Cognizant CEO: COVID-19 Pushing Customers To Digital Transformation

While the COVID-19 coronavirus is changing how businesses work, it is also accelerating their digital transformation and playing into the strengths of Cognizant, CEO Brian Humphries said Wednesday.

Cognizant Technology Solutions CEO Brian Humphries said that the pandemic only accelerated customers’ digital transformation which in turn played to the company’s strength.

The Teaneck, N.J.-based global solution provider reported on Wednesday a slight drop in second fiscal revenue due to macroeconomic conditions, particularly the impact from the COVID-19 pandemic and a wave of ransomware attacks.

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

”We stayed true to our digital strategy, and fulfilled our responsibilities to our multiple stakeholders,” said Humphries (pictured above).

Humphries praised Cognizant employees for their “instinctive client-centricity” for helping the company get past the Maze ransomware attacks it and its clients suffered earlier this year.

“We intentionally ensured that we were highly visible, transparent, and cooperative with clients who recognized our perseverance and professionalism, and how hard we worked to ensure their mission-critical services were uninterrupted.”

Cognizant in the second quarter gained commercial business momentum as shown by a 14-percent year-over-year increase in bookings for the first half of 2020, Humphries said. That growth was particularly strong in North America, where bookings grew 25 percent in the first half, he said.

“Moreover, leading indicators are strong, with qualified pipelines up double digits year over year, and win rates [continuing] to be solid,” he said.

Cognizant is also making noteworthy progress in the digital transformation business, Humphries said.

Digital revenue in the second fiscal quarter grew 14 percent over last year, and now represents 42 percent of total revenue. Digital bookings revenue for the first half grew year-over-year by almost 50 percent, fueled by digital engineering, A.I. and analytics, interactive, and software as a service, he said.

“I‘m confident that our digital momentum will continue, given the strength of leading indicators,” he said. ”Clients are also highly receptive to Cognizant’s digital capabilities, given not just our strong portfolio and strong customer satisfaction, but also their desire to see us challenge digital incumbents. More importantly, this becomes a virtual circle, as the greater our digital mix, the greater our overall company growth prospects.”

Accelerating its digital business is at the heart of Cognizant‘s strategy, said Humphries, who noted that he has two fundamental beliefs.

“First, we are still in the early stages of digital, and the COVID-19 pandemic is single-handedly significantly accelerating the shift to digital,” he said. ”And second, Cognizant has the global scale, portfolio, and strategic client relationships to be one of the single biggest beneficiaries of this shift in the coming years. Quite simply, digital creates an enormous opportunity for Cognizant, and we intend to capture this.”

Despite a lot of talk in the industry for years about the importance of digital, many countries have yet to transition to a fully digital model, Humphries said.

“In a matter of months, COVID-19 has exposed the extent of the digital divide between digital natives and traditional companies,” he said. ”Migrating infrastructure, application, and data estates to a more flexible resilient and cost-effective cloud architecture is a start, but in itself is insufficient. Clients are increasingly shifting their focus to modernizing their core processes to be truly agile so that they can continually improve the value proposition and experience they offer to their customers and employees.”

Cognizant‘s strategy is to leverage its application and data management services strengths to enable agile workloads to help clients deliver value, Humphries said.

“To fully execute this strategy, we will draw on our broad portfolio and our rich heritage of delivering excellence, partnering with our clients to deliver business outcomes with innovative solutions that leverage our internal capabilities and those of our partner ecosystems,” he said.

Cognizant is complementing its digital strategy with a mergers and acquisition strategy focused solely on digital transformation, Humphries said. This includes the acquisition early this quarter of Collaborative Solutions, a global consultancy that specializes in Workday enterprise cloud applications for finance and human resources.

“With its leading position in the Workday ecosystem, Collaborative Solutions expands our opportunity in cloud by establishing a new practice in this large, fast-growing market,” he said. ”It also differentiates us, in particular, against offshore competitors.”

Humphries also talked about Cognizant‘s planned acquisition of New Signature, which was unveiled Tuesday. New Signature, one of the world’s largest independent Microsoft public cloud transformation specialists, was Cognizant’s fifth cloud-related acquisition of the past year, he said.

“This will provide the foundation for a dedicated Microsoft business group within Cognizant,” he said.

While Cognizant has accelerated its digital business and gained solid acceptance from customers looking to increase their digital transformation, the company remains cautious about the macroeconomic demand environment, Humphries said.

“While the fiscal stimulus has helped, high unemployment rates remain a concern, COVID-19 cases are on the rise in many states and countries, and many of the C-suite executives I speak with are bracing for a period of prolonged economic disruption,” he said. ”Therefore, the prudent path forward may be one of continued caution. This means continued rigor on discretionary spending, the protection of key skills, and targeted investments for growth.”

Looking forward, Cognizant believe the implications of the COVID-19 coronavirus pandemic will be broad and lasting, Humphries said.

“The nature of work in our society will change across many dimensions, including how we interact, communicate, embrace technology, and think about risk,” he said. ”The practical implications on business are consequential, and go well beyond the return-to-office timeline, business continuity planning, the question of the shift to virtual and agile, or questions about the future of business travel or commercial real estate policies, both of which I believe will be changed forever.”

Humphries said he speaks with clients and prospects each and every single day, many of whom seem to be moving through three broad stages. These include a commitment to keeping their employees safe and businesses running without disruption, an adoption phase to the new normal with its broad implications from the move to working from anywhere, and the need to embrace digital transformation to stay competitive.

“This requires them to fully modernize their businesses across infrastructure, data, and applications,” he said. ”There‘s an increasing recognition that we are in a mobile, virtual, and personal era, where clients and employees expect always-on and ubiquitous, consumer-grade software experiences with rich visualization tools, data integration, and data protection.”

These needs are reflected in changing client needs and buying behaviors, Humphries said.

“We see clients embrace agile development and platforms and microservices that foster innovation, unlock the power of data, and offer efficiency, security, scalability, and agility,” he said. ”This requirement aligns directly with our strategy to win in digital, including cloud, A.I. and analytics, digital engineering, and IoT.”

Cognizant has also been focusing on developing capabilities to help customers thrive in a post-COVID-19 world, Humphries said.

These include virtual workplaces to help businesses maintain productivity during times of massive disruptions, data modernization based on flexible data structures and a modern analytics platform, and digital technologies to help make building safer for occupants, he said.

For its second fiscal quarter of 2020, which ended June 30, Cognizant reported revenue of $4.00 billion, down 2.5 percent compared to the second fiscal quarter of 2019.

This includes financial services revenue of $1.40 billion, down 5.2 percent over last year; healthcare revenue of $1.16 billion, up 2.0 percent; products and resources revenue of $867 million, down 6.5 percent; and communications, media, and technology revenue of $580 million, down 4.4 percent.

For the quarter, Cognizant reported GAAP income from operations of $467 million, or 67 cents per share, down from last year‘s $619 million, or 90 cents per share. On a non-GAAP basis, the company reported income from operations of $563 million, or 82 cents per share, down from last year’s $668 million, or 94 cents per share.

Looking forward, Cognizant is expecting full-year revenue in the range of $16.4 billion to $16.7 billion, or slightly less than the $16.8 billion the company reported for its fiscal year 2019.

The company also expects earnings per share on a non-GAAP basis to be in the range of $4.38 and $3.58, down from last year‘s $1.07 per share.