Q2 2020 Cognizant Technology Solutions Corp Earnings Call
Ladies and gentlemen, welcome to cognizant technology solutions second quarter 2020 earnings Conference call.
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After the speaker's remarks, there will be a question and answer session.
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I would now let's turn the conference over to Kt Boys Global head of Investor Relations. Thank you you may begin.
Thank you Devin and good afternoon, everyone by now you need a copy of the our internally and Investor supplement for the company second quarter 2020 result.
Not copies are available on our website cognizant dot com.
The first we have on today's call or Brian Humphrey Executive Officer, Chemical <unk> Chief Financial Officer.
Before we begin I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward looking statement.
These statements are subject to the risks and uncertainties as described in the Companys earnings release and other filings. So yes, you see.
Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investor.
Conciliation of non-GAAP financial measure where appropriate to the corresponding GAAP measures can be found in the Companys earnings release and other filings with the FCC with that I'd now like to turn the call over to Brian Humphrey. Please go ahead Brian.
Thank you Katy and good afternoon, everybody today I would like cover four topics with you, including a summary of our second quarter performance.
An update on our purpose vision and strategy.
Some thoughts on the macro demand environment and evolving client needs.
As an update on her efforts to ensure the highest levels of resiliency to our clients.
Before I proceed with our second quarter earnings call, we'd like to add some commentary to today's announcement that card Mclachlan has decided to retire from cognizant for more than eight years as chief Financial Officer.
An incredibly successful career in the company's spending almost 17 years.
During this time current role in helping columnist and become one of the world's leading professional services companies cannot be overstated.
It's been a privilege to work the current over the past 16 months and I am forever and data for her assistance and leadership.
Current on behalf of the entire cognizant family I'd like to thank you for your many contributions cognizant.
On a fantastic job and can be proud of your accomplishments, we wish you nothing but success your future endeavors.
We are excited to welcome young sequence cognizant.
Yeah, and as an accomplished executive would a wealth of experience in finance strategy and general management.
Then will join us into CFO role on September 1st 2020.
Carnegie will continue in her capacity as CFO through August 31st and then remains with US in an advisory role through December 31st Twentytwenty, thereby ensuring its new CFO transition.
Most recently on served as Chief financial officer, or the Pete a role, which he held for seven years.
Follows that many of you will recognize his name and we'll have experienced engaging with young in the past.
You will understand there for ways to write choice to be our next year. So when I look forward to working alongside.
Now, let's go back to our earnings.
Please with her second quarter performance faced with the unprecedented challenges of global pandemic under ransomware attacks that impacted or operations, we executed well.
We stay true to our digital strategy filled a responsibility swear multiple stakeholders, including her associates are clients are shareholders and the communities, which we operate.
Second quarter revenue was $4 billion, a decline of 2.5% year over year in constant currency.
This included a negative 120 basis points impact.
The exit of certain non strategic comp and service business.
Which we announced in Q3 2019.
We have now fully exited this subset of services.
Our associates started a true heroes of the quarter not just in my eyes, but also the eyes of our clients who are at the central Baby we do.
Associates around the world quickly adopted to work from home conditions stay productive and healthcare claims successfully navigate the initial shock of the endemic.
When we became the victim of around somewhere attack in April there is think of clients syntricity kicked in.
We essentially ensured that we were highly visible transparency and cooperative with clients recognize her perseverance and professionalism and how hard we work to ensure their mission critical services were on interrupted.
Therefore, I want to thank our leadership team at all our associates rest of world for their dedication to our clients and their contributions were performance in the quarter.
We continue to prioritize to health and safety of our associates, we communicate regularly and transparency with them.
And have equip them for virtual working and rewarded the large portion of our associate base with a 25% salary increase payment for the month of April two recognized were extraordinary continue see it services efforts.
People are at the heart of our business so employee engagement that therefore critical.
I'm pleased to report that our recent annual companywide people engagement survey shows that our engagement scores are up across all major categories.
Current will bring you sort of details of the quarter, but I wanted to emphasize to salient points.
First we are gaining commercial momentum.
This is illustrated by our bookings trends, which grew 14% year over year in the first off of Twentytwenty notwithstanding the challenges we faced in the quarter.
North America, which grew 25% less than the first time is particularly strong.
This was offset by declines in global growth markets, given the signature of the Suddenlink agreement in Q2 2019.
Excluding the impact of Suddenlink total company bookings grew 25% plus in the first half Twentytwenty and global growth market bookings grew in the mid teens.
Our bookings momentum is broad based across our service lines and industries.
Bookings accelerated through Q2.
We June beat an exceptional among.
Moreover, leading indicators are strong with qualified pipeline up double digits year over year.
And when rates continued to be solid.
Second we are making noteworthy progress in digital.
In the second quarter revenue in digital grew 14% year over year and now represents 42% upper digital of our company revenue mix.
First half Twentytwenty digital bookings growth of almost 50% was fueled by digital engineering.
And analytics interactive and software as a service.
I'm confident that our digital momentum will continue given the strength of leading indicators.
Clients are also highly receptive to cognizant digital capabilities, given not just our strong portfolio as from customer satisfaction, but also their desire to see is challenged digital incumbents.
Importantly, this becomes a virtual circle as the greater our digital mix the greater our overall company growth prospects.
This takes me to my second topic, which is about purpose in vision and their connection to engagement values under strategy.
Executive leadership team and I have given a great deal of sold to how we optimized engagement, we get from our 280000 person knowledge business, which times multi generational.
