Q1 2020 Earnings Call
Ladies and gentlemen, welcome to the <unk> Cognisant Technology solutions first quarter 2020 earnings conference call.
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The speakers remarks, there'll be a question and answer session.
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Thank you and I <unk> I will now turn the conference over to Katie Royce Global ahead of Investor Relations Cognizant. Please go ahead.
Okay. Good afternoon, everyone.
Oh, a copy of the earnings really and then brought this up on that by the company first quarter 2020 result.
Have not copies are available on our website cognizant dot com.
We have on today's call, Brian Humphrey, Chief Executive Officer, Uncaring, Mclaughlin K. financial Officer.
<unk> again, I would like to remind you that some of the comments made on today call and some of the responses to your questions may contain forward looking statements.
Hmm statements are subject to the rest and uncertainties as described in the companies aren't really another filing for the S. and see.
Definitely during our call for that we've all reference certain nine got financial measures that we believe provide useful information for our investors.
Reconciliation of nine gap financial matters, where appropriate to the corresponding that measures can be found in the company's earnings really and other filings with the L.C.C.
With that I'd now like to turn the call over to Brian Humphries. Please go ahead Brian.
Thank you Katie and good afternoon everybody.
Several topics to discuss would you.
<unk>.
Updates.
These include review that first quarter Twentytwenty results.
Update improve it 19.
Discussion on the knees run somewhere.
And then update on the strength of her balance sheet and liquidity and how we will react to the new demand environment.
Let's start with the first quarter results.
Radically 3.5% you every year in constant currency to $4.2 billion.
This includes the 50 basis points impact it'd be exit of certain comes in services business.
No one got P.P.S. was 96 cents, a five per cent year of a year.
Cars will bring you through the details of the quarter.
Well today's cole has a full agenda getting code that 19 and run somewhere updates do you want to start with some perspective on the commercial transformation program that we had been executing over the past year.
I'm pleased to state that we'd be making solid progress against this initiative.
They want to illustrate this progress with some data that we do not normally share.
And a training 12, and a basis or when rate is up hundreds of basis points.
First quarter total contracts awarded group, 30% plus you ever be here with broad based straight across the whole service lines industries and geography.
This represents our best quarterly performance since 2017.
Qualified pipeline growth was from me to one and especially robust in larger deals, where we had swallowed double digit qualified typewriting gross versus the prior year period.
This momentum speaks to how well clients have embraced our strategy and have responded to our immune sense of clients interesting.
It also speaks to Howard teams have embraced her focus on growth.
Notwithstanding his quarterly earnings backdrop that includes coded Argentina ransomware do not want us to lose sight of these leading indicators that reflect commit since growing competitiveness.
Turning though because it 19, which is you know he's having a severe humanitarian an economic impact on society across the world.
As we navigate this pandemic our top priority remains to health and safety of our own associates, well, it's maintaining continuity of service for clients.
Upper specially at least that code at 19 is affecting the I.P. services industry on two dimensions.
Fulfillment and demands.
Let's start mix fulfillment.
After his from start to the first quarter a revenue slowed meaningfully in March reflecting the fulfillment challenges are shifting rapidly to work from home environment across or delivery centers.
These challenges include people I T security I'm inclined considerations.
Thanks to to professionalism and diligence of our associates any execution of a crisis management in business continuity plans.
We were able to ensure continuity of service for the vast majority of her clients in March or early April.
As a testament today, if I have received numerous no treat clients recognizing to work of our teams.
Well this was a gargantuan task and they're worse than speed bumps, along the way I want to acknowledge or teams around the world, who went the extra mile and testing circumstances to make this happen.
I will return to fulfillment that for dinner moments when I cover the runs more attack on our internal I.T. systems and in particular its impact on or work from home enabled and.
Yeah, I could cope it's 19 pandemic on demand is more multi dimensional.
Well, we were in a period of great uncertainty as a company.
Expect.
Economics, and human impact will be felt like companies across the globe.
Well certain industries will be hit hardest all industries will suffer.
Smaller businesses and those would we balance sheets and liquidity will be particularly impacted.
The demand impact will be so throughout twentytwenty.
When a recovery materialises certain market such as the U.S. will rebound quicker.
Has indicated on or April 9th update we've seen some delays and cancellations of projects and discretionary spending.
Select request for for a loose raced concessions and extended payment terms from our clients.
Well arrive we're twentytwenty has been meaningfully altered your nevertheless, confident that we will weather the storm given our business snakes.
For example.
Since board of 60% of our business is in financial services in health care, we were less exposed to some of the hardest hit industries, including travel hospitality retail an automotive.
International markets, which tend to rebound more slowly represent just 25% of our business.
And we are primarily exposed to global 2000 claims, which we believe will be more resilient Ben smaller companies.
We also have great components in the spring Super balance sheet in liquidity.
Well, we will be crude isn't tedious on certain economic backdrop. This conference allows us nonetheless to invest in emanates accelerator strategy and bolster capabilities.
More about later.
More broadly the pandemic shock waves have spurred clients to accelerate their digital transformations.
