Cognizant Technology Solutions Corporation Q1 2023 Earnings Call
Ladies and gentlemen, welcome to the cognizant technology solutions first quarter 20, twenty-three earnings conference call all lines of it placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at this time. Please press star one on your telephone keypad.
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Thank you I would like now to turn the conference over to Mister Tyler Scott Vice President and Investor Relations. Please go ahead Sir.
Thank you operator, and good afternoon, everyone.
You should have received a copy of the earnings release and the Investor supplement for the company's first quarter of 2023 results. If you have not copies are available on our website cognizant dotcom.
The speakers we have on today's call Ah Ravi Kumar, Chief Executive Officer, and <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 statements.
These statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the S. A C.
Additionally, during our call today will reference certain non-GAAP financial measures that we believe to provide useful information for our investors.
Reconciliations of non-GAAP financial measures, where appropriate to the corresponding GAAP measures can be done in the company's earnings release and other filings with the S. A C.
With that I'd like to turn the call over to Bobby. Please go ahead.
Thanks for your title good afternoon, everyone.
When I spoke to you early February I was just three weeks into my dog.
I explained my plan to move rapidly up the learning curve.
But embarking on a global listening and learning to Ah with associates.
Partners.
I also mentioned that I would meet with more than 100 clients in as many are off of associates as possible.
In addition, I outlined three interrelated priorities, making cognizant an employer of choice in this industry.
Accidentally.
Especially by many large deals and Nancy that operational discipline.
I'll comment on prove this a feature of these areas, but first I wanted to cover a few of the quarter's financial and operational highlights.
<unk> had revenue of 4.8 billion of decline a 0.3% <unk> as reported.
But growth of 1.5% in constant currency about the high end of guidance age.
I've registered operating margin was 15.6%.
We recorded strongest quarterly bookings growth of 20th at the San Diego area and ended quarter <unk> recalled trailing 12 months bookings of 25.6 billion under trading 12 months book to Bill of 1.3 X.
Approximately 30% of our in quarter quarter, one bookings were large deals.
Which was defined as total contract value about $15 million compared to approximately 20 per cent for all of 2022.
We've been very pleased with the first quarter bookings performance as well as the building a pipeline, which includes a strong mix of large new opportunities.
I am, especially pleased to see the continuing reduction or not attrition the trailing 12 months voluntary attrition for a technology services business.
Declining to 23% down 3% points sequentially and 7% points <unk> why why you don't Ya.
While Yan-bin, Colorado financial performance at the business segment level, given the importance of financial services on a momentum I want to comment on the state of this business and the emerging opportunities we've seen this segment.
Starters, we believe our company specific operational challenges in financial services are largely subsided.
And we are beginning to stabilize the business Ah client portfolio is shown resilience what can the U S and internationally.
But they're also seeing the impact some soft of discretionary spending a decision details by existing and potential clients.
In the U S. A bank and client are generally large institutions and we have seen an uptick in ideal pipeline well with all the <unk> or the green shoots that we are moving this portfolio that I'd direction, while navigating the macro dynamics. We are in case, while leading indicators such a strong Q1 global bookings growth for financial services, a debate about the company.
Any average as well as an uptick in our largest pipeline.
I'm, particularly impressed by my conversations with about two dozen of financial services clients I can't believe some of these meetings with many new opportunities to pursue related to cost a coke when the consolidation Boston nausea integration of new <unk>.
Having said that we still have a lot of work ahead and will be closely monitoring the environment to anticipate shifts and our clients needs.
To date I have met either in person or literally the C suite exited as for more than 100 of our clients with a pleasant and nearly all of the industry segments.
All of our major geography, several teams that suffers from this candid conversations.
We have a strong goodwill with that's fine for them to continue to recognize a cultural flying centricity.
They say we are easy to work with.
And then give the nurturing that client relationships and deeply understand their businesses.
The <unk> approach to developing solutions to the challenges.
They also able to share that humility willingness to learn listen and adapt.
I believe the laundry with you in depth of our relationships have created a lot of incriminating trust.
By the way none of our clients I spoke to mentioned about cognizance of digital mix I believe that's because.
Visit a non digital capabilities have converged to the point, where the distinction between the two is less significant.
Interesting.
The differentiate too many clients have spoken about is how well positioned coverage cognizant is at the confluence of technology and industry demands.
Digital mixers no longer a true measure of the value we are providing to clients. We have decided to stop disclosing this metric.
With that said clients one more from US the trust has been <unk> strategies for the company. The challenges that tells me cognizant is earned the right to challenge that thinking it'd be a strategic partner.
Create solutions with Almond offers insights on improving their operations.
What would all I came away with the sense that many many clients for fans of our company.
What also surfaced does that most clients are grappling with largely similar challenges all the with variations by industry.
[noise] basis reflect the higher grilled <unk> comforting, an intensified focus on optimizing costs can deficiency in breathing.
Williams.
They need to disguise workflows enhance the customer and employee experiences and boost the efficiency of the commercial and operational teams.