And a diverse workforce.
In recent months, we set out to develop and communicate a purpose ambition state.
As well as reviewing the values that established how we work.
We believe this is an important and as part of our long term success and we will be rolling out what we're calling to call listen to agenda to the in Charlotte entire company in August.
It's worth taking a moment to run through the key elements of this.
We define cognizance purpose this way.
We engineered modern businesses to improve everyday life.
It's based index laying fiber in business and serves as our inspirational North star and driving force.
Our purpose also couldn't Vale conveyed but while we are a b to B company. The work, we do with and for our clients helps improve the lives of billions of people.
Most important it brings to what our culture as evidenced by how well we dealt with the unprecedented challenges of recent months.
To measure how well we're living our purpose and clarify what we aspire to achieve we set out a vision to become the pre eminent technology services partner to the global 2000 C suite.
This is where a strategy comes into play as we aim to execute a series is a bold moves to realize our vision.
These actions coal for us to accelerate digital optimize our core business transform our commercial model supercharge, our talent and enhance our reputation.
Accelerating digital is at the heart of our strategy.
I have two fundamental beliefs on this topic.
First we are still in the early stages of digital.
And the cobot, Nike pandemic single handedly significantly accelerating to shift to digital.
And second.
Cognizant of the global scale portfolio and strategic client relationships to be one of the single biggest beneficiaries of this shift in the coming years.
Put simply digital creates an enormous opportunity for cognizant and we intend to capture that.
Well the industry has been talking about digital transformation for years, many companies have yet to make the transition to a fully digital operating model.
Instead digitizing only select operations.
No matter of months Cobot 19 has exposed to extend the digital divide.
Between digital natives and traditional companies.
Migrating infrastructure application that data states to a more flexible resilience and cost effective cloud architecture to start with in itself 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 experienced the offer to their customers and employees.
And our strategy is built on our ability to leverage our strength the applications and data management services layers.
To enable agile workloads swore claims can deliver customer and business thought you simultaneously.
To fully executed strategy, we will draw on our broad portfolio and our rich heritage of delivery excellence.
Partnering with our clients to deliver business outcomes with innovative solutions that leverage our internal capabilities.
And those of our partner ecosystem.
Winning and digital requires a broad ecosystem of partners and therefore as cloud computing has changed the way ickes deliberate across infrastructure applications and platforms, we have meaningfully increased or partnership focus and investments with all three leading hyperscale companies that are most strategic software as a service partners.
We have come complemented organic investments with a targeted M&A strategy focused 100% on digital.
Earlier in the quarter, we closed the acquisition of collaborative solutions, one of the world's largest workday consultancy.
Well its leading position into work the ecosystem collaborative solutions expands our opportunity in cloud by establishing a new practice this large fast growing market.
He also differentiates us in particular against offshore competitors.
Yesterday, we announced or fit cloud related acquisition of the past year new signature.
One of the worlds largest independent Microsoft public cloud transformation specialists that serves all three Microsoft clouds.
This will provide the foundation for a dedicated Microsoft business group, we Didnt Cogs.
Underscoring our success in executing our strategy. We were recently named a twentytwenty Microsoft partner of the year for as the piano Zohr.
As well as a leader in Gartners Twentytwenty magic quadrant for public cloud infrastructure professional and managed services worldwide.
Let's turn now to the demand environment.
I'll start with some positive news.
First micro demand, although still uncertain is better than we anticipated in April.
Second revenue growth and bookings momentum improved through the second quarter.
Third we remain confident that our digital clients industry and geographic revenue mix positions us favorably.
And fourth.
Clients are consolidating vendors as we seek more strategic partners to help them through the implications of curved TV.
This is favorable for cognizant that we are increasingly seen as a strategic partner not just in run off the rate, but also in digital.
We are nonetheless cautious about the macro demand environment, while the fiscal stimulus as health high unemployment rates remain a concern could 19 cases are under rise in many states and countries and many of the C suite executives I speak with are bracing for a period a prolonged economic disruption.
Therefore, the prudent path towards maybe one or continued caution.
This means continued rigor on discretionary spending to protection of key skills and targeted investments for growth.
What does the future hold.
We believe the implications of the pandemic will be broad and lasting the nature of work enough Society will change across many dimensions, including how we interact communicate embrace technology and think about risk.
The practical implications of business or consequential and go well beyond the returns were office timelines.
Business continuity planning.
A question of the shift to virtual agile or questions about the future business travel or commercial real estate policies.
Both of which I believe will be changed forever.
I speak with clients and prospects every single day, and many seem to be moving through three broad stages.
First a commitment to keep their employee safe and their businesses running without interruption.
Second and adoption phase to the new normal which includes the considerable technological and human implications of working from anywhere.
Third the need to truly embrace digital to stay competitive.
This requires them to fully modernize their businesses across infrastructure data and applications.
There is an increasing recognition that we were in the mobile virtual and personal era.
For clients and employees expect always on ubiquitous consumer grade software experiences with rich visualization tools data integration and data protection.
These needs are reflected in changing client needs and buying behavior.
We see clients embrace agile development and platforms and Microservices Foster innovation.
I love the power of data and offer efficiency security scalability and agility.
This requirement aligns directly with our strategy to within digital including clouds AI in analytics digital engineering and Io team.
To help clients grappled with the changes Ross like Cobot on team. We've also developed capabilities Elton prosper into postcode world.