<unk> looking for ways to modernize their business accelerate innovation become more last week and a job in the face of business uncertainty.
Generally, we and measuring their businesses for the new normal.
More major I.T. trends, such as core modernization data modernization and cloud adoption will accelerate.
D secular trends play toward refined strategy and make it more relevant than they were.
In shorts, well twentytwenty will be a challenging year given code at 19.
We are confident that are industry geographic and customer segment mix.
Balance sheet.
Momentum in our digital imperatives and are growing competitiveness will allow us to impeach well on their relatives basis.
Cardless something macro environment.
Let's turn out to the maze run somewhere a pack, which we announced in April.
He responded immediately by mobilizing our entire leadership team drawing on the expertise <unk> security teams and bringing in beeping cyber security experts to help us investigate and respond to D.S. huh.
We also compacted appropriate law enforcement agencies.
From the start we decided to communicate sport rightly insurance, partly what her clients.
In addition to hundreds of individual Klein calls conducted by our security organization.
Cyber security experts and our executive team, we held to climb come from schools in April.
Retaining playing trust he's apartments important so we urged them to sign up over communicating the details of what menu.
And how we are working to contain or mitigate these incidents.
We proactively provided climbs with indicators of compromise for so cold <unk>.
Mainly frenzy data it company can use to identify potentially militias activity and defend against attacks from external actors.
Earlier this week in our third conference call declines we confirmed the containment comes around somewhere at times.
We are pleased to have reached its important milestone the runs more attacks will nevertheless, it negatively impact from two two results for two reasons.
First you attacking Christmas some of our internal systems.
Lead to saving them.
And we proactively took other systems off line.
This disruption included boat select system supporting our work from home a neighboring bands such as B.D.I. enter provisioning of laptops.
That have been expected to further increase or work from home capabilities in April.
Seconds in the wake up the run somewhere attack some claims opted to suspend or access to their networks.
Building was therefore impacted for a period of time getting costs of stopping these projects remains on our books.
Was around somewhere attack now contains we restored <unk> up conditioning.
Further we'd previously ordered equipping no physically in India and distribution constraints less restrictive per latest state directives.
Substantially work from home enabled.
In addition, falling into containment jumped around somewhere attack, we have meaningfully protests in addressing the concerns of clients that has to spend with our access to their networks.
We expect to substantially complete this by the end with a month.
We expect the vast majority of revenue in margin impact from around somewhere it back to be in the second quarter.
However, ongoing remediation cost will ensue through subsequent quarters.
<unk> impact to you on a quarter me thinks is to ensure appropriate visibility.
Rents were attacks are beginning old too frequently across industries.
We're using this experience as an opportunity to refresh and strengthen our approach to security.
You're already applying what we've learned to further harm is French and our security environments. We're further leveraging or external security experts to open forum and God or long term security strategy.
Cyber security will continue to be a top priority for us in the years ahead.
As you recall during our coping 19 business update on April 9th we've been through guidance for Twentytwenty.
Before I passed the cold Karen I want to draw your attention to the fact that we estimate the year would cost assumptions bills to support revenue growth acceleration.
These assumptions no longer hold true in life in fact that nobody can predict how long the current macro environment to persist.
We're faced with a great deal of uncertainty on many levels, including our own cost structure.
Having come through challenging 2019, when promotions and soldering <unk> increases were delayed hasn't leadership team, we've decided to take a nuanced approach to twentytwenty.
We aim to invest in the business by protecting developing digital skills.
Continue to build our our commercial team and continuing to correct. The employee pyramid Onboarding approximately 20000 entry level hires.
Meanwhile, we interest significantly decreased other costs, including corporate overhead travel marketing, we locations and non commercial lateral hires.
Services companies habitually rely on so called bench policies too lights like there was some should base to reflect market the mountains.
Against today's cobin 19 backdrop, we feel that traditional industry vengeful tea do not adequately address the interests of impacted employees.
Consequently, any employees impacted by demand supply imbalances me benefit from extended medical coverage and they said packages freudian of the third quarter.
<unk> take you through the details as a quarter and provide updates on her balance sheet liquidity and cost finished it.
After that I'll return to provide some closing remarks before we take you in it.
Thank you bye and good afternoon, everyone.
First quarter revenue, a 4.2 billion grade 2.8% year over year.
Oh, 3.5% in constant currency, including a negative 50 basis points impact from the accent certain content related services.
We saw strong lamenting across the business in January and February with the initial impact of covered particularly on the fulfillment side.
Starting to impact the business in the middle of March.
During the first quarter. We also took a crush look at our definition of digital Avenue and have better aligned get toward digital imperative.
Substantive changes to the definition.
The addition of certain clap form solution.
And the removal of certain content service as well.
Based on this new definition.
Digital revenue, that's a percentage of total revenue.
I was approximately 41% for the first quarter.
And grew by approximately 19% euro per year.
So I think of the industry particles are.
For all of the growth rates provided will be year over year and costing currency.
Financial services growth of 1.8%.
By banking, including strong performance in Europe attributable to the family deal and regional banks in North America.