In that context how'd it will be useful to mentioned a few recent trying to instill that underscored the strategic cloud focused work, we do for clients and the skill as a systems integrator.
We are partnering with Microsoft to build an integration roadmap between <unk> health products and the cloud for healthcare.
Oh sure they Mister give payers and providers easy access to cutting edge technology.
Technology solutions, streamline client claims management and improved interoperability to available better patient and remember experiences.
And a new when we're working with Boehringer ingelheim to speed the development and to improve the accuracy of their life savings <unk>.
We help a client unified medicinal development processes and data into a unified cloud platform and enhance the collaboration across clinical regulatory and quality functions.
We've been engaged but it works for them group I've learned through the engineering <unk> contact center platform into only channel customer service landscape that will deliver more personalized agent a customer experiences.
Using salesforce cloud and Amazon connect.
And last week, we announced a new five year agreement to transform and support the global technology operations of a long term.
Client Nike.
We will help drive customer employee and partner experiences from Nike by leveraging highbrow donation.
And processing re engineering.
These are just a few examples and shot our capabilities are in demand as clients navigate an uncertain macro economic environment.
Let's turn to the company's three focus areas of blood to enable us on the progress we are beginning to make.
The first of these is to become an employer of choice.
We recognize that this was a multiyear undertaking.
Take the pulse of <unk> sentiment I've been using every communication channel available to get unfiltered feedback from tens of thousands of associates to learn what's working well and what needs to improve.
As a part of my emotion I spent two weeks in India visiting a half a dozen cities, where we have major facilities, along with traveling to see associates in the UK, Switzerland, Canada and across the U S.
I've been moved by out associate swarmed enthusiasm and energy and what I'm hearing from them is very encouraging.
And the <unk>, we are back to walk into a crowd of doses appliance mining relationships and building new ones and we are revitalizing or the ability to land and expand within existing clients is is fairly bring on new accounts.
To be an employer of choice, we need to meet the demands of a diverse workforce that.
[noise] geography's generations in the range of work and life priorities. He ended a few of our approaches.
[noise] via mail carrier <unk> by expanding our internet job, both process and redesigning the promotion process to encourage more movement across that are gonna do should we have intensified the focus on continuous upskilling and learning like spending a learning library running into my learning and development can be.
<unk> launching a new leadership training to ensure that for people at all levels.
We've had three minute increases in 18 months for the majority of an associate sweating, the level's up to associate director.
And over the past couple of years, we've invested significantly more than compensation.
In addition, we are stepping up their first to get out associated to return to office because doing so we believe helps build and sustain a culture and helps associates will the social capital with colleagues.
Tap into the creativity of our more.
More than 350000 associates were launching a grassroots innovation movement, because I believed innovative ideas can come from a Z y.
This program called Blue Board.
And could I just celebrated thousands of flashes of inspiration that associates have every day as that you know wait for our clients.
What would the coming months, we plan to train more than 20000 additional project leaves and our innovation my present generate over 100000 ideas for trying to use rapid prototyping and the identification of new opportunities.
A second focus area of spoken about is accelerating revenue growth and building commercial momentum.
Especially by strengthening our ability to win large deals.
Q1 booking sweat a balance of renewal expansions of new engagements, which we believe will provide revenue opportunities for us later in the year and valid of 2024.
A strong bookings throat at the quarter, including for deals with a total contract value about $100 million.
Besides one large D. One recent large deal horizon healthcare services selected us to manage their claims processing and counter submissions for the state and then Dolman services for the 1.2 million members.
And the 70 available agreement, we will bring to bear.
The automation solutions for Ah try rental product suite to help horizon expedited the claims payment processor to ensure accuracy in support of that member services.
Or a logical pipelines remains healthy for the next couple of quarters <unk> bookings with a line with at risk appetite at essential to building commercial momentum.
But they can take time to ramp up and realizes Avenue.
We are working on strengthening and industrializing delivery to support our execution of large deals.
[noise] moving to our third priority operational excellence as you may recall from my last call I said that internal simplification would it be a team will carry forward to help achieve the company's full potential.
I have a drive for simplification will include operating with fewer layers to deliver <unk>, along with realigning our business to be chosen to our clients and employees and of course to encourage growth mindset.
This endeavor named next Gen is aimed at building the enterprise of the future, but simplifying that business operations optimizing the corporate functions.
Andrea lining the look first with <unk> and redistributed work.
The shifts would provide an opportunity to rationalize a work spaces across the world and especially in India S largest cities by redistributing some real estate the smaller cities with.
We can expand and by Modernising some existing space.
We expect the structural shift in a data set costs to help eliminate 80006 and 11 million square feet in large cities in India.
The shift will also enable us to invest in collaboration spaces in smaller cities, while creating structural savings for the future that we can invest enough people in growth opportunities.
We expect this program to help enable us to deliver margin expansion in the range of 20 to 40 basis points in 2024.
Was supporting a large deal pipeline.
Combined with the efforts to increase utilization improve delivery efficiency maintained disciplined pricing.
