Q2 2023 Cognizant Technology Solutions Corporation Earnings Call
Greetings and welcome to the Congress and second quarter, 20th twenty-three earnings Conference call. At this time, all participants are any listen only mode.
A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone Keypad has a reminder, this conference is being recorded it is now my pleasure to introduce your host Tyler Scott Vice President of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone. By now you should have received a copy of the earnings release and the Investor supplement to the company second quarter of 2023 result.
If you have not copies are available on our web site cognizant Dot com.
Cause we have on today's call or Ravi Kumar C, Chief Executive Officer, and Y'all statement Chief Financial Officer.
Where we begin I would like to remind you that some of the Congress made on today's call and some of the responses to your questions may contain forward looking statements.
Payments are subject to the risks and uncertainties as described in the company's earnings release and other filings with the S. C C.
Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors reconciliations of non-GAAP financial measures where appropriate to the corresponding GAAP measures can be found in the company's earnings release and other filings with the S. A C.
With that I'd like to now turn the call over to rally. Please go ahead.
Thank you Ty no good afternoon, everyone.
I would like to discuss four topics with you today.
Second quarter results.
The demand environment.
Instead of commitment to tender to V I.
And an update on a long term priorities.
We made continued to visit during the coordinated what remains uncertain global macroeconomics can get unmeant.
Q2 came in at $4.9 billion at the high end of guidance range.
We were pleased to return to sequential revenue growth of more than 1%.
Q do revenue showed a modest decline of 40 basis points that essentially flat in constant currency.
Oh and adjusted operating margin was 14.2% of adjusted EPS was direct incense.
We recorded ended the quarter of strong bookings group, 17% you'd already yeah.
And being quarter to get the record trading 12 months bookings of $26.4 billion.
A book to Bill of one xxxx approximately 30% of quota.
Bookings were lodged in favor of this deal succeeded hundred million dollars each.
I was looking to continue to be a balance mix of animals extension and new opportunities.
The leadership team and I demand intensely focused on a talent.
So I'm glad to see the continued reduction in our attrition with trailing 12 months, what entry attrition for a tech services business declining to 19.9%.
Down three percentage points sequentially, and 11 percentage points, you know ear to what he.
Well, yeah, I am going to cover up performance at the business segment level I want to offer a quick word about financial services.
Have a quarterly decline.
Decline in the segment reflects the soft market.
And continuing weakness in discretionary spending.
Ponds.
We are transitioning more existing work in the sector towards managed services as many clients. So you've been focused on driving cost take out when the consolidation of productivity any shares.
We also stepping up our engagement with Fintech companies, which we believe off what a great opportunity for digital transformation.
And we are strengthening their capabilities with a group of capturing discretionary spending on transformation work when it returns.
For example, we continue to support the modernization of SMP Global Config, a prize court system to enable end to end disposition.
And what we believe is the world's largest C. P Q implementation on sales for us.
And we are collaborating with Max life insurance to launch an innovation and development center in Chennai to help accelerate the digital transformation efforts.
With a flexible find central operating model, we can assist clients across industry sectors stakeout cost consolidate the vendors and achieve both technology and operational efficiencies, which provide opportunities for large deals.
We can also help them digital platforms to Delaware richer and more personalized experience as to their customers.
What's more we can engineer technology into their products and services.
As an example recently extended a partnership with Gilead Sciences. This agreement includes the available and expansion of cognizant services for a total expected value of $800 million over the next five years.
We'll manage Gilead global I'd infrastructure, we're leaving digital transformation initiative designed to enhance their overall client experience and.
[noise] enable faster time to market for their products.
We will apply the Virgin AI and intelligent automation to help improve gilleard customer service experience in their system driving.
Create a manufacturing efficiencies.
To support client's transformation leaves we have established <unk>.
Think the physician across industries using a platform centric approach designed to speed clients consumption of technology.
You've seen the emphasis will give it to this platform approach for example, <unk>.
Cognizant <unk> healthcare assured investigate investigate a platform and life sciences acid performance excellence, and smart manufacturing and car to cloud and automotive.
Last quarter, we launched two new platform. So the applications across industries noodle, Ikea operations, which enables AI, let autonomous patients.
And cognizant Sky grid designed to help clients maximize the full potential of cloud.
Turning to a quarter to we expanded our platform portfolio further with <unk>, it's designed to speed the adoption of generative AI and hardness its value in a flexible secure scalable and responsible way.
With newly I'd be a helping clients advanced from identifying company specific use cases too Operationalizing guy.
I should point out the agenda anyway, I as a natural evolution of a word crossed cognitively I enterprise applications and data and analytics services.
To extract value from Jenny I, the data must be curated trained modernized and made production ready.
You also need a deep understanding of clients' data states data architecture data usage patterns and business applications of the data.
Our current approach to leverage third party foundational models and it helps them with their platforms and IP and then fine tune the models for our clients.