We trust persisted across global account, particularly in capital markets and insurance.
Moving on to healthcare, which for 2.7%.
Performance was led by strong double digit growth in life Sciences in Europe.
Within our health care political revenue declined low single digits as the Headwins in North America, we highlighted in 2019 continued to unpack the business and Q1.
However contract findings in health care or a meaningful contributor he overall strengthened booking that Brian mentioned in his comments.
Products and resources growth, a 5.3% was driven by manufacturing logistics, and retail and consumer goods and partially offset by softness in traveling hospitality.
Roughly 60% of this segment represents revenue within the travel and hospitality.
And retail and consumer goods industries, which have experienced the earliest impact of covert 19, given instructions in travel and lack of foot traffic within retailers.
Communication media and technology clear, 6.3%.
Led by striking communications and media clients in North America.
Where momentum from late in 2019 continued.
Driven by an increase in demand for services in core modernization and the cloud transformation services.
However, we expect that's for the call to see in meaningful be celebration this year.
Particularly with the entertainment clients exposed to studios cable T.V. and theme parks.
Although technology continued to outpaced total company performance.
Growth T. celebrated doing negative impact of $23 million.
From our decision to exit certain portions of our content services.
That's impacted or C.M.T. segment of growth by approximately 390 basis point.
Moving on to margin.
And Q1 are gap operating margin and deluded E.P.F.
13.7%.
67% respectively.
Adjusted operating margin, which excludes restructuring uncovered related charges.
15.1%.
Right just at the latest G.P.S. was 96 cats.
Oh, good related charges or 6 million in the corridor.
Which included $5 million, but the expected 25 million.
Total related to the previously and no one time salary adjustment in April that we gave a certain employed in India in the Philippines.
Oh gap margin improved year over year, given the India defined contribution to Colin coupon of 2019.
However are adjusted operating margin, which excludes just impacting the per year period.
90 basis points year over year as investments in sales hiring.
Higher incentive based compensation.
As well as an approximately 30 to 35 million dollar cope it related revenue impact in March.
Salting from fulfillment challenges caused by the rapid shift of our employee base to safely work from home.
<unk> increased cost will offset by saving some items, such as lower T.N.E. and the favorable movement and the groupie.
During the quarter, we continue to execute against the 2020 fit for growth clan, which is designed to improve our cost structure.
And fund investment aligned with our long term growth strategy.
And Q1, we encourage $35 million a charger that's part of this plan.
Based on the action taken since the program inception.
We have achieved over $250 million and annualised on raid saving.
Additionally, it's part of a set for growth clan.
We continued the exit of a subset of our content services business.
Accounting for $11 million 35 million of charges in the quota.
We continue to expect the ramped benefits work to occur over the next devil quarters.
But the majority of the work expected to be ramped down that's sitting 2020.
In total are estimated revenue impact of 225 to 255 million on an annualized basis.
Is unchanged.
And Kid too, we expect a negative year over year impact of revenue of approximately $50 million.
As a reminder.
<unk> services business is within the communication media and technology segment.
Now I would like to spend some time talking about how we are managing the business in light of an uncertain revenue trajectory, an increased cost related to code, but and the ransomware in Quebec.
Entering 2020, we had certain demand and revenue assumptions too, which we aligned our cost structure.
The new reality, if the demand environment and they anticipated costs associated with cope with 19, Andrew mediating the ransomware attack.
Choirs us to make further adjustments.
Just the trajectory of recovery and demand remains uncertain.
We must be prepared for various scenarios over the coming quarters and manage costs accordingly.
The leadership team we have spent the last several weeks discussing those scenarios and implementing action clans.
In the near term there will be other coping related costs, which we will continue to identify separately.
Including.
The remaining 20 million up the 25 million related to the one time salary adjustment in April for certain employees in India and the Philippines.
Costs to establish work from home environments for employees.
Additionally, part of planning as a leadership team is to contemplate the future work place environment and be prepared to return are in place safely to this new reality.
It is likely that there will be incremental costs in the near term has to be prepared to exit the lock down period.
He's cost could include not only equipping certain employees to work from home on a more permanent basis.
But also retrofitting existing facilities.
To accommodate in lower density ratio amid new social distancing norms and other business continuity related costs.
As we think about mitigation efforts.
Are near term focus is on first addressing variable cost.
We are a people based business and employment related costs, including compensation and benefits plus subcontractors.
Make up over 80% of our total cost structure.
We are ratcheting down variable cost both people and non people related costs, who action such as.
Reduce T.N.E.
Relocation.
Recruiting and immigration related costs.
Reduce spend on events in marketing.
Prudently managing our subcontractors.
Differing certain enroll wage increases and promotion cycle.
We are freezing lateral hiring across all function. However, we will continue to record with our sales firing clan and other key positions and honor all outstanding except it offers.
Deferring the timing of our trainee start date and India to two three from Q. too.
However, this will continue to be dependent on lockdown in school schedule across India.
Oh, we managing utilization thing other ways that we will more closely aligned with a lower revenues <unk>.
