Cognizant expects revenue, margin impact of ransomware attack to be USD 50-70 mn in Q2

New Delhi, May 8 (PTI) IT services major Cognizant on Friday said it anticipates the revenue and corresponding margin impact of the ransomware attack, reported in April, to be in the range of USD 50-70 million in the second quarter.

Last month, Cognizant had said it has become a victim of the 'Maze' ransomware attack that has caused disruptions to some of its clients.

It had said it is in communication with clients and had provided them with indicators of compromise (IOCs) and other technical information of a defensive nature.

"...the ransomware attack in April negatively impacted our work-from-home enablement schedule. As a result of this ransomware attack, our Q2 revenue and margins will both be negatively impacted," Cognizant CFO Karen McLoughlin said during an investor call.

McLoughlin said while the revenue impact related to this issue is expected to be largely resolved by the middle of the quarter, the company anticipates the revenue and corresponding margin impact to be in the range of USD 50 million to USD 70 million for the quarter.

"Additionally, we expect to incur certain legal, consulting and other costs associated with the investigation, service restoration and remediation of the breach," she said.

Cognizant CEO Brian Humphries said the attack has been contained.

"...the attack encrypted some of our internal systems, effectively disabling them, and we proactively took other systems offline. This disruption included both, select system supporting our work-from-home enablement such as VDI and the provisioning of laptops that have been expected to further increase our work-from-home capabilities in April," he explained.

Humphries said in the wake of the ransomware attack, some clients had opted to suspend Cognizant's access to their networks.

"Billing was therefore impacted for a period of time, yet the cost of staffing these projects remained on our books...following the containment of the ransomware attack, we have meaningfully progressed in addressing the concerns of clients that have suspended our access to their networks. We expect to substantially complete this by the end of the month," he added.

Speaking to PTI, Humphries said no clients have been lost on account of the incident.

"On the contrary, a number of the clients have said the manner in which we managed (the situation), it gives them even more confidence in Cognizant because we were extremely client-centric throughout and very communicative. So sometimes in times like this, you can actually strengthen your relationship with clients," he said.

Asked if the company will consider work-from-home (WFH) as a practice in the long term, Humphries said the company's first priority is the health and safety of its associates.

"In the weeks and months ahead, I think what we'll see is, of course, societies around the world, including in India, determining when to free up social distancing and lockdowns.

"Part of our responsibility as a leadership team is to contemplate future workplace environments and be prepared for the return of employees safely to the new reality," he said.

He added that experiencing work from home environment can allow companies to retain more employees, and foster a more diverse workforce (especially women employees).

"So, there are some positives to work from home environment, but we also need to understand what the new rules are," he said, adding that it will be important to see how WFH functions in a non-lockdown environment.

Humphries said there had been no material impact on account of transitioning to WFH, and in fact, the March quarter was big from bookings perspective.

Cognizant has reported a revenue growth of 2.8 per cent (3.5 per cent rise in constant currency) to USD 4.2 billion in the March quarter, and said it expects a challenging demand environment throughout 2020 amid the coronavirus outbreak.

Cognizant, which follows the January-December financial year, had previously withdrawn its FY20 guidance amid uncertainties on account of the pandemic.

Humphries said the company remains confident that its strong business mix, balance sheet and liquidity will help it weather the storm. He said since over 60 per cent of Cognizant's business is in financial services and healthcare, it is less exposed to some of the hardest hit industries like travel, hospitality, retail and automotive.

Also, a majority of its business comes from North America, which tends to be more resilient in overseas markets.

"We feel very good about our position, we know we can weather the storm, and we will continue to hire in India as evidenced by the 20,000 hiring commitment we've made, as well as other key initiatives," he said.

In 2020, the company plans to continue investments in developing digital skills, build the commercial team, and correct the employee pyramid by onboarding about 20,000 entry-level hires.

The company also aims to significantly decrease other costs including corporate overhead, travel, marketing, relocations and non-commercial lateral hires, it said.