Today, we have more than 100 active client engagements in various stages with a focus on cognitive until literally I as well as hundreds more projects using guy services within the context of delivery.
We're designing degenerative AI offerings for industry specific solutions cross industry use cases, and productivity enablement under teams like transforming code processes.
Improving the customer and employee experience product innovation software and coding and knowledge management to name a few.
Put a top 20 property and casualty insurance.
Helped frame, it's Jenny I strategy and conduct real world Real World tests based on company data.
For example, we built a journey I based digital virtual assistant that analyzed lost complex claims.
Submissions by referencing the insurance claim data the virtual assistant was able to guide a human claims handler together nearly 100 per cent of missing claims information.
This simple application is expected to produce millions of dollars in savings through improved operational efficiency and reduce claim costs.
In addition.
We signed a new multi year agreement with nuance communications and Microsoft Company to help scale the resources for new Anzus Dragon ambient experience operations. This solution is that the for front of Conversationally I, an ambient clinical intelligence.
Let's turn to the Essentials, all partners playing delivery capabilities, we expanded our alliance with group with Google Cloud to help enterprise clients create migrate and modernize that AIG your knees.
It also claims innovative industry solutions founded on the tenet of responsibility I.
Our investments in developing genetically I'd capabilities include launching the card cognizant, Google Cloud Air University program designed to train 25000 cognizant professionals.
And Google Cloud AI technologies will offer this program to our clients as well.
And earlier today.
We announced that as a part of an expanded partnership with Google will be building on Google Cloud <unk> technology.
With cognizance AI domain expertise to create a healthcare lodge language model.
This L. M is designed to simplify and improve the accuracy of complex healthcare administrative pass and strengthen business outcomes for healthcare.
Organizations.
We've also expanded our relationship with Microsoft deliver industry solutions and enabled <unk> <unk>.
Transformation. This includes expanding the focus of Microsoft Center of excellence and they I and other Nextgen technologies to drive competencies across architecture technology leadership value delivery tools and enablement.
Cognizant of service now we've announced a strategic partnership to accelerate the adoption of AI driven automation across industries.
Our industry expertise and solutions integrated with Servicenow intelligent platform for end to end digital transformation will bring to market offerings that are designed to solve complex problems automated operations and enhance employee as well as and customer experiences through the use of <unk>.
Now it quick update on a three long term performance objectives, becoming an employer of choice in our industry.
Accelerating revenue growth.
And enhancing operational discipline.
Let's start with the employer of choice.
During our queue for a call I talked about how tightly linked to the client and the employee experience that.
Giving <unk> the opportunity to create self reinforcing cycles.
Highly engaged talent with a passion for clients the group mindset attract the best class.
These clients and turn attract more of the best people keeping the flywheel turning faster.
Now two quarters later, we are seeing the early benefits of this interdependent relationship between employees and clients.
Trailing 12 months voluntary attrition has been trending downward for the last four quarters.
And that's just completed annual people engagements survey assured meaningfully improve engagement results.
Among the many questions a survey poses to associates, we saw multi point increases in three areas strongly correlated to engagement.
Would you recommend cognizant is a great place to work.
Are you excited about cognizance future.
And do you plan to be working at card within two years from now.
On the client side data from a project level client feedback process. So the first half of this year.
<unk> solid improvement over the previous previous scores as well as at best.
Net promoter score since launching this program in 2021.
I see is making real progress on creating a self reinforcing cycle.
From day, one my commitment to associates has been to cultivate a diverse organization that reflects the world, which we operate.
A top priority has been to increase the diverse talent, including at leadership levels.
I'm delighted to say that in the past couple of months, we have a 0.7 women to fill strategic rules of the senior Vice president level.
We are resolved to help all of US will say, it's bring their best sellers to work and that means focusing on all aspects of the cognizant experience.
For example, we develop talent early through educational partnerships and apprenticeships, we invest heavily in upscaling at least getting current apprised through award winning leadership and development ecosystem.
We also employ innovative trained to hide any shade of such as the Congress and skills accelerators aimed at people seeking to kick started technology carrier in the U S and the cognizant returned done should program for technology professionals looking to restart their careers.
Our next priority is to accelerate revenue growth, which is the absolute focus of the entire management team, we have different sharing cognizant of large deal opportunities by scaling the capabilities for cost takeout optimization and focusing modem managed services.
And we continue to see a strong pipeline of opportunities of the cost and efficiency side.
Given the groundswell of interest in <unk>. The number of projects. We have underway focused on <unk> I will see this technology is in writing a new wave of opportunities for us.
Accordingly, we expect to invest approximately $1 billion in agility capabilities over the next three years.
A third longterm varieties to an answer operation or discipline, we're working to fortify David out business execution, an optimized cost of delivery, but driving higher productivity powered by advances in tooling platforms and automation technology and by improving operational later in areas like billable utilization.
I will Nextgen program, which we announced last quarter is on track, we are making progress on removing structural costs as we continue to simplify your operating model and realign our office space for the future of hybrid work.