As you might imagine we have seen a significant decline involuntary attrition in recent weeks.
This one compound it by a reduction in demand.
Naturally lead to utilization levels lower than what we believe us necessary to support the business in the near term.
In this scenario, we will accelerate the further development of employees, but skills aligned to R.T. digital imperative.
Which we expect all aligned with client demand.
When an economic recovery emerges.
At the same time.
We are aware that there are likely to be employees, who are or will become unutilized for whom we do not for see those opportunities.
It's always we are committed to treating these employees with fairness and dignity.
Within the current environment will also include providing extended health and other financial benefits to ease their transition.
Accordingly between now and the end of the third quarter.
We expect to incur additional realignment charges associated with these enhance benefits.
And we now expect Ned headcount to decline in 2020 versus 2019.
The size and timing of these charges will unfold as the demand environment becomes clearer.
There's also critical in this environment to continue to execute are fit for growth plan, which thus far has not experience any material delays from coded.
We still expects the majority of the actions to they can complete by the middle of this year.
Resulting gross savings of over $450 million and 2020.
<unk> annualized close Runrate saving a 500 550 million and 2021.
We continue to expect charges to be in the hundred and 50 to 200 million dollar range.
Now 20 to the balance sheet.
Our cash and short term investments balance as of March 31st.
But at 4.3 billion approximately 860 million from December 31st.
This balance now excludes the approximately $400 million a restrictive deposit.
<unk>.
In India, which has been reclassified as long term investment on our balance sheets.
He further strengthened our financial flexibility by drawing down 1.74 billion on our revolving credit facility on March 23rd 2020.
The spot are outstanding balance for two and a half million.
Additionally, we have cost our share repurchase activity for the focus.
I'll be on targeted Eminem and preserving liquidity.
Overall, but we feel that our balance sheet is very healthy and provides us the flexibility needed in the current environment to run the business, while continuing turned up.
We generated $385 million a free cash flow in the corridor.
Yeah, So 74 days improve two days year over year, reflecting improves collections from several large accounts.
On a year over year basis free cash flow also benefited lower incentive based compensation, which is paid out in the first quarter.
In addition restructuring charges resulted in approximately 50 million dollar cash out glow in the quarter.
Although this is mostly offset by one time items as the result of certain favorable contract renegotiation.
We do you anticipate an increase in D.S., though for the remainder of 2020.
Granted certain clients in significantly impacted industries.
Tended payment terms for a short defined period.
As we have seen inquire downturn.
Standing by our clients in times of trouble.
Serves as well in protecting the overall partnership.
At the same time, we were also reviewing our own vendor relationship.
And we'll continue to pursue opportunity to drive both coughed and cash flow efficiencies.
As we discussed during our business update call on April 9th.
Given the limited visibility in our market.
We do not feel it is appropriate to offer either Q2 or four year 2020 guidance.
Well, we are not able to predict with any certainty the length of disruption or depth of the economic impacts from covered 19.
We are operating the business with the following assumption.
First the demand environment remains highly volatile and uncertain in the near term.
We expect client focus in the near term to be on critical systems and infrastructure to enable their core operations.
Discretionary projects are those without a quick payback, we expect he'll be delayed.
We see the significantly challenging the second quarter, but also the remainder of the year.
We are currently planning for it's slow transition back to normal face and expect to your over a year challenges to continue at least through Q1 2021.
We expect that demand will be most impacted in travel hospitality retail automotive.
Energy and media and entertainment.
Which are collectively just over 20 per cent of total revenue.
We do also anticipate a broad slow down across or other industries.
That's fine mentioned the ransomware attack in April negatively impacted our work from home and Edelman schedule.
As a result of this ransomeware attack R. Q2, grabbing revenue end margin, we'll both be negatively impacted.
Well, we anticipate that the revenue impact related to this issue will be largely resolved by the middle of the quarter.
Do you anticipate the revenue in corresponding margin impact to be in the range of $50 million to $70 million for the quarter.
Additionally, we expect to encourage certain legal consulting and other costs associated with the investigation.
Service restoration and remediation of the breach.
Well, we have restored the majority of our services.
And we are moving quickly to complete the investigation. It is likely that costs related to the ransomware attack will continue to negatively impact our financial results beyond Q. too.
Well, we have already begun taking action to address costs across the company. There is a lag on the timing of any savings from these actions.
Therefore, we expect adjusted margin to decline sequentially.
And remain below the 16% to 17% range provided in our February guidance.
Which we have since withdrawn on a four year basis.
We anticipate that are Q2, adjusted operating margin will be the lowest quarter of the year given the combined impact of covered 19 and the ransomware attack.
But a wrap up well covered 19, and the rest of four o'clock, well negatively impact or 2020 financial performance.
We are very pleased with the progress we are making not just with the cost alignment part of us it for growth program.
Also the continued progress we have made requiring you sales resources.
And the traction and we have seen and when rates and first quarter total contract signing.
We look forward to providing you with further updates like the year progressive.
With that I will turn the call back over to Brian further discuss our recovery plan in a post covered world.
