Humphries said in an earnings call.
This growth is in line with what analysts had shared earlier. The growth, analysts had pointed out, will improve as the clients begin to spend on tech, which was paused due to COVID-19. Cognizant will also benefit from vendor consolidation deals with recovery setting in from September, they said.
“Bookings are very strong, product growth is strong, we're getting new logos, margins are improving and we're just generally feeling very good about our payer business,” Humphires said. According to him, this growth is sustainable.
Though the healthcare provider business saw a decline in transaction volumes due to the pandemic, Humphries said the momentum the company is seeing gives it the confidence to post strong healthcare results going forward.