On our last call I talked about a plan to read just to go to some of our development centres from India largest cities to smaller cities.
I'm pleased to announce the first phase of this shift with the planned opening of two new centres, one in <unk> and the other an indoor India, which also great talent pools.
Keep in mind. The next generation Nextgen Nation program overnight overriding aim is to generate savings to invest in a people.
And a grilled.
Yeah, I'm gonna provide additional details in his remarks on the <unk> program.
In closing.
I'm now seven months into my tenure as I see you have met with more than 200 clients.
Dozens of of partners.
And threw in person and virtual town hall with most of our workforce.
I've also made a point to continuously soliciting ideas and perspectives from our top thousand treatise on strategic topics of importance to a future.
Further a company wide grassroots innovation movement launched earlier this year Blue Board has led to such a surge of fresh ideas with more than 32000 generated sofa.
That it's now serving as our company's innovation engine.
I'm convinced cognizant part.
Winning in the marketplace <unk> fully embracing her heritage and DNA were leaning into our heritage at the intersection of industrial technology, a flexible client central operating model and a distributor delivery network that bring together global and local capabilities.
All in all.
We have been making good progress, but recognize how much more work lies ahead continue.
Continuing to build on a growth imperatives of the Golan, which everyone in the company is focused.
I, especially want to express my heartfelt gratitude to all of his associates for the extraordinary work to do each day.
Before I turn the call to yawn I want to comment on his plans for the future.
Yeah, Let me and the board knows his intention to retire from cognizant early next year.
Yeah, and there's been a wonderful business partner to me and over the past two years has played an instrumental role in designing a exuding a strategic financial and operations operating plan, while developing superb talent with our financial organization.
As we begin the search for the company's next fearful I'm grateful for Yonce willingness to work closely with his eventual successor to ensure a smooth transition.
With that I'll turn the call over to him to provide additional details on the quarter. Thank you.
Thank you Robert for the kind words I'm proud of what we have accomplished over the last three years, including all work together over the last seven months.
I'm looking forward to continuing our partnership in the months ahead, while the search for my successor is underway.
Until then it's business as usual so with that let's turn out to our second quarter results.
We delivered second quarter revenue at the high end of our guidance range and adjusted operating margins above expectations. We were pleased to deliver another strong quarter of bookings growth <unk>.
Even by larger and longer duration deals.
Pipeline for larger bookings also remains strong and this up meaningfully year over year.
Additionally, our next Gen program is on track and using early savings through our efforts to structurally reduce our cost base and fund investments for growth.
Moving on to the details of the quarter.
Second quarter revenue was $4.9 billion, representing an increase of over 1% sequentially and a decline of 40 basis points year over year or roughly flat in constant currency.
Oh, a year growth includes approximately 130 basis points of contribution from our recent acquisitions.
Bookings growth in the quarter was again driven by a mix shift towards the larger deals.
Which had in turn led to longer average duration of our brokers.
We are pleased with our bookings performance in the quarter and are focused on building momentum and the quarters ahead.
Consistent with the first quarter, we have continued to experience softness and smaller shorter duration contracts, which reattribute two weaker discretionary spending.
The translation of bookings to revenue growth has impacted by this change and deal mix is duration has increased the conversion to revenue will be longer but helps to improve our forward visibility.
Moving onto segments result for the second quarter, where all growth rates provided will be year over year in constant currency.
Within financial services revenues decline, 5%.
Which reflects a softer overall demand environment in week discretionary spending as we navigate this environment. We have continued to strengthen our leadership team and shopping our client engagement while.
While our pipeline for work related to cost take out and productivity led initiative remains healthy and meaningfully higher than prior year period, we expect the uncertainties of the macro environment to continue to impact the pace of client spending over the next several quarters.
Have scientists revenue group, 2%.
<unk> was again driven by strong demand from healthcare lines for our integrated software solutions, which increased mid teens year over year.
Why are the life Sciences was down your ear and impacted by softer discretionary spending we experienced strong sequential growth driven by increased volumes with existing customers.
Products and resources revenue group, 4%, reflecting the benefit from recently completed acquisitions ramp of recent wins and demand from automotive and travel the hospitality clients.
This was partially offset by softer discretionary spending across industries.
Communications media and technology revenue declined 40 basis points, reflecting softness among both technology in our communications and media clients.
We expect growth to improve in Q3 as recent new bookings have already begun to ramp <unk>.
Continuing with you over your revenue growth in constant currency.
From a geographic perspective in queue to North America revenue declined, 2%, reflecting softness within our financial services and CMT portfolio.
This was partially offset by growth in health sciences and products and resources.
Growth, our global growth markets or G. G M, which includes all revenue outside North America group Proximately, 5% <unk>.
<unk> was led by Europe , which grew 6% and included strong growth within CMT and products and resources particular within automotive.
Now moving onto margins.