Thank you turn.
It'd be wrap up by saying that cognisant is built on financial springs and flexibility on the waiver decline syntricity sentence earn dusty injury interested clients that 290000 talented associates once again <unk>.
<unk> M. determination in recent weeks.
Well 2020 will be a challenging you were getting close at 19.
We are confident that are industry geographic and customer segment mix.
And her balance sheets or momentum in a digital in purposes, and a growing competitiveness will enable us to compete well on a relative basis.
The maximum environment.
<unk> create new norms, and hasty trends too highly mobile virtual impersonal world.
We will just be talking about telly working with router remote everything.
Dream work flow to design to eat Commerce, you, Don King Education <unk>.
<unk> <unk>.
For strategy to women do digital battlegrounds with a an annuity.
Digital engineering cloud an I.O.T.
Become more relevant to the ever.
We will continue to use them in 80 to accelerate the excuse number strategy.
Choose me, we have nice an agreement to acquire collaborative solution.
If the world's largest work day consultancy.
Well this richard expertise and leading position into work the ecosystem.
Collaborative solutions would expand or opportunity clouded by establishing new practice induced large fast growing markets.
The acquisition brings key skills to call me and differentiates is in the market, especially against India shortly competitors.
The acquisition also complements the capabilities, we'd be building, our inner sales force practice.
It's <unk> so far this year.
It is we've always sustained or focus Mark line Syntricity.
And our determination to execute or strategy.
Oh increase commercial mentioned in the first quarter as firms that our strategy or solution portfolio and our renewed vigor is resonating Logan clients.
Well the Cougar 19, underwrite recent <unk> have been a setback.
I'm confident that cognisant will emerge from the from the challenges.
<unk> no one knows how long the pandemic relax when he does eventually will fade.
Certainly the business world will be quite different from what it is today.
I'll be here long enough it called listen to know that we will rise and tremendous challenge.
Computer such folder.
We keep our culture sprung through this period.
Spirit of teamwork and collaboration on about scale that I've seen from associates during the crisis or I believe.
Direct result of our company's deep seated unsure sense of purpose.
But what may it's in our D.N.A. tell decline succeed.
And with that operator, we can open the cold for questions.
Thank you will not be conducting a question and answer session.
If you'd like to ask the question. Please press star one on your telephone keypad and a confirmation tone indicate your line isn't the question cue.
You mean first started to hear later move your question from the queue.
<unk> consider using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
In the interest timing I see limit yourself to one question.
Please so we pull for questions.
[noise]. Thank you. The first question is coming from the line of recent Alice with Moffettnathanson because she's your question.
Hi, good afternoon, guys in that good to hear your voice is.
Brian Thanks funny.
The visibility on some of those sales metrics in the first quarter you highlighted the 30% increase in total contracts awarded.
You've made a number of changes to cognisance go to market modeled since you. Since you joined Cognisant <unk> can you highlight what changes have been making this different or driving you know driving this early traction you're seeing how far along are you on this journey and are there particular service line.
More or project types, where you're seeing particular attraction at this point. Thank you.
Yeah, I, Lisa so like we need a significant amount of changes from the go to Mark what did you into last year, but it really could get into one of this year because a lot of work with needed before we could actually determine how to best employed this.
And that included a different sales compensation models, which shifted more compensation to <unk> away from six compensation.
Included a re segmentation of clients into a rapid model, which is a sophisticated methodology to deploy resources against accounts that you are currently in where you're trying to farm.
Versus hunt.
<unk> you'd also required us to build on expensive new relationships with partners, who needs to become very much part of her ecosystem.
And on top of that of course, we have been in the process of hiring 500 revenue generating resources and or supporting resources, which could include commercial pricers lawyers et cetera worry about 60% true that.
But let's not overlook the fact as well just the notion of getting to come feedback focused on growth focused on Klein syntricity and getting the vigor back into the company to top into something that's fundamentally isn't a record D.N.A. is very very important we've been do that for a period of time now we've <unk>.
Leadership changes, we've really try to hone in on Klein Syntricity in the leadership team.
Starting with myself and that's what I believe has led to the significant momentum we've had in the first quarter and I would say even for some of our larger industries like insurance banking healthcare not momentum I was actually continues into the months of April O.B.S. not at the.
The reading robust strength up you saw in the first quarter.
But the 33% growth in the first quarters are strongest bookings since 2017 was actually very broad based across all industry segments across North America, as well as or international markets, which be term global growth markets.
And then from his service line point of view or digital business was up in excess of 50 per cent.
And digital operations and or a third service line systems in technology also had robust growth.
I really feel good by the way about our digital offerings.
<unk> really strong capabilities now in cloud that you've seen is filled out those capabilities with a series of acquisitions in the last year three sales force slap them partners and more recently this week collaborative solutions, which is the establishment of a work they practicing caucuses sales force on the work they tend to go hand in glove inclined instead of embrace cloud.
And we feel that a strong alignment behind.
