US-based Cognizant Technology Solution’s results for the final quarter of 2020 saw the company reporting a 20% decline in net income to $316 million, down from $395 million in the same quarter last year. Cognizant's revenue declined 2.3% to $4.18 billion from $4.28 billion a year ago. Cognizant follows the calendar year, with its fourth quarter ending December. Cognizant’s yearly income was down 24% from 2019 — to $1.39 billion in 2020 from $1.84 billion in 2019.
Revenue for the year also came in marginally lower at $16.65 billion in 2020 from $16.78 billion in 2019. Its revenue for the quarter came in at $4.2 billion, a decline of 3% year-on-year
According to the Times of India, this is the first time ever that the firm has seen a contraction in profits both on a quarterly and annual basis. Cognizant said that an anticipated exit from a customer engagement in the Financial Services segment in Continental Europe negatively impacted its revenues by $107 million and $118 million for the quarter and year respectively. In addition to the reduction in revenue of $107 million, Cognizant saw additional expenses of $33 million related to the impairment of long-lived assets.
“This included a negative 120-basis-point impact from the exit of content moderation services and a negative 250-basis-points impact related to the anticipated exit from a large Financial Services engagement,” Cognizant CEO Brian Humphries said during the company’s earnings call.
Cognizant has about 2 lakh employees in India, and said its headcount globally stood at 2.895 lakh. It saw its quarterly annualised voluntary attrition go up from 10% to 16%, and quarterly annualised attrition up from 18% to 19% quarter-on-quarter. In its guidance for the year, Cognizant put its first quarter revenue between $4.34-$4.38 billion, a 1-2% increase. For the year, Cognizant’s guidance said it expected revenue of $17.6-$18.1 billion, or growth of 4-7%.
"Having strengthened our portfolio, and anticipating the exit of a large financial services engagement, we enter 2021 reinvigorated by our growing commercial momentum, investments in our future, and our vision to become the preeminent technology services partner to clients globally,” Humphries said in a statement.
Humphries has also exhibited confidence in the company’s client portfolio and deal review and solutioning processes, aspects that have been recently overhauled.
Cognizant said that it incurred costs including the bonuses it gave to employees below the rank of associate in India and the Philippines, as well as costs to help employees work remotely, and provide medical staff and extra cleaning services for their facilities.
It also referred to the Supreme Court’s February 2019 on provident fund, and said that the ruling “altered historical understandings of such obligations, extending them to cover additional portions of the employee's income”. This, Cognizant said, resulted in the increase in contributions of the company and its employees. It said it accrued $117 million as costs in 2019 because it assumed the ruling would be applied retroactively, and that there is uncertainty about how the liability should be calculated.
“It is possible that the Indian government will review the matter and there is a substantial question as to whether the Indian government will apply the Supreme Court's ruling on a retroactive basis. As such, the ultimate amount of our obligation may be materially different from the amount accrued,” it said.
In terms of segment-wise performance, Cognizant said that Financial Services revenue decreased 11.4% year-on-year, Healthcare grew 3.3%, products and resources declined 2.4%, and Communications, Media and Technology revenue increased 3.4%.
During the company’s earnings call, Humphries also said that the company recently moved its India-based workforce onto a nine-hour workday, which he said “will result in a reduction of utilisation in India in theory in the next quarter or so by one to two points”.
Cognizant’s numbers come at a time that Indian IT results have exceeded street expectations,with TCS, Infosys, Wipro and HCL Tech all reporting significant growth. TCS saw growth at a nine-year-high, Infosys saw its highest sequential growth in eight years, and Wipro reported its highest growth in 36 quarters.