Cognizant withdraws FY20 guidance, draws on credit line to boost financial flexibility

Bengaluru/Mumbai: Cognizant will miss the top end of its first-quarter revenue outlook and the IT services firm withdrew its full-year guidance, as the Covid-19 pandemic takes a toll on its business. The company also drew down on $1.74 billion in debt to boost its financial flexibility and has stopped share buyback.

Revenue in the first quarter is now expected to be $4.22-$4.23 billion including a negative 50 basis point impact from the company’s exit from content services. This implies growth of 3.4-3.6%, after stripping out currency fluctuations, and is below the 3.8% growth it had forecast.

The company had forecast 2-4% growth, in constant currency terms, for FY2020.

The company said it had been on track to exceed its first-quarter guidance based on the performance of the first two months, but that the pandemic’s spread had thrown it off track due to delays in project fulfillment, as the company moved to work-from-home and as client demand dropped, particularly in the travel and hospitality segment.

“Entering the second quarter, Cognizant expects the pandemic to further reduce client demand as its societal and economic impact causes broader disruptions across industries,” Cognizant said in a statement.

Analysts expect limited impact in the Jan-March quarter due to the pandemic, with most of the slowdown coming in the next two quarters. Cognizant joins larger rival Accenture in withdrawing its guidance.

The extent of damage post the first quarter is proving difficult to gauge, according to analysts,

“The major concern is the longer lasting impact or the tail, we can be certain that there will be a tail however, so much depends on how quickly the global economy recovers,” said Peter Bendor-Samuel, the chief executive of US-based IT advisory and research firm Everest Group.

Cognizant said it has taken steps to boost its financial flexibility, including drawing down $1.74 billion on its revolving credit facility on March 23, 2020, bringing the Company's total cash and investment balance as of March 31st to approximately $4.7 billion. The company’s net cash balance as of March 31 stands at $2.2 billion.

The company also said it has standardized 14-days sick leave from employees diagnosed with Covid-19 or those who need to self-quarantine. This leave will not impact other sick leave or vacation programs.