Companies that are growing 20, 30% fewer euros, obviously very important for cognizance growth rate into the future as well so I feel very very good about or promotion momentum of the progress we're making no of course, Denver, occasionally coping 19, which fundamentally changed to grow trajectory in the month of bartsch, but we're going to.
Deal with violent as I sit on the coal we are from my perspective, as well positioned designing looking to deal with a given our business mix.
I will come out stronger or the other side.
[noise]. Thank you.
Our next question is from the line of Edward K.. So it was wells Fargo pleased to see if your question.
Hi, Thank you I was wondering if you could give us a little bit more color on the the ransomware attack sort of when did it burst appear was to take down to the credit line related to that and and what sort of you talked about great Awards and Q.
You want to assist slowed down that a favorable T.C.V. momentum. Thanks.
Yeah. It it's Friday, so the run somewhere attack. He just prior to the work from home enabled <unk>. We we solve what was happening and as we were trying to shut down we if we <unk>. We we're faced with their for around somewhere attack. We had three cole's reclines two in the month of April and then one.
Last weekend, where we acknowledge containment the credit line or the line of credit draw. The have nothing to do with this is simply gives us optionality. We already have a very strong balance sheet. There's you know strong.
Collections as currently indicated in according to court her so frankly, it's nothing to do would run somewhere the T.V. grossing. She won you know was independent they'll brung somewhere I don't believe run somewhere at any meaningful impact on our business momentum certainly we had an impact in the month of <unk>.
Upper part of April in early May the <unk> effectively disable some of our internal systems, but I'd be the encrypted which impacted some of her work from home and they balloons and it'd be certain climb start off to just set of an abundance of course sheen to isolate themselves from our network, but given we have contains the virus.
By working night and day candidly internally as well as working with meeting cyber security partners, including Monday when of course, the federal authorities. We're now in a better position inclines on a daily basis or again seeing us up so I think that will be so from a revenue margin point of view for the most <unk>.
<unk> will be sold in the in two two there after I imagine where we'll be hostile that said, we will continue to spend money into three to four and beyond to further strengthen our security framework.
So rubbing your margin impact is more into two cost impacts will continue a little bit to the rest of the year, but that I I think we handled the run some were attack as well as one can be sort of consensus we chose to be very deliberately klein centric by having three claims come from schools by doing hundreds of Klein cools with the executive.
Team in our security team and indeed Monday into into in the days tried his periods.
By being a sports right insurance burned as we possibly could and nobody wants to be dealt with <unk>.
I personally don't believe anybody is truly impervious to us but the difference is how you manage it said, we tried to manage it professionally and maturity.
[noise] Oh next questions from the line of Brian Bergen was counting pleased to see if your question.
Good afternoon. Thank you I hope, you're all done well I wanted to ask on client behavior really just what we are seeing over the last two weeks versus the spending appetite in early in mid April any semblance of stabilization in any verticals, yet and can you just common on the types of programs that that are moving forward.
[noise] Hi, Brian.
I don't think there's any stabilisation per se budget from my perspective read being revised downward shrugs all industries, certainly some industries will be hit more than others.
I think digital remains a priority or virtual work virtual p.
Virtual healthcare education banking E. Commerce, you name it.
Remains of course top of mind for people in today's environment to shift to South continues digital engineering continues by definition to a few some of those capabilities but.
But I would say projects for short term paybacks continue but anything that is deemed discretionary is being delayed.
We have seen some requests for for a lowest rate concessions et cetera, but no a meaningful amount and I was saying the same thing we are still seeing some pretty substantial opportunities out there, including captive opportunities and I was I referenced in my prepared remarks pipeline shape on a qualify bases actually look reasonably healthy.
As we exited to one and even now after two months of March So we are being very.
Opportunistic here, we are making sure we find tuner offerings to take advantage of the new norm that we're in today, we have workstreams lined up behind that.
And of course would be continued to bush or digital encourages which are from my perspective fairly and squarely into the area of the market where growth will continue if not accelerate into the foreseeable future and that includes data modernization club.
Applications generally including South.
And indeed core modernization.
So we feel well positions, but it's he sees particularly difficult environment to call at this moment in time, there's not a lot of visibility and claims are.
I think obviously being cautious.
The next question it's from the line of 10 sing along with J.P. Morgan to shoot their question.
I think so much of follow up and then a question just the follow up to at least as questions just on the sales signing success.
Are you seen enough ticking sole source feels given your investments in sales obviously, the wind shares up against a bigger pipeline, but sounds like maybe the sole source.
These could be up just curious on that and then just sounds like Brian Your M. and they appetite is is still there. So we expect a pause given everything going on or are you still pretty active with the with U.M.A. Thank you.
I don't I don't think we see a lot of sole source per se, but I will say, we I've seen some renewals, where we've had the opportunity to renew without those contrasting up for bid or tender and that's been on the basis are very strong delivers a ends from client satisfaction and frankly is a very strong.
Executive engagement.
Which has been quite intentional over the last year, but as ever reclines, we're always looking to extract value for money and of course. They also want to sleep well at night. So they want to work with partners, who honored or commitments and deliver well.