And a lower attrition, we believe we have the needless to drive modest margin expansion over the next several years, while we continue to find growth investments in 2024 and beyond.
Is it good amazing how much work, we have <unk> I plan to provide periodic updates about approve this and achieving this tree priorities.
Let's spend a moment on the demand and <unk>, we are carefully monitoring what remains an uncertain macroeconomic environment and with its potential for shifts and client priorities.
Sadly optimistic about a long term opportunity within the I D services market the demand for solutions and business outcomes women solid.
As technology becomes pulled from nearly every business.
<unk> mindless generate a V I.
With recent breakthroughs offering the potential to fundamentally transform our client's businesses and and see that one productivity.
But that and we are accelerating investment and generate a V I.
Sorry, I accidentally the processes of studio in <unk> to calibrated with clients to identify priority use cases and rapidly implement prototypes solutions for field testing.
We have conducted ideation sessions with what Turkey clients and are now working to in this slide solutions to the common challenges.
We believe generate a V I will neutralize the technology services industry, creating higher rates of productivity and.
And driving greatest prominence for software and data engineering expertise.
We are usually I do an answer all creativity and productivity.
He had operating pilots that he was generated me I'll do accelerated consulting design engineering and operations with the long term goal of doubling the productivity of associates.
With that in mind last month, we launched a new idea operations is next generation platform that brings new levels of automation intelligence.
Two applications and infrastructure operations.
By applying an AI led automation first approach, we are enabling enterprises to innovate faster and dragged on cost and risk.
We believe that adapting.
New idea operations can actually reduce operational costs by 25% to 45% videos meantime for delivery in the meantime to detect but 30 to 50 per cent and.
And reduce fte's by 15% to 30% compared with the use of traditional approaches.
Across every industry. The cloud is today, the biggest transformational opportunity and therefore, our clients need a partner.
<unk> cloud and <unk> and.
And thus ponds, we just introduced a new cloud platform called cognizant Sky grade.
This month I hybrid cloud and age management platform advice and industrial focused approach designed to help clients transition to a modern cloud native architecture develop modern applications that involved with the pace of business and streamline the cloud management operations.
With hydrated, we believe we can accelerate the migration of modernization programs sharpening transmission time by 20% to 40%.
Resulting in foster value realisation, whether it using <unk> ongoing run and governance, possibly 15 to 25 per cent.
To wrap up I stand behind my initial assessment that cognizant has this strong foundation in place on <unk>.
I'm, especially optimistic about the strength of our portfolio and partner ecosystem combined with the ability to create value for clients at the intersection of technology and industrial use cases.
We recognize that a renewed strength and booking some momentum <unk> soft the backlog from the past nine months and we believe we can demonstrate improved looks towards the end of this year and in 2024.
With that I'll turn the call over to you and to provide additional details with a quarter and I'll go for 2023, you on over to you.
Thank you <unk> and good afternoon, everyone.
Before I touch on the details of the first quarter I would like to spend a moment on the next Gen program, we announced the day during.
During the second quarter, we initiated nexgen to simplify all operating model optimize how about corporate functions and realign I'll office space to reflect a hybrid work environment.
We expect to record total estimated nexgen cost of $400 million approximately $350 million in 2023, and 50 million in 2024.
This consists of $200 million of employee severance and other costs, primarily related to non billable and corporate personnel, which we expect to mostly incur in 2023.
The personnel related actions under this program I expect it to impact approximately 3500 associates or approximately 1% of our total workforce, we expect to realize savings from our next Gen initiative in the back half of this year.
The next Gen program also includes $200 million of course related to the consolidation of office space and approximately $150 million in 2023 and $50 million in 2024, we.
We do not anticipate these real estate actions will begin to generate savings until 2024.
By 2025, we expect to reduce our annual real estate costs by approximately $100 million with his 2022.
This reduction is a net of investments to expand our real estate footprint in smaller cities, primarily in India in support of a hybrid work strategy.
Oh for your operating margin outlook includes the anticipated impact of these actions that's.
That's why I mentioned we.
We expect this program to help enable us to deliver 20 to 40 basis points of margin expansion in 2024.
In addition to funding revenue growth opportunities.
There's 2024 expectation assumes no further deterioration of the economic environment.
Beyond 2024, we are focused on driving structural cost improvements to fund investments to support revenue growth, our people and modernization of facilities, while driving consistent modest margin expansion.
Now moving on to the details for the quarter.
We were pleased to deliver revenue above the high end available guidance range strong free cash flow and healthy large deal bookings, which has helped us to begin to replenish backlog following muted bookings squirrelled throughout 2022.
First quarter revenue was $4.8 billion, representing a decline of 30 basis points you over here.
Growth of plus 1.5% in constant currency.
Over a year of growth includes approximately 100 basis points of growth from our recent acquisitions.
That's why I mentioned.
We were pleased with our bookings performance in the first quarter, including the mix shift towards larger deals.
We also exited the quarter with a strong pipeline a larger opportunities across industries.
