Cognizant layoffs: Cognizant Q1 net profit up 3% YoY; to lay off 3,500 employees over two years

US-based software exporter Cognizant’s net profit increased 3% in the fourth quarter to $580 million on lower administration costs and a bump in other income.

The company’s revenue declined 0.3% year on year to $4.81 billion for the three-month period that ended in March, beating Street estimates of $4.74 billion. Revenue was down 0.7% while profit rose 11.3% on a sequential basis.

Cognizant said its first-quarter revenue was slightly above the $4.71-$4.76 billion guided range or a decline of 1.0% to flat in constant currency.

The company also provided full-year revenue guidance of a decline of -1% to growth of 1% for the current fiscal year in constant currency. Revenue is expected to be in the range of $19.2 billion to $19.6 billion.

Rejig announced

The company also announced a two-year rejig aimed at simplifying the operating model and rationalising office spaces to the tune of $400 million. Cognizant expects the personnel-related actions of this programme to impact — lead to the termination of — around 3,500 employees or 1% of its total workforce. This will be primarily be for non-billable and corporate personnel.

It will also hurt operating margins by up to 180 basis points in the current fiscal year.

“Our accelerated bookings growth in the quarter, which included several large deals and a healthy mix of new and expansion work, reflects the strengths of our services, our brand, and the longstanding relationships we have with our clients,” said Ravi Kumar S, Chief Executive Officer.

Kumar also said he is “encouraged” by the continuing reduction in voluntary attrition.

Second-quarter revenue is expected to come in at $4.83 billion to $4.88 billion, which means a decline of 1.0% to flat in constant currency.

On the operational front, the operating margin fell 40 basis points year on year to 14.6%. This was mainly driven by higher operating expenses.

NextGen programme

The Teaneck, New Jersey-based firm also initiated a “NextGen” programme during the second quarter aimed at simplifying its operating model, corporate functions and consolidating office space.

In connection with the restructuring program, Cognizant expects to record costs of around $400 million, with $350 million of those costs anticipated in 2023 and $50 million in 2024. This consists of $200 million in employee severance and other costs, primarily related to non-billable personnel, and another $200 million of costs related to the consolidation of office space, the company said in a press release.

Bookings in the quarter ended March grew 28% year-over-year. This includes a five-year deal extension from sportswear brand Nike, said Cognizant. Bookings on a trailing 12-month basis stood at $25.6 billion, up 9%.

The company’s attrition on a 12-month basis was down to 23% from 30% on year. Total headcount at the end of the first quarter stood at 351,500, a decrease of 3,800 from the previous quarter, and an increase of 11,100 from the same period last year.

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