These offerings, which found our portfolio includes the following.
Virtual workplace, an enterprise level solution that helps companies achieved resilience and maintain productivity, even and made massive disruption.
Data modernization.
Which helps climbed six have a source interpret and consume information through flexible data structures and the modern data and analytics platform.
And Cubbison states buildings, which combines layered prevention controls with instrumentation data analytics and digital technologies to help make building safer for occupancy by providing robust monitoring visualization capabilities.
Recognize student Cobot 19 coincided with a period of sizable turmoil and made significant questions about regional justice globalization and corporate social responsibility.
No not only our claims businesses and technological requirements changing but so to our demands on their vendors.
I'm pleased to underscore our intensified commitment social responsibility cognizant that its foundations have a long history of contributing to the health well being education and progress of the committed decent which we live and work.
In April for example, we announced that initial 10 million philanthropic commitment to support communities around the world and addressing cobot nineteens immediate and long term impacts.
In June the cognizant U.S. Foundation, and that's the 5 million dollar commitment to communities of color. The continuation of its long standing work to advance education training and career pathways are underrepresented populations across the way.
And in late 2019, as we announced our decision to exit a subset of content moderation, we allocated $5 million to fund research aimed at reducing users exposure to objectionable content.
We're also proud to support global work to remediate Cook 19.
And 100000, researchers and clinicians are now using our shared investigator platform.
A life Sciences software as a suit service solution.
And some of their work, it's mostly focused on accelerating the development of cobot banking therapy.
Through virtual clinical trial processes.
We're also providing a team of our life sciences experts to support Burley.
The health and life Sciences company of alphabet would it's baseline cobot 19 testing program to increase individuals' access to test scheduling.
In the weight of the Unprecedent between challenges of Coke at 19, and then ransomware attack.
We like many of our clients are increasingly focused on improving our business resiliency, especially within our delivery and technology organizations.
Let me first address delivery.
Well I'm extremely proud of our delivery team and how well they enable the safety of our associates and continuity of mission critical services for our clients.
And then make highlighted the need to increase the robustness and resiliency of our delivery operations.
We are taking a fresh look or delivery organization and be finding a next generation delivery model that will extend the work we've done in recent years to further globalize their network of delivery centers across the globe.
Which will complement our India hub.
This will ensure a greater resiliency enable us to better serves our clients' needs per scrum teams near shore an onshore.
Give us greater access to global power.
Automation will of course beat pervasive scraps.
And under pointed technology I have appointed a new head of technology and strategies. We will report directly to me and focus on informing our strategy digitizing, our business and strengthening our IP and security capabilities.
Their first priority when they start next week on August 3rd will be complete or 80 and security remediation efforts.
We've devoted substantial time and resources towards remediation and as a result has made significant progress in recent months.
Only have we essentially completely contain and eradicated the rents the where we've also begun what we expect will be a multi quarter initiative to refresh and strengthen our approach to security.
Subcommittee of the board of Directors will help we provide oversight of this effort, which is being conducted in conjunction with external security experts.
In closing.
For several quarters I'd be speaking with you about our multiyear effort to reposition Cogs and to achieve this full growth potential.
We execute the initiatives of the transformation office.
We've not less cobot 19, or ransomware distract us from this work.
We've made steady progress across many dimensions, including accelerating or digital strategy, globalizing, cognisance, and increasing our relevance to clients.
Teams require ongoing investments, including our portfolio, our brand our talent and or partnerships.
But more work is needed in the quarters ahead, I am confident about called lessons growing stature and our competitive position.
We're controlling what we tightened control.
Making progress in our competitiveness relative to peers.
Positioning ourselves for commercial momentum.
With that I'll turn the call over to currently will now quickly through the details of the quarter, an order outlook before them two questions and answers Karen over to you.
Thank you, Brian and good afternoon, everyone.
Before I start with my prepared remarks, I'd like to take a moment.
Lets say that my 17 years, the cognizant had been more rewarding the next if ever imagined.
During my eight years of CFO, we have grown from 138000 associates and about 6.1 billion an annual revenue.
Over 280000 associates and over 16 billion, an annual revenue today and I'm very proud of our achievements along the way.
I have been honored and privileged to work alongside our associates around the world.
Good passion and commitment to our clients.
Our colleagues at our communities never ceases to Amaze me.
This is a very special company with a wonderful feature.
I'm so pleased to pass the baton to young segments, who as many of you know they very accomplished executives.
I am confident young we'll do a wonderful job working alongside Brian and the rest of the cognizant team to lead the company forward.
In the meantime, I look forward to working with you on Brian and the rest of the cognizant team through the end of the year to ensure a smooth transition.
Now, let me turn to our result.
Second quarter revenue of $4 billion declined 3.4% year over year.
For 2.5% in constant currency, including a negative 120 basis point impact from the exit certain content related services.
The negative 90 basis points from the ransomware attack impact on fulfillment.
The letter, which was skewed towards our financial services and healthcare segment.
After working through Cobot 19 related fulfillment challenges early in the quarter.
We saw improved momentum in May and June driven by double digit growth and our digital service offerings, particularly in areas such as cloud and enterprise application services.
I T modernization and digital engineering.
Moving to the industry verticals, where all at the growth rates provided will be year over year on constant currency.
Financial services declined 4.3% with softness in both banking and insurance.
We continue to see weakness across global banking account.
Capital markets, which is roughly 40% of total banking revenue continues to be under the most pressure.
