DQ Top 20 Rank 8 - Cognizant India ‘Cognizant’ of Costs, Real Estate shuffles, and New Gen Forces 

Digital and product segments are turning out to be ‘eat your greens’ for this player while it’s working out rigorously to fight cost-fat. 

It looked like a year of a stern diet—complemented vigorously with the exercise of new muscles and pulling of big weights. When we look at Cognizant, its latest results show accelerated booking growth in the first quarter of 2023. The company is confident of its healthy regimen on the back of several large deals and a balanced mix of new and expansion work. But it is also relentlessly hewing costs with a specially-crafted strategy and programme in the last few months. 

Let’s look at bookings first. They grew 28 percent year-over-year in the first quarter (and on a trailing-twelve-month basis, went up nine percent US$25.6 billion, churning out a book-to-bill of approximately 1.3x.) In its first quarter 2023 financial results, we also saw a drop of revenue (US$4.8 billion) of 0.3 percent year-over-year, (but it was up 1.5 percent in constant currency). 

Prasad Sankaran, EVP of Cognizant’s Software and Platform Engineering. 

“This is an exciting moment, as Cognizant’s Neuro AI platform goes beyond proof of concept, aiming to accelerate the adoption of enterprise-scale AI applications, increase ROI potential, minimize risks and get to better business solutions, faster.” 

For the previous full-year reported, revenue of US$19.4 billion was high by 5.0 percent year-over-year (7.5 percent in constant currency). Bookings shot up four percent to US$24.1 billion (creating a book-to-bill of approximately 1.2x.). 

High-definition segments 

What’s hard to miss here is how the company is flexing its digital muscles the most. Its digital revenue grew 13 percent annually in constant currency (making up a big chunk of 51 percent of the total revenues for the December quarter). Financial Services revenue dipped 4.3 percent (with a 180 basis point negative impact related to the previously disclosed sale of the Samlink subsidiary). Health Sciences revenue balanced this fall with a jump of 4.1 percent (pumped up by strong growth in digital services among pharmaceutical and healthcare payer clients). Also, the focus on the product segment is clear and undeterred. Products and resources revenue was high by 2.9 percent (drivers were digital services among logistics, automotive, utilities, consumer goods, and travel and hospitality clients). 

Key Wins 

• A new five-year agreement with Nike (notably, this extends a 14-year collaboration) 

• A seven-year renewal agreement with Horizon Healthcare Services, New Jersey’s oldest and largest health insurer (for managing claims processing etc.) 

• Work for regional property and casualty insurer, FCCI Insurance Group 

• Chosen by Boehringer Ingelheim, a leading research-driven biopharmaceutical company 

• Picked by the UK Department for the Environment, Food and Rural Affairs 

• Selected by Volkswagen Group Ireland, the multinational automotive manufacturer 

• Selected by DSB, Denmark’s state railway operator 

• Launched the Data Intelligence Toolkit as a pre-built solution for Snowflakes’s Telecom Data Cloud 

• Picked by Orica for a digital platform for GHG emission reporting 

The company is, apparently, trying to tone its financial abs with a tight hold on costs. In the second quarter of 2023, it rolled out the NextGen program. This is designed at simplifying its operating model, optimizing corporate functions, and consolidating and realigning office space to reorient to the post-pandemic hybrid work environment. It intends to simplify as much as it can—with fewer layers in an effort to enhance agility and enable faster decision-making. The savings generated by the program would be directed to help fund continued investments in its people, revenue growth opportunities, and the modernization of its office space. 

The company expects to record costs of approximately US$400 million with approximately US$350 million of such costs anticipated in 2023 and approximately US$50 million in 2024 (including US$200 million of costs related to the consolidation of office space, with approximately US$150 million in 2023 and US$50 million in 2024.) 

No overnight miracles are expected. Cognizant does not look forward to meaningful cost savings until the second half of 2023 and the real estate actions will not begin to generate savings until 2024. By 2025, it expects to reduce its annual real estate costs by approximately US$100 million versus 2022. But it will also expand its real estate footprint in smaller cities, primarily in India, in support of its hybrid work strategy. 

Fighting those inches, with AI battle ropes 

As can be observed in the string of victories and handshakes here, the company is strong on building and continuing relationships—over a multi-year horizon. It also expanded a long-standing healthcare collaboration with Microsoft to integrate Cognizant’s TriZetto healthcare products with Microsoft Cloud for Healthcare. 

As part of its digital bets, Cognizant has been focussing on areas of digital engineering, Artificial Intelligence (AI) and analytics, cloud, and the Internet of Things (IoT). It has also deepened ties with Google Cloud on AI. Cognizant is investing in launching innovation hubs in key technology centers (especially in Bengaluru, London, and San Francisco) to prompt collaboration and innovation around the responsible use of AI. 

Ravi Kumar S, Chief Executive Officer. 

“Clients recognize how deeply we understand their businesses and how well-positioned we are to create value for them at the intersection of technology and industry use cases. Having spent more than three months assessing the business, meeting with over a hundred clients and thousands of employees, I firmly believe Cognizant has a strong foundation for accelerating growth.” 

In its race to master the game of AI, it is building a suite of transformative solutions for all industries, where it would be leveraging Google Cloud’s generative AI, predictive AI, and analytics capabilities. The first solution suites are directed toward the banking, insurance, life sciences, and retail industries. 

The company has freshly announced a new, enterprise-wide platform, Cognizant Neuro AI. It will provide enterprises with a comprehensive approach to accelerate the adoption of generative AI technology – capturing the hard work of years of AI research, development, and client-facing commercial AI applications at Cognizant. It covers deep learning, evolutionary AI, and deploying generative AI techniques in industries like life sciences, retail, and healthcare. 

Incidentally, in May 2023, a US appeals court on Thursday vacated a US$570 million award that Cognizant Technology Solutions Corp had won against rival software provider Atos SE’s Syntel Inc. This is related to the theft of its trade secrets related to healthcare insurance software. The court, however, affirmed that Syntel was liable for misusing the trade secrets that belonged to Cognizant’s TriZetto Healthcare. It was affirmed that Syntel was liable for misappropriating more than 100 Cognizant trade secrets. 

Next, there is a 2023 revenue growth guidance of (1.2 percent) to 0.8 percent. Full-year 2023 revenue is expected to be US$19.2-US$19.6 billion. All this looks possible and more can happen if the cost-cut regime and push-ups on new areas continue as planned.  

By Pratima H