Operating margin included the negative impact from an increase in compensation cost primarily the result of our two married cycles since October 2022.
This has impacted both gross margin and SG&A.
This was partially offset by tailwinds from the depreciation of the Indian rupee and higher utilization.
It also included an approximate 60 basis points benefit from an insurance recovery related to our previously disclosed 2020 cyber incident.
Our gap tax rate in the quarter was 21.1% adjusted tax rate in the quarter was 21.7% are.
Effective tax rate included a discreet benefit from a settlement related to U S state income taxes.
Q too diluted gap EPS was 91 cents and adjusted EPS was $1.10 now.
Now turning to the balance sheet.
We ended the quarter with cash and short term investments of $2.1 billion or net cache of $1.4 billion.
So 75 days increase two days sequentially and one day you over here.
Free cash flow and Q2 was a negative $32 million, which reflects the previously disclosed impact from the change in the U S law that we discussed earlier this year.
This change negatively impacted Q2 free cash flow by approximately $420 million, which include a tax payments of approximately $300 million related to 2022.
This impact was largely in line with our expectations and we continue to expect free cash flow to represent approximately 90% of net income this year.
During the quarter <unk> about 3 million shares for $200 million under our share repurchase program and returned $148 million to shareholders through our regular dividend.
Year to date, we have repurchased approximately 6 million chairs for about $400 million.
At quarter, and we had $2.4 billion remaining under our share repurchase authorization.
Turning to our forward outlook.
For the third quarter, we expect revenue in the range of $4.92494 billion, representing a year over year increase of 0.6% to 1.6% or a decline of 50 basis points to an increase of 50 <unk>.
<unk> points and current constant currency.
Oh, a guidance assumes currency will have a positive impact of 110 basis points as well as an inorganic contribution of approximately 100 basis points.
For the full year, we reiterating our constant currency revenue growth guidance.
Range is slightly wider than our historical practice reflect in reflecting a heightened level of uncertainty and the recent pace of client decision making.
Put 2023, we expect revenue of 19.22 $19.6 billion, representing a decline of 0.9% to a growth of 1.1%.
A decline of 1% to growth of 1% in constant currency.
Inorganic contribution is still expected to be approximately 100 basis points the.
The mid point of our guidance suggests a softer fourth quarter relative to historic norms, as we anticipate softer demand and more volunteer discretionary spending patterns driven by macroeconomic uncertainty to continue throughout the end of the year.
As I mentioned earlier the next Gen program is on track and our assumptions for cost savings are unchanged. However, we now expect to incur $350 million in total charges versus $400 million previously.
This reflects our assumption for lower employee separation cost as a result of voluntary attrition trend now.
Now expect to incur approximately $250 million of Nextgen cost in 2023, including approximately $100 million related to employee severance and an unchanged hundred $50 million related to nip consolidation of office space.
Moving on to adjusted operating margin our guidance is unchanged at 14.2% to 14.7%.
Oh, a margin outlook is impacted by several factors, but primarily the negative impact from recent marriage marriage cycles.
It also reflects our assumption for next Gen savings and growth investments, including the dilutive early impacts associated with large deal.
We anticipate 2023 interest income of approximately 150 million versus 85 million previously.
Reflecting the higher interest rate environment.
Just the tax rate is expected to be in the range of 23% to 24% versus 24% to 26% previously due to several discrete items in the first half of the year.
In 2023, we continue to expect to return approximately $1.4 billion to shareholders, who share repurchases and our regular quarterly dividend.
We continue to expect full year average shares outstanding of approximately 506 million.
This leads to our FOIA adjusted earnings per share guidance of $4 and 25% to $4.48 versus $4.11 to $4.34 previously.
With that we will open the call for your questions.
Thank you we will now be conducting a question and answer session.
You would like to ask a question. Please press.
Dar one on your telephone keypad, Hey, confirmation total indicate your line is that the question queue you.
He may press start to if you would like to remove your questions on the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Your first question comes from <unk> What city. Please go ahead.
Thank you and good execution in the quarter.
I think that my.
My first question is is with regards to to the booking if you can provide maybe a little bit more color with some of that to be.
<unk> instead of of this question.
With with clients and maybe even.
Which is a T V.
You can really talk with.
Cause I I think the <unk> the bookings, but the conversions.
Thank you I <unk>. This is <unk>, we had a another good quarter of bookings growth 17%.
<unk> why.
We.
We are excited about.
I've spoken about this before the to swim lanes on and large deals what is.
Related to transformation, one is related to efficiencies productivity cost take out I think the.
It's fair to say that we have at this point of dive. The deals we are seeing in the market at overindex to efficiency cost stakeout consolidation.
Kind of deals.
We are excited about the fact that we are starting to win them and.
Translate that into into revenues for the future and you also you would you would understand that these deals come with.
Gestation period, which is longer than the smaller deals of the transformational deals because of the nature of them.
We had five deals more than $100 million T C V.
In the book Kings.