Hi, I'm feeling good generally in our Webber about our momentum in the field that are competitive positioning or when rates are improving as I said or a contract.
Booking speak for themselves if it was.
Converge go or one service line I wouldn't quite be so adamant about this but I genuinely feel as though we've made tremendous progress through the last year.
Permanente perspective, I'm fortunate to be blessed by aboard who are very supportive of the project we're undergoing.
We have <unk> transactions that we have made in the last year have been against they did find strategy that was blessed by the board last September.
We will continue to obviously monitor collections, a monitor liquidity as well as or balance sheet, but we feel very comfortable in our current position and I will say, we will continue to conduct in a transactions O.B.S.
And it prudent manner, we want to conduct transactions that so we fits on their squarely aligned to or strategy and then we have confidence that we have to write leadership team in place to integrate them successfully.
The next question, it's from the line of Keys Poclain must be a mouse. Please you see with your question.
Hi, Thank you very much and Brian Congratulations on a good March it seems pretty clear in the absence of course, but cognition. It was on a very good pass for 2020.
My question is I want to take a little bit in at least two around some context.
Associated with margins over the next couple quarters.
And what the puts and takes are you mentioned that.
Cognisant this on a journey to invest.
Including the sales were upset you mentioned.
Karen listed a number of things that were incremental sounds like incremental costs savings and I just wondered if the way to think about.
A dollar amount incremental costs savings associated with those new areas since the advent of Clover. Just just took we can at least try to think about where the margins might be <unk> part B. You that is as you think about a mile where situation well those costs.
Remediation well those be.
Nongaap out in other words with those be gap charges, but what would be taken out of the nongaap results.
And that's it I mean, just any other comments, Brian on how we should be thinking about margins for the next two quarters and okay.
Sure.
I'll I'll get off and then maybe car and can jump in if it's okay card, where I'll be seen same location today.
Keith and thank you first of all I do feel that we did have momentum that was building as we exit acute for January and February were particularly strong I felt chemically we were on well on track, though if I am very strong quarter relative to wall Street expectations, and then of course martial <unk>.
You know as current Willow test the change in dynamics was relatively abrupt obviously, because first and foremost because of fulfillment where are you know in countries like India. We had four hours, we could always he triggered a business continuity blonde weeks ahead put the ultimate.
Decision to lock down India came with a four hour notice a week like many services companies I imagine, we're scrambling to fulfill work from home capabilities. The encrypt the desktop <unk> laptops or remotes are V.D.I. et cetera, so that purchase from a fulfillment point of view. It now since you have cost but at the revenue.
Ah similar U. dot compounded itself in the first few weeks of the first week of making the last few weeks of April when you have a game.
Not only where we dealing with covert but then we had around somewhere attacked us encrypted servers, which.
Actually took I have some of the work from home capabilities that we had enabled into prior weeks and also slowed or ability to enables further work from home because of some of the systems. The tools, we would've used to automate provision laptops were no longer functioning. So we had to perfect storm in which we still have costs.
Revenue on on top of out when you have clients who.
Disconnect you from their network for a period of time until such time is your contain the malware yet again, you wants to keep those skills steps.
Ready to Reengage as soon as declines permit you to be engaged so I think what you'll findings too too we had the perfect storm of.
Costs without revenue and of course, then you have to adjust to reflect the demands to play a balanced and that his whole 20, I think what will hurt her margins in the foreseeable future and then as carnivals.
You of course, we want to protect skills like digital skills and of course, therefore, we want to pick out any so called no regrets cost to try to mitigate that pecan will give you a little bit more details.
Thanks, Thanks, Brian I'm on things Keith.
In terms of.
The ransomware questioning yeah, we will not be adjusting that out of our non gap. So those costs. Okay. Both in our gap and on non gap margins as they continue to the rest of the year. We will however, as we've done in the past or another some other large on these all transactions try to call those out on a quarterly basis.
That they're meaningful <unk>, we'll see what that cost looks like you know in a bind set on the the margin slide obviously, there are a number of things that happen very quickly and where we can move to to take cost or or costs gets eliminated or or doesn't happen such a t. any and so forth, which like others. We started to see the benefits of.
In late March obviously, because people aren't physically at work a client fights or not relocating and we don't have to worry about immigration another things people are moving around the country and so forth.
And then as they mentioned in my prepared remarks, well, we will continue to up to on or all of the outstanding offers that have been accepted we have for the most part shut down much about hiring.
And start recruiting costs, obviously go away along with that.
But I think.
Yeah.
We've talked about in this business obviously when there is a revenue slow down it depends what the closet that revenue.
As to what happens to your resources in Jersey utilization rates as by and talked about what things that we think are short term such as we had with the fulfillment challenges with cold, but late March or early April and then more recently with the ransomware clearly we want to hold onto those resources. So that they can continue to deliver services to clients out.
At work comes back up.
And we certainly want to make sure through the time that we protect our digital sales and use this opportunity to continue to enhance and develop digital spells across the company, but certainly.