And additionally, the macro backdrop has negatively impacted clients and the payments sector, particularly those with significant exposure to travel and hospitality volume.
Healthcare health care grew 2.2% led by strong double digit growth in life Sciences in Europe, primarily driven by the incentive technologies acquisition.
Within our healthcare vertical revenue declined low single digit.
I want to highlight that the leading indicators of our health care business, including software license sales, new logos qualified pipeline and booking are significantly better than one year ago.
Got it some resources declined 5% with double digit growth in manufacturing logic logistics energy and utilities offset by double digit declines and travel and hospitality and retail and consumer goods.
Where we expect continued pressure in the second half a year and the results of the ongoing pandemic.
In manufacturing and logistics, we are expanding our wallet share with our largest accounts.
And saw an uptick in deal wins, leveraging our strengthen partnerships with both cloud and SaaS providers.
Communications media and technology declined 3.2%, including the approximately negative 48 million dollar impact you technology from our decision to exit certain portions of our content services business.
The vast majority of our work has now ramped down.
Excluding this negative 790 basis point impact, we saw approximately 5% growth and communications media and technology.
Performance was flat in communications and media as growth of certain communications clients was offset by weakness with entertainment clients exposed to studios cable TV theme parks.
We expect continued pressure on media and entertainment in the second half of the year.
Overall, the demand environment in the second half remains uncertain.
We believe that we are gaining competitiveness across industries.
As Brian mentioned bookings and pipeline are solid and we've made progress strengthening our partnership.
Sure a few examples of how we're working with our strategic technology partners.
Hey client in the toll road operator business had legacy systems located in primary and backup data centers, just a mile apart from each other jeopardizing resiliency.
The client was also experiencing reliability and performance issue with its commercial back office and CRM business applications.
We migrated their on come back office external web site, and all databases to able to U.S. and just two months.
Streamlining all customer interactions.
We are now building the new back office on an open source Serverless architecture, enabling annual savings of up to 40% in infrastructure operational costs.
And with Horizon Phase I O T platform now integrated with Microsoft is your.
Cognizant as the first company to leverage the combined solution platform to develop its own aiotv enabled application on cold chain to support pharmaceutical and food and beverage industry impacted by the pandemic.
Temperature sensitive products can now be monitor to ensure product integrity from shipping through to the consumer.
I'm cognizant and Google Cloud are already working with financial services organization to modernize legacy platforms and digitally transform core banking.
From multiple banks, we're running core banking solutions based on 10 minutes technology with Google Cloud.
Moving on to margins.
Thank you to our GAAP operating margin and diluted EPS were 11.7% and 67 cents respectively.
Adjusted operating margin, which excludes restructuring and cobot related charges.
14.1%.
And our adjusted diluted EPS was 82 cents.
Colin related charges were 25 million in the quarter, primarily related to the previously announced onetime salary adjustment in April we gave to certain employees in India and the Philippines.
Adjusted operating margin was down 200 basis points year over year, you do 140 basis point impact from ransomware, including both the revenue and the cost impact.
Which together with higher incentive based compensation and lower revenue offset savings from items, such as lower TNT and the favorable movement in the rupee.
Margins for also negatively impacted by the downtime incurred by employees during the transition to working from home.
The sudden reduction in demand late in the first quarter and the time it took us to reduce headcount and other costs accordingly.
Additionally, during the quarter, we continued to execute against the 2020 fit for growth plan, which is designed to improve our cost structure and fund investments aligned with our long term growth strategy.
In Q2, we incurred $59 million of charges as part of that plan.
Putting 8 million related to the exit of a subset of our content services business.
The majority of the remaining charges related to the previously announced actions to correct are paramount structure.
Net headcount declined approximately 2.5% year over year.
Including the roughly 7000 associates exited under the fit for growth plan.
He's cost actions as well as increased rigor in our performance management process are reflected in our elevated annualized attrition rate of 24%.
Voluntary attrition continues a downward trend we've seen over the last four quarters, so approximately 11% in Q2.
That's it thank you to the majority of the actions under fit for growth are complete.
And we have achieved over 425 million in annualized growth run rate savings.
We still expect annualized growth run rate savings 500 to 550 million in 2021.
Charges to be in 170 200 million dollar range.
And as we have said previously we will continue to adjust our cost structure in accordance with the macro environment. While we continue to invest in areas that further our digital positioning.
Savings achieved from the fit for growth plan, our funding investments to help accelerate growth in key areas such as.
Sales and sales support hiring.
Investments and accelerating the growth of our digital portfolio.
Marketing and branding.
Investments to further digitized cognizant.
Enhancing the resiliency and robustness of our delivery network through increased automation and additional near shore and onshore capabilities to further diversify our delivery footprint and provide greater access to talent.
And recruiting and re skilling top talent.
In the first half of 2020, we saw total learning hours consumed grow by double digits.
And we are among the first companies globally clock 1 million learning hours on key virtual learning platforms.
Now turning to the balance sheet.
Our cash and short term investment balance as of June Thirtyth.
But at 4.6 billion or net cash of 2.1 billion.
Our outstanding net balances include the approximate 1.7 billion drawn on our revolving credit facility in the first quarter 2020.
In the quarter, we closed the acquisition of collaborative solutions and yesterday announced that we have signed an agreement to acquire new signature.
And today, we announced that our board has authorized the quarterly cash dividend of 22 cents per share.
