Cognizant pays $42 million in severance, charges relate to exit of 550 associates

BENGALURU: Cognizant has incurred $48 million in restructuring charges, as part of its 2020 Fit for Growth Plan that includes $42 million in severance charges.
Its CEO Brian Humphries said these charges relate to approximately 550 associates, most of whom the company expects will exit the firm by the end of March quarter. “We expect it will result in a cash impact of approximately $40 million in the first quarter, with full run rate savings not achieved until Q2 for these associates. We continue to expect most of the remaining associates to exit the Company by mid-2020. We are managing this process carefully and any time we make decisions that impact our employees, we take it very seriously,” he said in the earnings call on Thursday.
Cognizant said it needs to hire or reskill around 25,000 resources in 2020 and it has begun to operationalise on this. It had previously announced hiring of 500 revenue-generating associates which is on track.
As part of Humphries’s fit for growth strategy, he has emphasized on sharpening its focus on clients, execution, and operational rigour to put Cognizant back on the growth track.
Cognizant had said it will remove 10,000 to 12,000 mid-to-senior level associates from their current roles. “We will make every effort to identify productive roles based on client demand and continue to assume that approximately 5,000 associates will have the opportunity to reskill for new roles within the company,” he said.
About 6,000 of these will be from the content moderation business that Cognizant does for Facebook. The company, which will exit this business, said it will try to find new homes for the employees involved. Cognizant said that approximately $5 million of the $48 million Fit For Growth charges in the quarter related to retention and severance for approximately 1,100 of the expected 5,000 to 6,000 total associates to be impacted by the wind down of this work.
“We have updated our estimate of the number of associates to be impacted by the wind down from 6,000 to a range of 5,000 to 6,000, as we expect to retain more work with these clients in other Content and Technology services than originally estimated. We now estimate that we may lose revenues of $225 million to $255 million, down from our previous estimate of $240 million to $270 million on an annualized basis within our communications, media and technology segment,” he said.
In the last quarter, Cognizant has estimated $150 million to $200 million in total expected charges associated with this Fit For Growth cost transformation plan, including the wind down of certain content work.
“We continue to anticipate revenues will ramp down over the next one to two years, with an expected impact of $20 million to $25 million of revenue in Q1 on a year-over-year basis. This is expected to be modestly dilutive to our adjusted operating margin rate subject to the timing of the ramp down and other factors,” he said.