Two of them.
Uhm rented was one of them had renewals plus expansion two of them are <unk>, so very healthy mix if I may ask.
Bookings.
The interesting part of doing large deals is you build that lived in so that even if the period is long enough.
As you keep building the rhythm it will start to contribute to the next here in the next year I wish I had a big pipe the year before so that they don't have contributed this here, though that's how you'll see it I mean.
You have to create that rhythm.
Financial services of course is.
One small deals I mean financial services and for that matter most of the sectors muted on on discretionary spend on small deals. So that's the color of what we see.
We continue to be excited about the ability to win or the ability to also build the organizational infrastructure to execute them, including the productivity gains, which we have.
Which we have <unk>.
Baked into those deals as we as we as affected them to win and execute.
Yeah, and you're adding to yeah. So <unk> to your question of translating of those bookings into revenue.
I think intuitively you had already your finger on one of the components of the characteristics of our bookings this quarter and that's basically.
<unk> the duration of the deals that we signed up in the quarter has very meaningful the.
<unk> basically so we have been timing out for longer term deals.
On average with a higher value, we actually saw an absolute decline on smaller deals below $5 million in half an.
In our pipeline and the softness in discretionary spending and smaller type of deal was just all offset by the really excellent performance that we had on the larger deal volume and so that led to the 17% overall bookings growth, but with respect to translating into revenue the actual contribute.
<unk> of this focus volume just to give you. An example for the rest of your revenue is actually lower than it was in the comparable quarter. So we really have built a pipeline for a longer time.
Revenue streams in the future, which obviously Joseph with comfort into the quality of revenue stream going forward, but.
It also explains why we're not seeing an immediate uptick on our revenues as these bookings will take time to translate into revenues.
Thank you that's a very useful the second question on margins, Yeah pretty solid performance here.
And the question with regards to why you might not in fees increase the full your range I think <unk>.
Part of that question in your prepared remarks, and you said that the cost.
I just wanted to make sure are there other things you know investments, you're making you know come R&D perspective, perhaps into.
<unk> capability that things like that and <unk> are there non deal related sectors also.
Included in your decision to.
<unk> unchanged yeah.
Yeah, I think the the the the starting point for the module discussion is for the rest of the year.
One thing that is different compared to prior period. They said, we won't have in October 4th quarter marriage cycle and in our in this year because as you know we move forward are married cycle into April so that's going to be important as you build a quarterly model to consider.
Secondly, I.
I used this moment, maybe to talk a little bit about the progress we are making on our.
Next Gen initiative.
We have been recording a severance.
Cost in the quarter as well as cost regarding related to the restructuring of our real estate portfolio and we're going to start seeing increase the impact of the next gen action relative to our people in the third and fourth quarter, which gives us basically the room to offset some of.
The pressures ever seeing namely some hum of expect that pressure on the large via rollout in let.
Most larger deals season, and and and.
And I think the general expectation of gear.
Given the higher uncertainty in our business environment that will create I think could create some kind of unspecified yet to be seen pressures in our portfolio. We do have seen a number of fines kind of reacting to their own economic pressures, reaching out to us. So we.
Do see.
Economic environment in which.
Yeah, there is pressure and so I think as it turns out that I think nextgen as well timed to help us through this but.
Not it would be too early to to celebrate basically full success of that but we're kind of really moving along.
In the execution of that program.
Gave us confidence to just reaffirm basically does that operating margin outlook.
Okay makes sense. Thank you both.
[noise] next question Lisa with Martha.
Please go ahead.
Hi, Good afternoon. Thanks for taking my question 800, maybe first on the the journey I read in a rabbit you commented extensively blood cognizant, you're doing I'm, Danny I X terminally with partners and to help clients transform their business days can you comment maybe in a little bit more detail on how.
You are deploying Jenny I internally at Hudson and how you see it over time, you know being able to transform your business operations.
<unk>. Thank you.
Thank you for that question I did extensively speak about it because it is in.
In the middle of everything we do in the company today.
I see this is three.
Jenny I embrace is going to be in three parts.
The first part is how do we apply to a business to run a business.
Which is like eating our own dog food.
The second is how do we make sure that we build our operating model <unk>.
Howard budget Jenny I.
How do we make the average developer productivity increases multi for it how do we how do we make sure that we build a platform today instrumentation the technology these needed.
I also call it the ability to arbitrage on technology I mean over the last 40 or 50 years Tech services companies did labor arbitrage and capability arbitrage I would say this is a time to actually do an arbitrage and technology the more the instrumentation, we create the more we can.
<unk> model efficient enough with productivity gains. The question is how much of the productivity has to be shared with our clients. So that we stay compensated for to win as well as keep that part of it for us for ourselves.
So I'm not I'm not as concerned about <unk>.
Smart developers I'm concerned about an average developer how do the how do I lifted productivity so that the productivity of the obligation goes up.
So that's my that's the second part of Jenny I, we have extensively web building those platforms and and.