In this environment, we continue to prioritize using our balance sheet for targeted acquisitions and at this point have not resumed our share repurchase program.
Year to date, we have deployed $550 million on share buybacks.
Purchasing over 9 million shares at an average price of $59 per share.
We will continue to reevaluate the appropriate time to restart that program, which still has approximately $1.8 billion of remaining authorization.
Overall, we feel that our balance sheet at very healthy and provides us the flexibility needed in the current environment to run the business, while continuing to invest.
We had a strong cash flow quarter, generating 886 million accrete cash flow.
This included the benefit of approximately 380 million in government offer deferrals of certain tax payments in the U.S. and other jurisdictions.
We'll now be paid in the second half of 2023 2022.
Excluding these benefits great cash flow was approximately 140% of net income.
Dsos 77 days was flat year over year.
Now turning to guidance.
The macroeconomic environment remains uncertain and the pace of recovery complicated by the evolving nature of the krona virus pandemic.
So there continues to be a number of factors that we may not be able to accurately predict.
Additionally, while we're pleased with a solid bookings and pipeline numbers they've seen in the business year to date.
How about pipeline converts to revenue will likely correspond to the pace of economic recovery, and thus clients confidence and spend.
That said, we do believe we have better visibility in the business today than we would then when we reported our Q1 earnings in May and therefore are providing for year 2020 guidance.
For the full year 2020, we expect revenue to decline in the range of 2% to down 0.5% year over year in constant currency.
Based on current exchange rates this translates to a decline of 2.2% to down 0.7%.
16.41 billion to 16.66 billion on a reported basis.
Reflecting our assumption of a negative 20 basis point foreign exchange impact for the full year.
This includes our estimate of a negative impact of approximately 130 basis points to revenue year over year in both Q3 and Q4.
Our decision to exit certain were within our content services business, which will be reflected in our CMP segment.
This guidance continues to reflect a muted outlook for financial services, and the retail and consumer goods and travel and hospitality portion of our products and resources segment.
For the full year 2020.
We expect adjusted operating margins to be approximately 15%.
Which assumes incremental costs associated with the remediation of the ransomware attack.
Wage increases and promotions for certain of our associates effective October 1st.
And incentive compensation above 2019 level.
Following the typical seasonality if the business.
Expect Q3 revenue and adjusted operating margin to be higher than Q4.
Our current guidance assumes that Q4 revenue will be negatively impacted by lower bill days versus Q3.
Andy typical cycle of furloughs.
We expect to deliver adjusted diluted EPS in the range of $3.48 to $3.58.
This guidance anticipates, a full year share count of approximately 543 million shares.
And the tax rate of approximately 27% in the second half of the year.
Guidance provided for adjusted diluted EPS excludes restructuring charges and other unusual items if any.
Net nonoperating foreign currency exchange gains and losses.
And the tax effects of the above adjustment.
Our guidance does not account for any potential impact some events like changes to immigration what tax policies.
With that operator, we can open the call for questions.
At this time will be conducting a question and answer session. If you would like to ask questions. Please press star one on your telephone keypad confirmation. So indicator line isn't that question Q.
Per start to fuel at your move your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before persons 20.
On monkeys, as we pull for questions.
Our first question comes a lot of Bryan Bergin with Cowen. Please proceed with your question.
Hi, Good afternoon. Thank you Karen wanted to wish you good luck.
Thank you Brian.
So first question here about what within your outlook are you assuming QQ was was a trough from a growth perspective across each industry segment. So any sub verticals that may weaken further before improving and I heard your commentary at the end Karen as far as Bill days for Fourq, you, but really my question is more so from a demand standpoint.
Yes, I think and so I'll ask Brian Dalsa chime in but I think from a demand perspective.
We're predicting relatively consistent trends as we move into the back are there as we saw in Q2. So certainly as we said on the call in our prepared remarks.
Travel and hospitality retail and consumer goods, we expect.
Continue to be under significant pressure in the back part of the year. Similarly, we're not expecting any significant recovery in financial services, whether that be either banking or insurance.
But I do think healthcare certainly we continue to expect some improvement in health care as we get into the back part of the year. We had talked earlier in Q1, obviously that in in Q2, barring what happened with a with Covance and with ransomware that the healthcare payer business would have started to.
Gets stronger and certainly we've seen strengthening in their pipeline.
And then we would expect to see continued good growth from our.
Man log or manufacturing energy utilities business as well as life Sciences, and the Tech business. Once you back out the content services business. So I think really generally speaking the same trends that we've seen the in recent months.
Okay.
And then just on on the bookings number can you give us a sense on on how much of this is new versus renewals and Brian can you clarify that the 25% figure you noted I thought I heard it with an eye XM link is that accurate and is this an area as you think about bookings, there's something you intend to provide more disclosure on going forward.
Oh, Hi, Brian So, yes, we grew bookings 14% than the first half a with particular strength in digital which grew almost 50% than the first half of that a few industries like health care.
Also grew very strong so to that insurance.
The reference we made it to suddenlink related to a global growth markets bookings North America grew 25% plus in the first half global growth markets was down but in Q2 in the prior year period, we had our biggest deal in a long time and I hate to normalize for bookings and that's not a hub.
You should expect me to talk about very often books for you to exclude that global growth markets also grew.
50% plus into first half of the Euro and the total company grew 25%.
Looks to be honest when we start thinking about then the rod model and then hunting versus farming, we actually feel very good about or momentum both in renewals as well as in new business. We've also clearly track to the new hires of B U 500, plus people of which about two thirds were quota bearing and the rest for.