At the same time, we also saw pressure and smaller contracts, which we believe as a result of a softer discretionary spending being driven by the macro environment.
This environment has a near term impact on our revenue in the second quarter, which I will touch and my guidance commentary.
Moving on to segment results for the first quarter, where all growth rates provided will be you have a year in constant currency.
Within financial services revenue declined 1% <unk>.
Revenue pressure within an hour North American portfolio was partially upset by growth in our global growth markets, which was driven by public sector and insurance plans.
In the first quarter bookings growth within financial services outpace the total company and we are seeing and improving pipeline of opportunities over the next 12 months.
We have begun to see signs of stabilization, we're still rebuilding a backlog as it continued to navigate an uncertain macro environment.
We believe this uncertainty has impacted the pace of client decision, making and put pressure on discretionary budget.
It has also resulted in new pipeline opportunities around cost savings efficiency and vendor consolidation, which we are actively pursuing.
Ah Sciences revenue grew 4% consistent with logical last order.
Growth was driven by increased demand from healthcare Payack lines for our integrated software solutions.
Products and resources revenue, 1%, reflecting inorganic contributions from recently completed acquisitions and continued strength among logistics utility and travel and hospitality customers.
This was partially upset by pressure from retail consumer goods and manufacturing customers, which we believe reflects the economic environment.
Communications media and technology revenue grew 4%, reflecting slower growth among our largest technology clines and muted growth among communications and media clients.
Similar to our other segments, we believe the macroeconomic environment is impacting the pace off decision, making in discretionary spending among all S. E M T clients.
Continuing with our year over year growth in constant currency from a geographic perspective in Q1, North America revenue declined 1%. This performance reflected declines within financial services and products and resources, partially offset by growth and health Sciences.
Global growth markets or G. G M, which includes all revenue outside of North America <unk>, 7%.
Growth was again led by the UK, which grew 14% and included strong double digit growth within financial services, including public sector Clines N C. M T.
Now moving onto margins.
Thank you one both of our gap and adjusted operating margins where 14.6%.
Where no non-GAAP adjustments in the quarter.
On a year over year basis, both gap and adjusted operating margin declined by 40 basis points.
This is primarily reflects gross margin pressure from increased compensation costs, partially upset by tailwinds from the depreciation of the Indian rupee low SG&A expenses and the benefit of 2022 pricing actions.
Oh, a gap tax rate in the quarter was 21.4%.
The adjuster tax rate in the quarter was 22.5% Oh effective tax rate included a discreet benefit from the settlement of prior year tax audits.
Yeah, one diluted gap E. P. S was one dollar and 14 cents and adjusted EPS was $1.11 cents up uhm, 7% and three per cent you have a year respectively.
Now turning to the balance sheet.
We ended the quarter with cash and short term investments of two and a half billion dollars on net cash of $1.8 billion. ESO of 73 days was down one day sequentially and increased one day you over a year.
Free cash flow in Q1 was $631 million, representing approximately 110% of net income.
This compares to free cash flow of $186 million in the prior year period.
Which represented approximately 35% of net income the increase in free cash flows was driven by phone with elections.
During the quarter, we repurchased 3.2 million shares for $200 million, a share repurchase program and returned $150 million to shareholders a regular dividend.
We also close to acquisitions in the quarter, <unk>, which helps bolster our Iot software engineering capabilities.
And the professional and application management services business of one sort of spiritual and workday partner over the last six months, we have deployed approximately $800 million of capital across for acquisitions.
Before we moved to our outlook I would like to spend a moment to discuss the change in our attrition disclosure.
As you heard Robbie mentioned when now disclosing voluntary attrition tech services on a trailing 12th month basis, which we believe is most relevant to our business. This new metric includes all employees, except those in our intuitive operations automation practice and replaces a prior disclosure.
Now.
Turning to our forward outlook for.
For the second quarter, we expect revenue in the range of $4.83 billion to $4.88 billion, representing a year over year decline of 1.6% to minus 0.6% or a decline of minus 1% to flat in constant currency.
Our guidance assumes currency will have a negative 60 basis points impact as well as an inorganic contribution of approximately 100 basis points.
We also providing initial full year 2023 revenue and operating margin guidance.
Focus for the remainder of the year is to continue to replenish our backlog two successive quarters of strong bookings performance, which we believe would improve revenue momentum towards the end of this year and as we enter 2024.
For the full year, we are guiding revenue in the range of 19.2 billion in $219.6 billion, representing a decline of minus 1.2% to growth of plus 0.8% or a decline of minus 1% growth plus one per cent in constant currency.
Inorganic contribution is expected to be approximately 100 basis points.
This assumes no major deterioration in the demand environment and our assumption that large deals we assigned and expect to sign in queue to begin to ramp more meaningfully in the second half of the year.
Moving on.
To the adjusted operating margin, we are guiding operating margin to be in the range of 14.2% to 14.7%.
Modern outlook is impacted by several factors first we expect that macroeconomic environment will impact pricing, which was a key lever for us in 2022 to help offset the elevated wage inflation.