We also started to partner with a client with.
Big Tech companies I would say.
Our ability to train in fact, you know we made an announcement with Google to train 25000 people. We made good progress on it. We we we then uhm and initiated with Microsoft on on <unk> and the co pilot initiative.
Today, along with the earnings we also timed lodged language model in partnership with Google.
I think that's a step up I mean gender way I can.
We could use the duration of data the ability to use use the model to contextualize to a business I would say that's the last mile <unk>, but but <unk> healthcare expertise leveraging the assets we have an al Qaeda the installed base, we haven't healthcare, we potentially talk.
It's a good bold move to actually build and large language model with Google.
The third part of the mix.
And before I go to the third but equally we are starting to think about how do we actually build cognitive skills and the company, which are different to the past I mean, if <unk> is going to coexist with humans in in Tech services. The reality as you read a very different cognitive diversity, yeah, we could potentially needs people, who don't have the same background.
Because there are people, who who have the same background engineered this.
Platform to the people who come with a cognitive diversity upset.
Human Sciences can actually apply generative AI to to a client landscapes now coming to the third part of generally ready story is how do we actually embraced with our clients I've actually spoken about a couple of examples in my in my earning some.
Script, which is starting with the client.
Client and financial services, we have one on one on healthcare all of those need frontend consolidated skills to start with and back and platforms to support it. So at times, we almost have hundred plus early engagements.
Either on a proof of concept are on a prototype model.
We had experimenting on how do we how do we embraced generative AAV deaf clients. These hundred early engagement.
In different areas of the most I would say is in customer service.
And the most I would say is related to efficiency productivity.
And better experience. So I'm excited about all of what we have that bill also coming in at a billion dollars.
In the next three years to continue or investments in the space.
And we wanted to stay out of the curve and be that cutting edge partner, which plans are looking for.
Terrific. Thank you and then maybe for my question my follow up.
I mean, I guess thinking about it as in being sad about <unk> departure, but probably maybe back on you know that you've been.
Cognition, I guess coming up on a year or so how are you thinking about kind of shaping the senior executive team at talking to stand or there's some other senior leaders you would point to that you're bringing in in that you're thinking about you know finding a replacement for yawn sandwich the profiling.
Folks that you're looking at and bringing in given the priority.
You know, making that cognizant <unk> place at an employer of choice. Thank you.
Thank you for that question.
Yeah, and it's going to be with us till we.
Till we identify it do CFO and we'll have some overlap period period with he has been kind enough to.
Partner with me in the last seven months have not spent a year yet, but it lasts seven months, but I'm very hopeful.
As we as we finished the transition I will continue to have his support for the next few quarters.
Leadership with it.
We have a very healthy bench as I as I put my structure in place.
I am excited about.
Promoting and progressing people inside the company and giving them the opportunities in fact, we have a sizeable sizable workforce, which is spend.
More than you know more than seven to eight years at cognizant.
And I'm actually leaving on to Bill that leadership from inside we've also I'm excited about.
Cognizant employees coming back to.
Cognizant I mean, some of the leadership.
Which left us in the last few years, which we believe <unk> they call cognizant at home, we have got them back I have.
I have one leader who has come back to do my industry solutions Group I have one leader has come back to them by infrastructure sales I've.
I've also I've also tried it about the other external highest we've done we've hide.
A leader for a telecom business. So you know the the excitement of being a part of this journey.
Allows me to struggle between the three.
Look for people inside the company, who who who can be on that and I think we have a very good bench of people who have been.
The company for a long time and I'm excited about about the grooming them to the future leadership second is bringing some of the some of the some of the people who want to come back and we believe that they will add significant value to a future and of course, the external hiding we could do in fact I hired a senior leader.
Running my partner in the lines is organization. So we have we have made some good progress unpredicted leadership team to support us for the future.
Next question Bryan bargain with T. D. Cowan. Please go ahead.
Hi, good afternoon. Thank you.
<unk> wanted to pop with with a demand question here just did you get a sense of any real changes in demand kpis over the past three months or would you say, it's been largely consistent as it relates to the level of macro and spending uncertainty that you have been conveying here over the course of 2023.
And I guess based on these current client conversations are you getting any sense of how long you anticipate discretionary spending to remain under pressure.
The demand profile of certainly being very watered times I mean, if you.
Capturing opportunities literature discretionary spend catching up with you because it related to.
Mm future transformation of the enterprise landscapes.
It's either either been uncertain or it's being kind of.
In some places it it has it has fallen off.
And that's one of the reasons why you had mentioned that smaller deals have we have lesser volume of smaller deals in which is true for what the market situation is of course finances services is the most impacted but we do see that in other sectors as well are equally believe it also.
Opens up an opportunity in places to consolidate.
It opens up an opportunity to proactively.
Go to our clients, what paranoid about the cost and give them a value proposition, which appeals to them, where the total cost of the two.