Imports.
We see those have been self funding in the first half of this year and they're bringing three good TCV decent margins, which more than covers the cost of those resources. So it gives us food for thought in terms of continuing to invest for growth in a go forward basis.
Our next question comes on line of Edward Caso with Wells Fargo. Please proceed with your question.
Hi, Good evening, all the best Karen can you talk a little bit about the contribution from the acquisition this I'm thinking that.
Collaborative voice on the 150 million per year range and signature in the shoulder. The 50 to 60 million Ranch can you can you sort of what's baked into guidance and then my Oh My second question is.
Give us an update sort of.
How much M&A are you looking for as part of your plan to sort of grow from here. Thank you.
So I can take that and then Brian can chime in about the future, but first I'll. Thank you for the kind of comment inorganic revenue in the quarter was about two points, but collaborative as you know didn't close until late in the quarter. So very small contribution in the quarter, we have not broken out the full year.
Revenue.
I'm collaborative, but obviously that is baked into our guidance for the remainder of the year.
And a new signature again, we've signed it but we have not close and do not expect to close until later this quarter. So in terms of the back half of the year, we'll have a very small immaterial impact on on revenue.
But Brian perhaps you want to talk about acquisitions going forward.
Yeah, So hi, Ed So first of all I don't really wake up in the morning, and think about how many points of growth at once we achieve next year from M&A I think about the portfolio and our strategy and where we have gaps and where there are logical place that can complement what we're sitting out to achieve.
And as you know first and foremost our strategy is all about accelerating digital and therefore, the five or so deals we've done I've always being 100% led to two digital which is why I think we've been able to.
Feel good about deploying capital and the board obviously, you have been very supportive of us in that regard as well.
I will continue to use M&A as a means to support your strategy.
Yes, good portfolio of course.
How do you feel as though we take anything for granted but in the same thing we are organically investing.
Hi, there were strategic priorities. So while we've done a series of cloud acquisitions in the last year. We have also set aside tens of millions of dollars to invest in Hyperscale partners in SaaS vendors would have you to accelerating or or cloud practices.
Our next question comes on line of Lisa Ellis with Martin They since Im pleased with the question.
Hi, good afternoon, and thanks for taking my question first congratulations kind of course, and we'll Miss you.
Thank you just comment based on what you're seeing with clients and in the sales pipeline. How confident you are that the I'd I'd you spending will remain strong as we started transition out of pandemic mode into recession mode. I mean, so far it's been just remarkably strong, but you know obviously typically in a recession. It dip so you know how.
What's your sort of confidence or how would you handicap kept that as you're looking out to the rest of year. Thank you.
Yeah. It look it's a broad question, Lisa, but some macro demand for services sector. As you know came in stronger than expected in discerning cycle and I actually believe that within dots. We as a company are becoming much more competitive and hopefully our bookings trends and our win rates and qualified pipeline.
Illustrate that's a Sunday dessert digital growth and our digital makes which augurs well for a future.
See trends of substantial acceleration through the second quarter, both in terms of bookings and indeed in terms of revenue.
I'm also seeing trends amongst clients, where budgets are certainly being reducing to run operate space and therefore pricing pressure follow so of course automation inefficiencies and industrialization is important I.
Others, knowing what to build yourself versus what the Parker will clearly digital is accelerating and I actually believe that co goods will singlehandedly meaningfully accelerate digital and clients will realize that digital transformation is not one or two outliers are the portfolio. The fundamentally have to get treat used cases of workflows and make sure that digitize.
All of that for the benefit of their clients tend to be their employees.
Does result for US grew from a bookings point of view, 50% in the first half of the year. What was very interesting for me as you go Treaty data interrogated is that about 75% of a digital bookings in the quarter entered the pipeline since Q1 I in the first six months into your.
What about 50% of the of the bookings the creative and closed in the same quarter. So there is tremendous velocity through.
Through the channel as well I also think clients are looking at opportunities to consolidate vendors certainly as they're looking for commercial come scripts or financial contracts that are appealing to them. They are looking at companies with strong balance sheets companies that are willing to invest.
At least I think these trends are favorable cognizant.
If I heard of once I've heard a 20 times in the last month or two that cognizant showing up more favorably is ultimately illustrated love. The fact that we are unquestionably strong and run operate good increasingly accepted as a viable challenger brand in digital and therefore, it any consolidation play we will naturally.
My opinion peaker amongst the down select so I feel very very good about our competitive position or relative strengths were closing the gap to the competitors as you've seen and I'm confident that clients will continue to spend in the second half, but along the lines apply articulated.
Not least there are some large opportunities into pipeline certainly the industry or the competitors have also booklet those in some cases people are looking at reviewing your captive strategies et cetera, I am absolutely focused on digital acceleration, we will continue to look at really operate and picking over some captains, but we always look about the did.
Notion of whether those businesses are accretive to our growth cake or dilution.
Well, one can get a year over year quick apples to oranges compare and the benefit we were ultimately trying to build a book of business that is allowing yourself with classroom CAGR growth profile into the future as was the case with the companies we have been acquiring.
Our next question comes on line of Keith Bachman with Bank of Montreal keeps you with your question.
Hi, Thank you very much Brian or Karen I'll direct this towards you and I want to try to understand the puts and takes associated with the targeted operating margin of 15% for this year and what I meant is just falling into three buckets. One is are there still are there still cost that's benefit.
