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Introduction
US-based software exporter Cognizant experienced a 19% decline in net profit during the second quarter. This decline was attributed to costs associated with its two-year ‘NextGen’ restructuring programme, as well as a decrease in discretionary spending by clients due to concerns about the macroeconomic slowdown.
Financial Results
- Net profit fell 19% on-year to $463 million.
- Revenue declined 0.4% year-on-year to $4.89 billion.
- Revenue for the third quarter is expected to be between $4.89 billion and $4.94 billion.
- Full-year revenue guidance remains between $19.2 billion and $19.6 billion.
- Sequentially, April-June revenue increased by 1.7%, while net profit fell 20%.
Restructuring Costs
Cognizant incurred $117 million in restructuring costs during the second quarter. The ‘NextGen’ charges include employee separation costs, facility exit costs, and other expenses.
Rejig Programme
Last quarter, Cognizant announced a two-year rejig programme aimed at simplifying its operating model and rationalising its office spaces with a budget of $400 million. The company expected this programme to impact around 3,500 non-billable employees or 1% of its total workforce.
Chief Executive’s Statement
Ravi Kumar S, the Chief Executive at Cognizant, stated that discretionary spending had decreased across all sectors, including financial services. However, the company’s performance was boosted by large deal bookings growth.
Generative AI Platform and Large Deal Wins
The Cognizant Neuro AI platform has seen over 100 early engagements with clients adopting generative AI. Additionally, Cognizant won five large deals worth $100 million this quarter, including renewals, new customers, and an expansion of an existing partnership.
Operating Margin and Bookings
The operating margin for Cognizant narrowed to 11.8% due to higher costs. However, order bookings in the June-ended quarter grew 17% on-year.
Attrition and Headcount
Attrition on a last 12-month basis decreased to 19.9% from 23.1% a year ago. The total headcount at the end of the second quarter was 345,600, a decrease of 5,900 compared to the previous quarter.
Analyst’s Opinion
Keith Bachman, a software and IT services analyst at BMO Capital Markets, stated that Cognizant had a solid quarter despite the challenging period for IT services companies. He also noted that Cognizant’s ability to secure large deals while balancing margins would be crucial moving forward.
Chief Financial Officer’s Retirement
Cognizant announced that its chief financial officer, Jan Siegmund, would retire in early 2024. The company is currently evaluating candidates for a replacement.
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