Second we are achieving a fast pace of large deals than we initially anticipated. These larger deals generally have a dilutive impact and the first year. Finally as mentioned the next Gen program is not expected to drive meaningful savings until the back half of this yet but real estate we anticipate.
Initial savings in 2024, and a full run rate in 2025.
Oh operating margin guidance also assumes a sequential decline in Q2 as a result of the marriage cycle that took effect from April one.
As a reminder, this is our second marriage cycle for the majority of our employees in the last six months.
We anticipate 2023 interest income of approximately 85 million, reflecting the higher interest rate environment, and then address the tax rate in the range of 24% to 26%.
In 2023, we expect to deploy approximately $800 million on share repurchases, including the activity in Q1. This assumes repurchase activity above our long-term capital allocation framework and will reduce our weighted average share count by approximately 2.5% in 2000.
23.
Based on the share repurchase activity, we anticipate full year average shares outstanding of approximately 506 million.
This leads to awful yeah adjusted earnings per share guidance of four dollar and 11 cents to $4.34, which reflects a wider than typical operating margin guidance.
Finally, we are targeting free cash flow conversion of approximately 90% of net income which assumes the negative impact from the changes in the U S tax law that'd be discussed in February .
We now estimate the negative year over year impact of $540 million from this change which is slightly down from our prior estimate this.
This includes approximately $300 million in deferred payments relating to 2022.
With that we will open the call for your questions.
Thank you we will now be.
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This time, we ask that you limit yourself.
One question and one follow up.
Please.
Our first question comes from.
The Muslim.
Please proceed with your question.
Oh sure I help thanks for taking my question.
Good good nice up take care on the booking side I just wanted to talk about this dynamic a little bit.
A little bit more is it something that.
I have a struggle with cognis out for the last few years.
You're showing nine per cent I think bookings growth year on year, but that was a book that they'll have like 1.3 X.
Which is.
Implies a bit if that disconnected.
Bookings translate to read the news can you just talk a little bit I I know you mentioned your <unk> refilling the backlog and you know you expect you to come in later in the year or can you just help us a little bit again with how we should think about that dynamic the translation of bookings into revenue and the timing and maybe what's going on with the backlog would be on the line.
<unk>. Thank you.
Thank you Lisa I'm Gonna. This is <unk> start off and then ask you add to add.
We recorded very strong bookings mm 20th% on the.
And 12 months feeling bookings of 25.6 billion.
And you're right <unk>.
I think the way to see it is.
It has multiple factors associated with it.
First and foremost.
How much effect is available and how much of it is Neil how much effect as expansion.
Well, we don't give those numbers out we had healthy.
<unk> held the expansion and new business in comparison to the best.
We had four <unk>.
Large deals more than.
Total contract value of $100 million just to give you an order of magnitude last year same quarter. When you don't have any.
Any large deals.
Largely that come with that little bit of you know.
Mm mm.
It comes with with that.
<unk> been a lot of it is at the at the end of the cycle.
That'd be at the back of the cycle.
Shot deals smaller deals come with immediate short fuse demand, which gives you a revenue on the short run largely this gives you a avenue on the medium to long around while in the short run and they take a little time to nine Bucks.
So and.
And somebody how this translates to remedy the shot and the medium in the long run is dependent on what percentage of large deals one percentage of it is small things you would appreciate small to use actually a little softer for us because we have we know that the description of these and his softening in an economy <unk>.
In.
So the lodge these gives us the opportunity to accrue revenues at the back end of this year and the next year.
We build the pipe for the future.
Pipeline is looking strong as well.
Yeah, Hi, Lisa 90% trailing 12 months bookings growth is really entirely driven by the very strong bookings growth in the quarter and this quarter. As you know we had to three quarters of flat bookings that contribute to this overall trailing 12 months result, and so the right.
New growth in this case will be picking up we expect them model and our revenue guidance. Some revenue impact from these larger deals kicking in starting in ramping up in the second quarter and the second half of this fiscal year and then have the full impact next year, so and for the second.
Quarter impact.
Impacting our guidance is also the anticipation that'd be C softness and the small scale bookings.
For the second quarter in a sense is kind of a transition quarter I would say because we have the high bookings growth hopefully continued momentum and bookings as we.
Go through the year, but we do have a short.
Short term revenue impact on the decline all visa shorter and smaller deals that impacted by the by the economy My discretionary spending so that's kind of how.
Best to understand the relationship between bookings and revenue growth.
Thank you and then maybe for my follow up probably that's when it's great. You I know you mentioned you've been out talking to 100, plus clients and have not been Ah cognizant for two and a.
Half months or so can can you just.
Articulate when you're talking out there with clients how you see cognisance like we give a uniquely differentiated marquette when you're you know with what you're hearing back from them, what you're getting from associates et cetera.
Thank you Lisa you know I've met a more than 100 kinds of my first hundred deaths caused solid geography's uhm and traveled extensively to meet them in my associates.