They're going to flow through from the 14% that reported to get to that 15% number.
Versus the second poor so I think about as revenue variances that obviously benefit the bottom line versus the third dynamic Brian that you mentioned repeatedly wasn't investing for the business and so I'm just wondering what are the drivers and part of the reason why I want to understand the second half dynamics, but also as a jumping off point.
As we begin to think about calendar year 21. Thank you.
So I'll touch on Karen if you will the notion of investments in current if you want to touch upon than the dynamics in the second half guidance keeps we're not really thinking about 21 at this moment in time of course, we're doing a lot of work kind of internally, but it's very hard to understand whats coming into next six nine months never.
The next 18 months that being said as ever we will always focus on what we can control adherence and that is our cost structure and making sure from a margin rate point of view. It can market is not volatile on the topline we should obviously do our best to optimize our merger rate.
Specific to investments.
Yeah, listen, we're committed to winning and becoming pre eminent didnt technical technical consulting and.
To be one of the leading professional services firms in the world in order to do so we have a series of transitions, we have to make scaling international markets getting much more commercial coverage out there continuing to industrialize or delivery capabilities in globalizing the company as well as changing some of the brand attributes.
A lot of that requires capabilities and skills and then none of that as ours would be more important than ensuring we accelerate or digital capabilities, which requires personnel and fees skilled talent brand attributes partnership ecosystem coverage not just from a general sales point of view, but also a special sales.
Point of view, so we're committed to investing for the medium and long term as you know I take my quarters very seriously so we'd like to manage against your commitments in a short term, but the fundamental principle, we're setting out to achieve here is to accelerate on the medium term the growth profile of the company's to get back to what we've always been good that I've been hearing.
And that will be continued investments with the company. That's what we gave and said actually achieving 2020, notwithstanding coded and runs from where we have still stage free to our strategy of investing in digital investing in sales coverage and so too will you see it's the same principles into 2021.
Carrying over to you for the second half guidance.
Sure. Thanks, Brian.
Hi, Keith So I think in terms of how we thought about the second half margin guidance instead of approximately 15% for the full year, which puts the second half at about 15.2% and if you think about happened in the first half of a year Q2 margins came in at 14, one and then for the first half through at 15.
Too as we look forward and I think about this more sequentially as they get into the back part of the year obviously.
They cover any cobot fulfillment issues and they.
Revenue impact from made are behind us, but we will continue to have remediation cost as we get into the back part of the year, we have a wages and promotions that as we said will take place in as effective as of October So that will certainly put pressure on the Q4 margins and then obviously we're not expect.
A significant acceleration.
In revenue based on the guidance that we've provided on a sequential basis. So.
Those are really the biggest piece of that this.
Then Additionally, obviously, we've got the up the acquisition. So anytime we close an acquisition there are obviously deal cost some integration cost and so forth, which.
While not individually material certainly as we look forward sequentially into the back part of your just given the timing of the acquisitions. Both someone collaborative closed late in Q2 as well as the new signature deal.
In the back half of the Europa, let a little bit of pressure on those margins as we get into the back half of the here.
Our next question comes on line of Moshi country with Wedbush Securities. Please state your question.
Yeah. Thanks, Great work late there Karen and best of luck.
A couple of things first maybe to Brian.
Are you comfortable that you're done with told the actions that you wanted to take I guess on the cells front on the executive team front and maybe can you give us some color and where we are in terms of attrition.
More on the senior side of the headcount thanks.
Yes from from an Executive Committee point of view there are few more changes that are happening that I've spoken about previously we are we've upgraded the profile of the managing director role in India to be a direct reports and executive Committee to me.
Therefore, we have a search underway and that will ensure we have somebody based in India, who will represent or 200000 employees in India.
We expect to show that in the coming months.
We also have a global growth markets interim leader at the moment due to a fantastic job for us.
And we actually have signed somebody who will join the company in the foreseeable future. However, I am not today at Liberty to announce who that person is.
But that being said the executive Committee now is my team, we're fully onboard fully committed driving into same direction.
I actually feel now I have a 18, a world class organizational run me to bring this company forwards and I know you again as big shoes to fill from Cowen, but he will step into like and culturally will be a great fit for us.
With regards to the rest of the organization.
Voluntary attrition has declined no two by tenant upper sand and this is the fourth quarter and in a row there'll be found voluntary attrition declines.
But in the same thing what we have been doing very intentionally has been to continue to deploy much more of a performance orientation and the company, which.
Means that we are now removing the underperformers on an annual basis and then on top of that given the volatility we've seen in the top line in the early part of this year, notably because of coated it goes without saying that we have responsible these needs of your shareholders, yes to protect digital skills, but in the same vein. We also have to protect the bottom line.
By optimizing our team and our bench around the revenue curve and that's why you've seen in recent quarters, a disparity between total attrition levels versus voluntary attrition levels are involuntary levels.
And if you listen to supplementary slides, we actually not started breaking that out on a quarterly basis. So you'll see a full quarter trend diverge I feel very good about the direction. We're taking the company. We have just completed actually earlier this year.
What we called covenants since people engagement survey.
And actually even sure survey results show that our results are very often better than industry across major categories and up in almost every category in the last two years. So I think morale is actually picking up I think when we execute well and I believe our employees, where the heroes of this quarter. Despite an extremely.
Challenging environments, we executed well on delivered against your commitments and I think success breeds success.
I'm feeling very good about our ability to continue to engage in motivate and attract world class talent departments.
