Cognizant Expects Greater Digital Demand In A ‘Post-COVID-19 World’

Massive solution provider Cognizant saw strong revenue growth at the beginning of the year and is confident that its digital transformation skills will be in higher demand in a post-coronavirus world, CEO Brian Humphries told investors yesterday.

“The implications of the pandemic will lead to clients accelerating their shift to digital. Digital channels in every industry including retail education and health care will of course increase in relevance,” said Humphries (pictured). “Remote access to work will need to be stronger and more secure. IT trends like core modernization, data modernization, and cloud will accelerate.”

However, since no one can predict when the global economy will emerge from the lock-downs and quarantines caused by the pandemic, Cognizant said it is withdrawing 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” yesterday. “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.”

The Teaneck, N.J.-based solutions provider – No. 6 on the 2019 CRN Solution Provider 500 – said when it holds an earnings call on May 7, the company expects first quarter revenue to come in between $4.22 billion and $4.23 billion, up as much as 2.9 percent year over year.

Humphries said there are 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” during the remainder of 2020.

The company showed a strong performance across North America prior to the impact of coronavirus in the quarter, however it expects the pandemic to reduce client demand as the virus causes broader disruptions throughout multiple industries, the company said. The virus has also affected Cognizant’s ability to fulfill demand during March.

“As a society we will get through this, and of course we’re here to get our clients through it,” he said. “Not just here and now, but also with the differentiated solutions that they will need in a post-COVID-19 world ... We want to come out of the other side stronger than ever.”

Cognizant expects heavy investment in IT whenever a recovery begins. However, the company also said many organizations will have financial challenges to contend with. Temporary rate concessions and deferred payment terms will be used to build goodwill with customers, but it is likely to have a negative hit to operating margins.

Cognizant stock traded at $54.47 yesterday afternoon, up $3.13. The company repurchased 8 million shares in Q1, but has no plans to do so in the future.

“We will get through this. At Cognizant we are hard at work to make sure we not just recover, but come out of this stronger,” Humphries told investors.