Total cost of ownership goes down, but we've been in the process. It's a win win value proposition. So I'm seeing more of those deals and I'm I'm doubling down on those deals and that is allowing me to keep the large deal pipeline pipeline in good health.
And and it is an opportunity for us to even proactively go and.
And bid for some of the business I mean, one of the one of the deals we announced the Gilead Sciences deal, which is an existing customer.
And we not only renewed the contract, but we actually got an expansion on it.
The key points that is in the past those consolidation initiatives were run by.
Is smaller productivity attached to technology, and the bigger productivity attached to the efficiency of running your labor model.
Including of showing including a better <unk>, putting a better ratio I think we have a unique opportunity to switch sucked into a technology arbitrage, which I spoke about which is using technology to get better productivity and then sharing the benefits of the appliance and that can happen more with consolidation and I think we are true.
Lying to seize those opportunities so I see like this to swim lanes, one which is kind of shrunk and ended up which is.
Which is continuing to be in.
In good shape.
The idea is to double down on the one which is which is continuing to have traction. So that you could set off against what you're losing on the other side, but you know discretionary spend is pretty weak that is something that I should I liked.
Okay. Okay understood I appreciate all the color.
And then just shifting to the workforce, so understanding headcount down quarter over quarter, a bit more I think in the second quarter, but you do have nextgen flowing through there.
Just thinking forward in the second half is it fair to assume this this request level remains relatively flat to down just given the optimization and work once and utilization.
You know.
The way I see it is.
You know there is opportunity for us to increase billable utilization and I think there is some more headroom for me to do that.
And as I continue to do that <unk>, you know, we all will hit.
End of Advil increased utilization that's fine.
You will see a flip on how.
You need more headcount to increase available available head count.
So I've said this is my last quarter as well, but there was cushion for us to increase utilization available location that also contributed to our magenta magenta radically a bit.
And I think we have some <unk> some more headroom to increase our operational efficiency to run a business. So that it can then get to a point, where we then start to increase I've met headcount would also as important as we also had a good trend of.
Uhm lowered attrition in fact.
He ended up with 19.9 on a trading 12 months.
Which is.
Three percentage points lower than last quarter, and almost 11 percentage points lower than double N y.
And as we can keep that down it will also help us to keep the headcount up and then you know as we get to the other end of the next N cycle, if you're kind of help so I think we have some headroom for operational efficiency to conduct more available work before we start to see headcount increase.
[noise] understood. Thank you.
Next question.
<unk> ran out tomorrow with you B S. Please go ahead.
Hi, Good afternoon, my name is kerns pneumonia dining and Karina.
I had a question or on January so the benefits of Johnny I have been why did you discuss but you haven't heard as much about the potential risks.
Given that Jim Jamie I can essentially goofy and Donald productive.
Do you think there's a rescue the top nine one with a medium coke so I'm like sure sure <unk> contract man, Sir pricing pressures.
You know.
This industry has always had productivity tools.
If you go back to the last.
2025 years of productivity tools have been a way to differentiate ended up.
It is very nicely got baked into our estimation model and then subsequently <unk> model.
And in addition to labor arbitrage those productivity tools with a reason why our clients actually came to us because we had the capability we had.
We of course had capacity and we had productivity.
Productivity.
Tooling to help them to deliver projects.
I would say the advent of automation technologies in the last I would I would I would believe five years or so.
Including the robotic process automation has been.
A continual and <unk> services.
And you know I want to highlight that the universe. We operate in is no longer tech span of enterprises that you do want to be all but I didn't as operations kind of enterprises, because technology is deeply embedded operations. So these tools and bedding. This tools has been we've been on the industry as well as cognizant has been really habituated to it I mean the.
Ones, who do it most are the ones who benefit out of it and then make it into the estimation models in the estimation models. Then allows you to stay more competent of the new the new appears to win business and then as you are in the business. You then keep working on you know working on engineering Maude, so that you'll stay out of it.
Curve.
Jenny I in a V has been a bigger inflection point, it's not different in that continuum, but it's a much bigger inflection point. It is a complete game changer.
So my belief is.
And at least on behalf of cognizant I would say, we want to embrace that as much.
To make it an opportunity for us for the future.
You know if you don't embrace it it's going to become a threat for you. If you embrace it and create that lib that technology Arbitragers' spoke about it will allow us to get our clients for partner with us.
Even get up plans for partner with us at points that are.
You know at points, where they believe that they could insource they were potentially episodes because the C. As as a unique way to bring productivity to them. So I'm excited about the fact that this is going to be an opportunity and it's a it's a it's a tectonic shift in the way of operating modern would it be.
Thank you next question, Jamie Friedman with the S. I G. Please go ahead.
Hi.
I'm just curious.
In terms of the environment for the second half what do you see as the factors that could you could put you say towards the higher lower and there's the guidance.
Furloughs contemplated potentially for the fourth quarter.
Yeah, we well we tried to give guidance that reflects at the midpoint, our true expectations of what we.