That's helpful and then given the fact that Digitals kind of the one of those main drivers down the road.
And you've indicated that you've had a pretty significant uptick and digital bookings here I guess for the first for the first half of the here are you maybe we can get some more color on some of those wins are you kind of.
You know going head to head against some of the pure plays or are you actually.
Going back and getting some of these deals from existing customers. How does it has actually working.
Well I've got to be honest I feel really ecstatic about our momentum in digital we're doing a tremendous job at the first half bookings growth was fueled by digital engineering.
Hi, and analytics interactive and indeed are software as a service offerings and we are going head to head with the incumbents be they integrated or portfolio companies are pure plays and winning more than our fair share and if anything what I'm. Finding is clients are highly receptive to our capabilities and to our portfolio not all of them knew about that portfolio history.
Okay, and so we're being much more aggressive in getting at their marketing or digital capabilities and I'm going to market with a broad partnership system and of course all of that leads to a wonderful lack of that the foster we grow digital the bigger it becomes as a percentage of revenue and therefore that pays dividends in terms of the overall future company Cagar prospects.
So I truly feel we're in a wonderful position and I feel very confident about our competitive dynamics.
We're happy to get into boxing ring with any competitor I think we'll win more than or Hersha.
Our next question comes from a lot of Chintan way with JP Morgan. Please proceed with your question.
Thank you so much and care and wish you all the best Thanks for the the partnership after all these.
All these years my my question built on what most you just ask them I'm just I'm.
I'm curious what with voluntary attrition trending better and thanks for the data by the way sounds like you're mostly done with with the headcount cuts.
You know.
Is the can we say that the culture is in the good place here, Brian and it's hard question to answer I know, but what I'm getting at its just the concept of transitioning to growth with the culture and we're seeing this growing divide across a lot of tech firms now where you know the culture between legacy and and digital firms.
Is it was quite stark, so where do you fall in that spectrum versus where where are you want to be is there is there a way to address that here on the call. Thanks.
Well I think it goes without saying that if there ever easy growth culture, and the company will grow culture is cognizant and may be in recent years, we had lost or Mojo a little bit but this company is full of people who pride themselves on serving clients on actually I'm getting a competition and that's certainly.
How I feel we will continue to be focus in the years ahead. So I feel very good about our capabilities and very good about the culture not just an aggressive culture, but also a culture focused on client syntricity on a culture focused on continuous learning and making sure. We have that where we'll have to go out and I can be the competition again another.
The whole concern about that actually think the place where we have sharpening their pencils a little bit in the last year has being much more around partnering with a hyperscalers and making sure that as the world's shifts to platform on Microservices, an open npis accepting that we are fully ensconced with those characters and making sure that were.
Showing up declines together, but generally I feel as though our culture is a winning culture to grow culture and it took culture, that's always been impacting a challenger and beating the competition.
We certainly have strong credentials I see that every single day, when I talk to clients on I see a tremendous rounded receptivity to cognizance ambition to win in digital.
Our final question comes on line of Rod bourgeois with deep dive equity research. Please proceed with your question.
Hey, Brian. So my question is simply you're definitely feeling much better about bookings and competitiveness now than it appears <unk> you were a year ago can you just articulate what's the main change that's happened that's given.
When you this added confidence how much of the changes the market turning maybe more in your favor vertically and with certain parts of digital and how much of it is.
No you talk about clients Syntricity, you know changing the culture and so on can you articulate what what the main thing that's recently changed that's making your outlook on competitiveness sound so much better.
Well I think first of all the quality of the dialogue that we're having as an executive committee the level of engagement level of harmony at executive team is now actually what I would turn world class. We are all Im just together, we're all partnering and teaming and we've got the whole organization I think motivated to win and I don't want to.
Underestimate the to the benefit of having.
A focus on growth and the reinvigorated focus on Klein Centricity I think a decline partner level, we find that over the years would perhaps in more recent years, we had a number of distractions on the outside and perhaps even some financial model changes that's.
Didnt allow us to do what I think we need to do so I feel very good about the the harmony of the team the level of energy and frankly that is permeating throughout the entire organization I know, there's just a gain once again is somewhat of a feel good factor happening and called Us and these days.
I think also we have better instrumentation on the business I think we have got much more data now at our fingertips than we had a year ago.
And we got stronger partnerships than we had perhaps a year ago.
Generally I think.
This has not been an easy 15 or 16 months theres been a lot of work and this last you must be particularly challenging as everybody can imagine given macro as well as micro elements that are actually be to be cognizant book.
The other thing digital is a bigger portion of it makes and let's face it that's where the growth is in the market My board of being extremely supportive of our ambitions to scale there.
The organic investments are for me and my leadership team to work through but when it comes in deploying to balance sheet, we obviously have close.
Communication and coordination with the board of directors and we have been aggressively moving and in turn weeding scale thatll capabilities meaningfully and acquisitions like collaborative solutions work wonders because our pipeline immediately bills and some of our existing accounts new signature Similarly, I kick, you'll see our ability to scale.
It makes up business practice rapidly. So I just think the portfolios broader the leadership team are more harmonious theres more energy a more completely focused on winning again or any external distractions over the last few years or 100% behind us at this moment in time.
Hi, This is total and it's my thanks, all for joining and for your question I think that's all the time that we have works now.
Once again, thank you for joining us on today's conference call. You May now disconnect. Your lines at this time and have a wonderful day.
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