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5 Things To Know Ahead Of Cognizant’s First Quarter Earnings Call

The company hit a milestone in February, topping $70 a share, but that soon tumbled as the coronavirus pandemic spread and the CEO warned of an impact throughout 2020.

Earnings Report Due

The global solution provider Cognizant, which was already buffeted by declines to its share price related to the coronavirus pandemic and took another hit last month after its systems were infected with Maze ransomware, is due to report earnings Thursday after the bell.

The strain of ransomware that attacked Cognizant not only locks up the company’s files behind a bitcoin paywall, but steals its secrets and has previously been used to leak sensitive information belonging to other victims including M&A targets, P&L reports, and medical records.

Cognizant has also acknowledged that the same type of ransomware that hit its own network, also slammed that of its customers and led to communications disruptions within the company, forcing employees to rely on “a number” of alternatives to email in order to talk with each other and customers.

[RELATED: Cognizant Breach: 10 Things To Know About Maze Ransomware Attacks]

While the company’s share price – like many others -- tumbled in March it has recovered from $42.51 on April 1, to $57.59 as of Wednesday, off only slightly from December.

In April, Cognizant CEO Brian Humphries said first quarter revenue is expected to come in between $4.22 billion and $4.23 billion, up about 2.9 percent, year over year.

Humphries said however there have been broad-based declines in retail, consumer goods, travel, hospitality, media and entertainment, as well as disruptions in the financial services businesses which serve those industries. He said Cognizant expects a “meaningful economic slowdown” to reduce client demand during the remainder of 2020.

The Maze Attack

Cognizant disclosed a successful attack against its system and its customers on Saturday, April 18.

“Cognizant can confirm that a security incident involving our internal systems, and causing service disruptions for some of our clients, is the result of a Maze ransomware attack,” the company said in a statement posted to its website.

“Our internal security teams, supplemented by leading cyber defense firms, are actively taking steps to contain this incident. Cognizant has also engaged with the appropriate law enforcement authorities,” the statement continued.

Why Maze Is Different

The Cognizant attack comes a year after India based IT outsourcing giant Wipro was hit by a ransomware breach that also impacted a number of its customers.

Unlike traditional ransomware which locks up files as it spreads, this virus also copies the data to the bad actors endangering the victims’ reputation along with their checkbook.

Victims can no longer hit “reset” on their backup and recovery systems and ignore the criminal’s demand for cash because the virus exports the victim’s data to the attacker, giving cybercriminals a great deal of leverage, said Brett Callow, a threat analyst with Emsisoft, a New Zealand-based maker of anti-malware and anti-virus software.

“It’s a very bad state of affairs for the victims,” Callow said. “A company that is attacked in this way really has no good options available to it. If they don’t pay the ransom their data will almost certainly be published. If they do pay, all they’ll get is a pinky promise from the criminals that the data won’t be used, but why would a criminal enterprise ever delete data that they may be able to monetize?”

Communications Disruption

A source told CRN that in the wake of the attack, Cognizant’s internal directory was deleted leaving employees with no way of contacting colleagues or clients. Cognizant acknowledged that a “small percentage” of workers had email access restricted and were then forced to rely on a “a number” of different communications channels.

“We cannot comment in detail, but we can say that while a small percentage of associates on a legacy email system have their access restricted, we have maintained contact with our clients and prospective clients through a number of communications channels,” the company said.

Recent Performance

The Teaneck, N.J.-based company was ranked 6th on the 2019 CRN Solution Provider 500. Like many tech companies, however its stock has been hard hit by the coronavirus pandemic losing 18.5-percent off its 2020 high of 71.42 on February 6.

Earlier this week the company announced that it plans to acquire Collaborative Solutions, a global consultancy that specializes in Workday enterprise cloud applications for finance and human resources. The terms of the deal for the 1,000-employee, Reston, Va.-based company, were not disclosed.

Humphries addressed the current climate during an investor call last month, updating the company’s earnings outlook and acknowledging that it had exposure to retail and travel, two industries hard hit by governmental travel restrictions. Cognizant withdrew its full-year guidance as it assesses its business in the near term, with Humphries calling it “the responsible thing to do.”

“It’s clear as I speak with clients across the globe, we’re all dealing with significant financial challenges,” he told investors during a “fireside chat.” “In the last few weeks we’ve seen everything from incremental opportunities that were unexpected to the other extreme of project deferrals and request for furloughs, and temporary rate concessions. I don’t think anyone can reliably predict how long this macroeconomic environment will persist.”

Analysts’ Predictions Are Mixed

Analysts are mixed on Cognizant with BMO Capital downgrading the stock on Monday to “market perform” with a price target of $59. The BMO analyst said new projects are being delayed, pricing on existing work is facing pressure, and there will be pressure on margins. The headwinds are expected to remain through 2020, the analyst predicted, echoing what the company’s CEO stated last month. Baird meanwhile recently raised expectations granting Cognizant an “outperform” rating on April 14 with its strong balance sheet and improving execution to guidance.

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