Software services firm Cognizant plans to lay off 3,500 employees, around 1% of its workforce, this year as it looks to cut costs amid an expected decline in revenue.
The IT major's revenue declined 0.3% year-over-year to $4.8 billion for the quarter ended March while net profit rose 3% to $580 million during the quarter.
The company's operating margin fell 40 basis points year-on-year to 14.6%. For the full year, the IT firm has guided its adjusted operating margin to be in the range of 14.2-14.7%.
Cognizant expects its revenue to decline in 2023. "Second quarter revenue is expected to be $4.83 - $4.88 billion, a decline of 0.6% to 1.6%, or a decline of 1.0% to flat in constant currency," the software services company said.
For 2023, Cognizant expects revenue to be $19.2-$19.6 billion, or a decline of 1.2% to growth of 0.8%, or a decline of 1.0% to growth of 1.0% in constant currency.
"Our accelerated bookings growth in the quarter, which included several large deals and a healthy mix of new and expansion work, reflects the strengths of our services, our brand, and the longstanding relationships we have with our clients. I am also encouraged by the continuing reduction in our voluntary attrition," said Ravi Kumar S, chief executive officer, Cognizant.
Total headcount at the end of the first quarter was 351,500, a decrease of 3,800 from the December quarter and an increase of 11,100 from the year-ago period. Voluntary attrition in tech services on a trailing-twelve-month basis, declined to 23% in the March quarter from 26% in Q4 2022 and 30% in Q1 2022.
Cognizant said the job cuts are part of its NextGen programme that aims to simplify its operating model, optimising corporate functions and consolidating and realigning office space to reflect the post-pandemic hybrid work environment. "Our drive for simplification will include operating with fewer layers in an effort to enhance agility and enable faster decision making," the company said.
"We expect to record costs of approximately $400 million with approximately $350 million of such costs anticipated in 2023 and approximately $50 million in 2024. This consists of approximately $200 million of employee severance and other costs primarily related to non-billable and corporate personnel, which we expect to mostly incur in 2023, and approximately $200 million of costs related to the consolidation of office space, with approximately $150 million in 2023 and $50 million in 2024," it said.
Cognizant does not expect its NextGen programme to drive meaningful cost savings until the second half of 2023 and the real estate actions will not begin to generate savings until 2024. "By 2025, we expect to reduce our annual real estate costs by approximately $100 million versus 2022. This reduction in real estate costs is net of investments to expand our real estate footprint in smaller cities, primarily in India, in support of our hybrid work strategy," the IT firm said.
The company repurchased 3.2 million shares for $200 million during the first quarter under its share repurchase programme. It declared a quarterly cash dividend of $0.29 per share, a 7% increase year-over-year, for shareholders of record on May 19, 2023. The dividend will be payable on May 30, 2023.
"In 2023, we expect to return approximately $1.4 billion to shareholders through share repurchases and dividends, including approximately $800 million of share repurchases. The NextGen program announced today will help fund continued investments in our people, growth opportunities and realignment of our real-estate to reflect our hybrid work model," said Cognizant chief financial officer Jan Siegmund.