I would say you know just to keep the keep the high level.
Observations.
I didn't Ah clients love the conflict.
Technology and industrial demand, Wisconsin really comes with 100 per cent. If you go back to the history of cognizance. It was.
It was bought at a time then there was a payment of they might do cable and it was born to the application outsourcing van which was starting off in Congress and the capability on our confidence of industrial demand.
And industrial demand the conflict is very important now than ever before because.
We all know that we're living in a coordinated over technology bad the code of every business and every industry is is transitioning to a technology led colon and technology must court. So I would say we have to progressively make sure that the confidence of technology and industry, we actually we actually demonstrates that differentiation.
The industry, we represent our biggest exposure is healthcare lifetime, so some dental services.
Which is bad I think we have really double down on this conflict and we now have to progressively building every other industry. The second piece I would say his client centricity I think over the years cognizant through cause actually come from mining accounts with the best of capability cognizant things and of course the <unk>.
Five teams. So these are the three things, which stood out for me and in fact, some clients actually who work with us for very long actually said, we have fans of Congress as I mentioned that in mind.
Initial remarks, and that was that really stuck to me that does that clients want us to do more with them you want us to challenge them and want us to <unk>, along with them for that and technology future things like that so can they can never be a better time for the confidence of technology and industry.
And I think we have so well positioned for that.
Thank you.
Thank you.
Our next question comes from.
Talent.
With your question.
[noise] good afternoon, and thank you.
My first one is a margin and I guess the next Gen program clarification, and sorry, if I missed it but can you give us a sense of what the run rate cost reduction or the net savings you expect to achieve by the end of 2024 and I'm trying to understand if if the 20 to 40 steps.
24 operating margin is incremental what you would normally I'd plan for or if that's kind of the total level of operating margin expansion, which would align with with prior targets.
Yeah, Brian as many moving parts here. So let me talk first about the overall program off $400 million of restructuring charges of which 200 million comes from severance and 200 million comes from real estate, we provided really only unexpected run.
Savings rates to materialize in 25 at the full range of $100 million for the real estate component, we offer that savings opportunity because we see it as a hard from the outside to calculate of how restructuring charges in the real estate space translate actually into.
We'll run rates savings. So that's kind of off we wanted to help you with the impact of the 200 million dollar component for real estate with that a portion of that.
A meaningful portion of that will be achieved in 24, and then the full run rate and and 25 on the settlements, we haven't giving you and net impact or growth impact number. One I think you can fairly easy calculated by the number of employees affected and.
Volume that we anticipate make an assumption about the cost savings that we would see me.
Many factors and you see this reflected in a relatively wide range of margin that we give for the year.
Wage inflation theirs, and I'm certain pricing environment, and and other things that we will have to manage through so we we haven't given a more detail about the the.
Seven charge at this point in time for 24, the 22 40 basis points up margin expansion would be off the exit made and 23 and that would be our current outlook 222 24.
<unk> it should figure out from our point of view all confidence that the full run rate of this program will help us to not only offset large deal pressure that we're gonna see for the first year business cases of that larger deals plus the wage inflation plus other elements.
Elements for 24, so it's a little unusual that we give that early and expectation on the margin, but we felt given that the program is currently sizeable and on the unfortunate is gonna be realized in 23. It will be helpful. For you to know that we are confident about rich.
<unk> expansion and 24.
Just just one on one additional things out here I think visa to structural shifts it on cost as well.
Realistic cost at a hybrid of <unk>.
<unk> the structural shift and.
Personal costs, which which is which is a part of it is D. D. I think is an important an important part of this program. It's a structural shift yeah. We I should we should mention of redo that thing and I'll ask her if that'd be a focusing on nonbillable and corporate function. So these are intended to ask.
Really low SG&A right basically.
Okay I appreciate though that's helpful.
And that follow up <unk> on the on the large deal for them I guess, maybe the Salesforce can you talk about what you're doing specifically in these large deals <unk> pursuits, and maybe your initial assessment of of the Salesforce, a neat and sounds structure I'm I'm curious what you may have put in place here early on in one to you and give you some quick wins.
Yeah. So we ended up really excited about the longitudinal momentum. This is initial momentum there's the bookings to squander advertised as a good pipeline.
I would say that to swim lanes to this one is assembly on transformation deals, which I think.
In some way a smile, a little slowed down to the current economy and <unk>. There's a second <unk> cost take I'll, just specifically the industries, which went through a higher growth rate in the last few years, but it's starting to go back to the post pre pandemic girlfriends is starting to see that there are significant opportunities okay cost and.
Using Linda consolidation are cost take out as a way to construct a last year I see more of them now and I would say both the swim lanes and equally important is the economy takes up.
Telling me you're going to see more transformational digital work coming the other way. So I <unk> I would really say these are the two big categories of large deals.
And the industry's been we see more of it are the ones, where there was a swing of grow up during the <unk> trajectory of go to the last few years.