It is not unlikely, but utilization it'll hit levels below where we think they should be to run the business for the foreseeable future. Then obviously will have to make some adjustments on the modify the headcount accordingly for the for the organization as we thought we don't expect to be in the margin range that we had crude.
If they go to back in February we do things margins will be below the 16% to 17% range for the year and for each of the quarters throughout the year and we would expect to Q2 because of the issues with grand somewhere well be the lowest quarter of the huh.
But you know we will remain on track with us it for growth plans had made good progress through the first quarter and have generated between a queue for him and of course this year over $250 million of annual savings already and will be on top of the 450 million as we go through the rest of the year to begin to set ourselves up as we move on to <unk>.
21.
We'll take he just to concluding this points I felt as though very much. The story was on truck you know the commercial momentum starting to build the pit for gross.
Well on track and I would say then we suffer the microturbine switches or run somewhere attack, which we have dealt with sense and then of course, we're faced with a micro environments because of Cogan 19 in the absence of those I would say the story remains very much conceptual what we've been saying for the last year, which is differentiating between across versus and.
<unk> trying to get at the company back.
Georgia gross story and making sure we have very refined strategy that we can invest bond and execute well to unlock more shareholder value creation and that certainly will be to play book, We will go back to and I'd like to think well come out of this storm well given the the business makes given her balance sheet given or liquidity.
On with the even even the leaner recall structure given.
The environment, we're going to in the meantime, hopefully we can continue the commercial momentum at least in a relative basis, and then come out of disk wrongly.
Thank you.
<unk> <unk> was deep dive equity research to see if they're question.
Hey, there so the payers sub segment of your health care vertical has been week for a good while while the life Sciences sub segment has been strong.
We actually entered 2020 thinking this was the first time in a while that you could be in a in a better place to grow the pay or sub segment of your health care vertical. So my question is looking beyond the immediate crisis on a more secular basis are you starting to see opportune.
Cities for better relative growth and the pay or sub segments or or maybe you were seeing better opportunities in an alcove. It is making that murky, but I'd like to ask for any color on that if you can't thanks.
Hey, <unk>, rather like we had a nice time, the first quarter, you know care from a bookies point of view triple digit growth by the way. We also gross into the months of April.
You were basis as well I've been particularly pleased to see the <unk>.
Of Windows, we have seen.
In the peer area, but also frankly, even ended provider area. So it feels to me that we were starting to turn a quarter in health care and as you know once we have two two we will anniversary that tougher compares that we hit last year because of some of the consolidation in the industry.
So you know we still have work to do of course to continue to sharpen or pencils under strategy, but I feel as though we had made very good progress. We have a leadership team was very engaged and we seem to have growing momentum with our major clients.
[noise] pink okay.
I think that we will take sometimes take one more question. Thank you Brian that is from the line of James for set with Morgan Stanley.
Hey, this Jonathan on for James Excuse me there.
I want to ask about.
What you're seeing on work that's been cancelled versus the type of work, that's being deferred or using a difference in that type of work no discretionary work enough people, but can you help them centralize relative to your service lines of what's been considered a secretary now.
[noise] look it's highly nuances clients like lines, but but I would say things that I have a long payback tend to be pushed at at this over the time some change requests or anything that so called discretionary that's not being critical it's certainly being pushed sad, but we have seen good momentum.
No they sit in their digital engineering business, we feel very good about or clap momentum and actually we've had great reflectivity to this week's announced acquisition of collaborative solutions. So I I think it's kinda core elements at the secular trends that have been in the market from my perspective will accelerate has climbed straight you have a much more agile mulder interests.
Sure and ultimately you try to take advantage of the data that they have accumulated over the years to to really try to have a much more modern perspective in terms of how do you think about individuals when I truly believe we're moving to a mobile a virtual and it shouldn't personal world on to go for basis.
Okay, I think would that we're at the top of the hour. So I just like to thank you for joining like I know was a complex versions cool because not only to be taught <unk> results. We also touched upon to cope with 19 implications <unk> the round somewhere.
I could I, we've dealt with that and a little lens into the future.
I I would just want to wrap up I seem to following things I truly feel as though were more competitive than we have fee as evidence by when raised as evidenced by a pipeline grove as evidenced by 33% bookings or highest momentum since 2017, yes. It is true to cope with brings with a great deal of uncertainty, but I I believe our business mix.
And indeed are growing competitiveness will help us on a relative bases come what may.
<unk> is regrettable cause. It is contains I believe we managed to well we've had good Klein feedback we'd been transcribed we were for Christ.
The impact is on revenue and margin primarily into two there will be some residual would cost, but we will encouraging Q3 and q. for us we continue to harden and strengthen our security positions and that was an obsolete no regret spend.
From the Medicare Sound, you sound it resonates with clients and you're seen that show up down or numbers.
Lost them at least were 100% focus on executing that strategy.
Claims syntricity is greater than ever and we expect to accelerate on the corner once we get to cope with my kids, So would that I'd like to thanks for joining us.
Thank you.
This includes today cognizant technology solutions first quarter of 2020 earnings Conference call you may now disconnect.
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