<unk> you know so that's really our core belief the and the elements that we are watching carefully in the next couple of quarters are the scaling of and the implementation off a couple of our large contracts that we signed.
Those are complex deal for me to be rolled out in partnership with our clients and that can be just the practicalities of a complex project can give delays or can give you positive news. So that's something that I'm very carefully watching and certainly there could be a theoretical pass it.
Of these projects scale, a little faster than we than than we anticipated and that would give us some upside but also in the quarter. We have observed this economic uncertainty hitting us and you'll always scared also some unanticipated bad news that happens sudden deals.
Either cancelled or down or less and less visible smaller deals and just dissipate into nothing so.
So the general economic environment in the climate of our clients and probably just gave you. The assessment, we kind of feel that that pressure will continue in the second two quarter on discretionary spend that puts the pressure on it and so in a sense is really a balanced outlook that I have we have we are lucky that.
We are able to add the revenue stream of large deals into our revenue mix compared to.
Competitors in our market, we didn't have that last year and so this is a truly incremental opportunity for us, but as everybody. We are facing also with a downward pressure in the rest of all portfolio. So I think the out of that IGF gives gives a fair and balanced view off the expectations that we have.
Okay. Thank you for that and <unk> <unk> <unk>.
<unk> just wondering could you double click on the assumptions my vertical I realize you will guide my vertical but are at a higher level of any of these contemplated to be above or below the corporate average.
Yeah, I think the one that.
We're trying to signal in my comments also is that we feel that for the next couple of quarters. We're gonna continue to see the pressure in financial services.
Performing below on our hopes basically by the and the reality of a of a sector that has shown weakness really I think across in our industry.
Don't anticipate that to change and and yeah and.
There's there's.
Some strength as you saw in the quarter and our strength on a relative basis and healthcare.
That.
Reflect saw a strong market position that'd be have with our clients and healthcare. So those are the the two big sectors those times relatively consistent and I think with what we have seen in in the first two quarters of the year.
Thank you.
Next question turns in Hong with J P. Morgan. Please go ahead.
Hi, Thanks, so much for taking my questions and yawn congrats on.
The retirement news I want to ask on the booking success, especially in the larger deals you have been talking about here what what what changes are working is there a way to rank that for us because we get a lot of questions on pricing of course, we're just pricing rank amongst all the factors.
You're winning on the larger deal sized and is there any impact here on gross margins for a second I have to consider.
Think I'm from my perspective pricing is definitely a very important.
Factor of all these deals or fast vast majority of these details as competitive and thank you just have to be in the range of the expectations and meet declines and.
And that is kind of table fix the commitment that the company brings to the table as we now compete for these large deals from Ravi at the top to the entire team from <unk>.
Markets too Alright integrated service lines is really different than I think has made it has made a difference in winning the deal. So our clients have seen the commitment that we are making and the important said, we're giving to their specific deals.
Just by the <unk> cure exposure and access to to our teams and then obviously the strength of our solutions that we have brought to the table. So it's a whole package that plays into.
Bread and butter type deals.
Arch.
In nature, but.
That have made.
The portfolio off those wins, maybe you're robbing you add a little yeah. So you don't Latvia has come with that.
Very different rhythm right to you know we we have made sure that we have an outreach now too.
To to.
Mmm 12 channels I mean partners.
The scale is Dale advisories and a whole bunch of.
A whole bunch of players in the mix.
The second is our ability to build institutional infrastructure.
Because lot deals don't just need the heavy lifting upstream they need the heavy lifting downstream as well so that your price them the women, but you deliver them to margins.
Our ability to put all of that together I think the company had it before I have kind of assembled together and then we have strengthened further.
And the entrepreneurial spirit to go and tell us clients, some proper kid of opportunities, which could create a win win situation for our clients in us.
And therefore create value for the process has helped us to.
You know create a large steel mindset or the group mindset.
And I'm very confident that that's now what part of the muscle of the company. So as we continue to invest on daily infrastructure into the market as well as the mindset to be promulgated with your clients and support that bold vision bike building downstream.
Downstream infrastructure organizational infrastructure.
Including the tooling on new age.
AI leg productivity and that's very important because it deals could be traditional but leave us your class could be relatively meal.
I mean, the amount of Ah Ah automation infrastructure the amount of Ah Yeah infrastructure, you could use to actually create straight through processing and operations kind of work and create higher productivity for <unk> maintain as well as build businesses.
For our clients I think is.
New labor and I think we I'm <unk> I'm confident that we we have ahead of the curve and therefore will be comforted are in the market to win this deals.
Terrific. Thank you both of the thoughts.
Please come to the end of the two lines.
And I would like to turn the call over to management for closing remarks.
Great. Thank you very much Stacey and thank you all for joining US Tonight, we look forward to catching up with you on our next door and call.
Okay.
Today's teleconference. You may disconnect your lines at this time and thank you for your participation.
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