I'd go with the stock paper down the timing wise also the labor market to the middle <unk>. So this is a good time for all our clients to start to get efficiencies and cost stake out and use a partner like cognizant of supported so we see more of them now than than default and of course, it's also reflect.
Thank you very much.
Thank you Alright next question Congress.
<unk> <unk> <unk>. Please.
Please proceed with your question.
Yeah sure.
<unk>.
I'm, sorry, I didn't check with amazement with my name being called sorry.
Good to hear from you <unk> you guys have.
I have both been.
Busy.
I appreciate the best Hot out comment any I guess.
I wanted to ask first about decadence that you expect obviously you can you know you've given two two <unk> <unk>.
Is there more of.
<unk> improvement from that day to get to be full year or is it more of a.
No I don't want to call it the phone to hockey steak, but it is it is it a sharper improvement too can deposit do.
One four Q and then it's eight similar question on Martin If you can talk about cadence.
Yeah, I mean, you see our revenue guidance for the second quarter is largely in line with our revenue guidance from the first quarter and so we do not anticipate really material contribution of the large deals.
That'd be fine until the third and fourth quarter of this year. So we do anticipate new growth acceleration through out the fiscal year throughout the quarters and I think we're giving you a fair revenue guidance for the second quarter, we did it so let's see.
Basically pressure on some discretionary projects and.
A deal as I mentioned in in my comments before so I think the revenue guidance is kind of where we really solidly. Thank we're gonna be at the margin guidance is a very important Christian and I've tried and so.
Keep in mind, we do implement for the vast majority of have implemented in April .
Merit increase and and the second quarter will therefore be different from our historic profile on margin that we have shown in the past few years. So I was second quarter I think warrants a good look up what happens when we implement that merit increase what's happened historically.
Fourth quarter, and so I think of it as a normal merit increase in the margin pressure that you will get from it and that's gonna be.
Some material impact for us and the second for that that's why I'm mentioning it and if you do the math of are comparable merit increase in the fourth quarter and exclude the one time components of the fourth quarter that we had you'll see that in the fourth whatever you recorded about 100 basis.
Once the impact of that merit increase on our margins and you have to assume that things wouldn't be that different in the second quarter that maybe he actually probably slightly a little bit more pressure because the economy's changing a little bit, but that's kind of the framework. That's why I want to point that out so and then the pizza.
Action of our next Gen program, because the star Trek execute in the second quarter, but.
Given how we're going to be executing of course, the third quarter and the fourth quarter will be reflecting the impact of a big portion of [laughter] I'm all good portion of that program.
If you if you just the job job your memory on because we actually did one in October .
Cyclic we're doing one more in April . So these are two very cycles and factory motorcycles and 18 months.
It's good for that associates.
Has to reflect on on a decent number is starting to drop.
I've already seen that.
It's an investment for the future, but it equally has pressured on other projects.
I understand I understand.
I guess the first part of that question wasn't and then when you cadence and if you could fantastic, but then I also want to ask you. Your head Tom did go down sequentially any when do you expect that to stabilize and start to grow I guess in anticipation of.
I don't have any blood in the in the in the future and what are these.
Do you think.
Please automation and applying a I T yourselves, Mike play as you'd think of head count in the future.
Wow, that's a great question and actually you know one of the tanks as I as I mentioned my priorities is to get commercial momentum large deals.
<unk>, you know being unemployed of choice the third piece I spoke about the simplification of operations. The next improve them is.
Is it important program to be laid out all the foundation of Memphis simplify it operations equally one of those things where you're gonna bring a huge kittens on I think in the last 12 months or so we had some.
Very good initiated that advertising in the market.
And that's the way to actually keep your margins intact why don't we focus areas for me moving forward is increased utilization higher offshoring, better better pyramid ratios better <unk> <unk>.
And the 14th what you just mentioned which is.
Which is embrace of automation and everything we do in fact, just a few weeks ago I launched a platform Canoodle ice tea operations.
Bad we're gonna blow relentless on on applying automation to ourselves both on technology as well as I T operations and of course on the process side.
So we do think this is going to be a little bit of.
Structural shifted the way we see our operating model. There's we look at <unk> not just to pricing, but also to operational efficiencies and deliberate automation automation is there is.
Is moving scandal.
When everybody it moves on that scale, you've been to start to share those benefits with your clients and when you start to share those benefits of <unk>. So that you can actually be ahead of the curve I can keep it for yourself. So it's kind of a cycle you have to keep working on and then the inevitable and when you start to shake with your clients when there's a new baseline <unk>.
Slated with more innovation, so I would say we have got into the rhythm. So we are very excited about how we how we could be compensated to Ah deals, which we are starting to see and how we could also on the downstream.
Pies deals to win and deliver them to margins using automation as a lever.
So let's add important shift in the way we are seeing.
Operating model and it's an evolving scale because of the fact that technology in that space is evolving so fast, including the limited just standard of AI to increase developer productivity, which is a new <unk>.
Thank you very much.
Thank you.
Next question comes from.
We can't please. Please proceed with your question.
Thank you.
Following up on on the last question rugby can you maybe talk about.
The level of productivity gains in terms of potentially automation and the level of disruption here.
And what I'm getting to hear is <unk>.
The potential for a step function change and if there's a step function change how does that impact the revenue model as you look over the longterm right I assume you won't be able to generate the same level of revenues for giving level of service.
Interesting question because.
It depends on how much you want to.
You've reached the productivity you knew generated out of these tools and instrumentation and platforms into your deals and you use that to win more and shared with your clients.
And how much you could actually constantly in a way beyond the time when you start with the deals to let you start to exude the deals.
So it's a really difficult one because it's a moving scale because you know nobody spoke about gender W. I N 2022, everybody's speaking about it.
<unk> come come to disrupt various businesses in the world, including others.
So I would say, it's a hard one to put the <unk>.
Quantifiable impact on revenue and on Moslems.
It is I'm moving scale, we hope to be constantly ahead of the curve.
And again constantly <unk> equally to win business. Because these are the same productivity basslines, we actually taken to our proposals sometimes you wonder as the baselines.
Constant can change where the kids will translate that back to your bottom line on it when it could translate that back to better into it shows that you have to keep keep the balance so that you'll have growth and equally you you were unable to generated growth in a profitable nearby magis liberal aging the traditional.
Leila's of you know higher utilization hired off shortly and bite unrolled, Max but also using technology as as a legal to do this so you don't mm mm I know I've I've given you a high level answer, but it's very hard to simulate and put a bit of a new module attached to it because it is just such a.
Such a fast moving I'm moving I actually I actually think we're very equipped to.
Mm capitalize on the on the advances of the space and then well equipped to you know <unk>.
The value for our clients and they <unk> to actually all of our business model, which is potentially going to go from people to people plus machines moderately if I'm able to people plus a I R E I amplified human model, which I've been.
Really fascinated about.
Thank you that's it for me.
Thank you next question comes from Brian .
Please proceed with your question.
Yeah, Hi, I just had a question on the overall I T services environment, just thinking in your conversations you had with.
With the hundred or so clients Robby R people expecting the environment to stay similar in there I T spending budgets or do you think people. We'll we'll put further pressure on on budget Tonight to spend as we go forward through this year.
Yeah. That's a great question would actually you know.
You know I I I I want to kind of.
What does this in a little different direction.
If you're working on traditional technologies of classical technologies as I call, it which is enabling a business.
Depression reminded budgets is gonna be very high because a lot of it has cost driven.
<unk> system, if you're building a new <unk> system as supply chain system.
I I think the <unk> budgets with the economy uncertainties might be very it's going to be tight that's how I see it.
If you.
Liberation technology to disrupted <unk> business it as an example.
If you're doing it the connected caught initiate it wasn't an automotive company.
I.
I don't think budgets will come on the way because it said disruption of the business models.
Equally that capability, you'll need is gonna be the best level, which means you have to be different swim lanes in your operating model. So that you could kinda to classical technologies on one side, but equally catered too deep expertise needed for <unk>.
Disrupting the code of businesses. This is <unk>.
Which did not exist before it because most businesses enabled the businesses using technology now technology has emerged into into businesses, which I think they'll have more more flexibility on budgets because the paranoia about the cold changing means you could become irrelevant if.
Don't make the change and therefore, you advocate more for securing your future as a business. Some industries are doing it more paranoid because there is more ah more change the core products and services and some are actually not as worried about this issue.
I would say it.
Depending on where you are this would you would you would find I T budgets to be under stress on you'll you'll be able to find out you, but it's not to be under stress. The second piece I would say you up with you they'll be helpful. We all have to think about is.
<unk> U D was is not as much just <unk> how 'bout unity was is operations Pinto fan to places because technology is so deeply immersed into operations. So if you put that lance and operations, which have to be automated for <unk> for lower cost for higher.
For high touch services, you would potentially immersed in technology I also I've been months in technology for the companies that cognizant of benefit out of it. So if I see that as the unit was that's a very different universe. In fact, this will give you a case in point that accompanies would you <unk>.
Cost.
Equal to the military during the pandemic and when they go back to the <unk>.
It does go through it's Dr paper down they have to pay their operations costs <unk> do it by automating at all they could do it by outsourcing enough. Shortly so it can it can you can have a benefit that so I would say you know these are two different things to look at you know even today that is consolidation.
Provide us caustic out which is actually reading about tons as I call. It the customers don't spend more but there's a swamp of the portfolio between one one provider to another provider, which means one Vincent one loses so I'd say, it's kind of you know if.
If if if I just look at <unk> and classical technologies.
Have a different answer for call you would have a different answer and of course, if you up I'm, sorry, I didn't provide us it's <unk> so somebody else.
Okay, Great yup, thanks for the color.
Thank you.
I would like to turn the floor back over to management for closing comment.
Great. Thank you everyone for joining we look forward to catching up with you next quarter.
Yes, it's Denise.
Technology first quarters.
Three.
<unk> you may disconnect now.
[music].