Q3 2023 Cognizant Technology Solutions Corp Earnings Call

Ladies and gentlemen, welcome to the cognizant technology solutions third quarter 20 twenty-three earnings conference call.

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Thank you I would now like to turn the conference over to Mister Tyler Scott Vice President Investor Relations. Please go ahead Sir.

Thank you operator, and good afternoon, everyone. By now you should have received a copy of the earnings release, an investor supplement for the company's third quarter of 2023 result, if you have not copies are available on our web site cognizant dotcom.

Thinkers, we have on today's call Ah Ravi Kumar, Chief Executive Officer, and Yon, Siegmund 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. C C.

Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors wreck.

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. C C with that I'd like to now turn the call over to rally. Please go ahead.

Thank you Tiger good afternoon, everyone.

Today, I would like to a couple of treat topics.

Third quarter results.

The demand environment.

And a brief update on a strategic priorities.

We are pleased with the companies continued progress in the third quarter during which clients remained cautious.

[noise] economy kind of certainty and basically spend was under pressure.

Q T revenue came in at 4.9 billion within our guidance range.

We saw sequential revenue growth of 20 basis points.

Revenue grew 0.8% is reported on a modest decline of 40 basis points in constant currency.

Although they gestured operating margin of 15.5% exceeded our expectations, mostly reflecting savings for my next generation program.

Which remains on track as well as from our operational discipline and the timing of spend an investment opportunities.

What do you call. It ended the quarter of bookings broke up approximately 9% you got over the yeah. We ended Q3 with record trailing 12 month bookings growth of 26.9 billion up 16% you'd already are in a strong book to Bill of 1.4 X.

We have sustained a large deal of momentum too guilty approximately 30% of I didn't quite a Q3 bookings that large deals and feel dizzy and succeeded $100 million each.

I believe we are getting progressively better but he didn't get creative B generation engine is pretty interesting logic deals.

Hi, I'm, especially encouraged to see other continue declining nutrition training 12 month when entry attrition for our Tech services business declined to 16.2%.

Down about 4% this points sequentially and down 13 points you get older you.

This decline in nutrition was a positive factor.

[noise] completed animal client next promoter scored survey.

Which showed significant improvement it'll it yet [laughter].

She started kite.

Cognizant.

Let us know that leadership account management and delivery are especially important to them.

And so it is I'll show that in these areas were doing a great job.

This assessment of our clients perceive cognizant underscores the interdependence of the employee and client expedient that gives us confidence that the changes we are making will help strengthen the portfolio over the long run.

Well beyond belief covered for them is it a business segment level I want to offer a quick word about financial services. We continue to reposition last financial services segment.

Well, that's funding to an increasingly challenged demanded without it meant one.

One of the ways, we are striving to reinvigorate the growth is through a sharply fool cause sub industry go to market approach in the Americas.

Directly by highly experienced leaders, we believe this change will increase that agility.

And deep enough demand expertise.

Let's turn to the demanding and what I'm getting from clients.

Tried to remain focused on efficiency initiatives radius costs and consolidate provide us as they increase the productivity under a zillion since we are helping them do so.

This will in turn enabled them to underwrite the continuing investment in digital transformation.

For example, during the quarter will be expanded our relationship with lineage and global leader in temperature control logistics to help build an industry, leading operating platform and there's publish a plan to support their operations could automation and infrastructure management.

We also established a new multiuse relationship with Swedish from interim we expect to provide and two and digital integration had called modernization services for that credit management technology Black Hawk.

To dive deeper into clients' longterm objective discovered new ways to send in a partnership with them cognizant held it to their discovery stomach last month for about 130 of North America clients first loves scared client gathering in more than four years.

We'll discuss the transmitter power identity I and how we believe it can reshape every industry. We showed clients how to apply generally I do see it more connected collaborative and responsive relationships with their customers.

We also ran lives use cases cognizant newly I platform, showing generally I working alongside legacy data and machine learning modern stood rapidly create and two nd a ikea kisses to tackle client kpis.

As mentioned in the last quarter, we expect to invest approximately 1 billion in other children capabilities over the next few years focusing on areas such as platform organizational infrastructure recruiting and I'm just kidding.

To that end, we opened the dedicated innovations studio in London and later this year, we expect to open AI Studios in New York Dallas in Bangor.

We have trained about 55000 of our employees and generally we I this year and have an additional 40000 employees from all levels of our company.

They just started pursuing training on Jenny I.

We've also invested in AI partnerships and experimental infrastructure to support early clientele engagements.

Leave clients will depend on partners like cognizant to generate significant productivity gains through automated AI powered platforms for design engineering adult patients.

This shift and client behavior further validate said recently to find strategy, which is aimed at strengthening cognizant of differentiation to help drive through a.

Our strategy is focused on three in Paradise.

First.

We had resolved to be industry led creating value for clients by integrating technology of its industrial use cases to drive business outcomes when embedding industry expertise across the value chain and select industries. We are developing more enterprise scale platforms designed for industrial and operational use cases.

Partnerships have a major role to play as we are focused on expanding a partner ecosystem across a range of technology providers among them Hyperscalers cloud provide us enterprise software companies digital software enterprises in emerging startups.

We believe this part of the ecosystem will enable us to an answer integrated offering, but combining third party products without service solutions, helping to Delaware enterprise like digital transformation. We believe this strategy is a full stack provider opens new insignificant managed services opportunities.

Secondly, given today is more heterogeneous technology landscaping the desire of many clients to build their own technology muscle we focus on operating yeah highly flexible business model to meet clients, where they are in the digital transformation journeys.

We can support them across a range of project types, whether that structure deals traditional managed services built up their transfer core innovation partner solutions or large technology transformations and to help strengthen the technology expertise, we can either learn that human capital along with our human capital value chain.

Which includes learning development automation indie I infrastructure involved.

Ah business smarter flexibility as well suited to the changing nature of philosophy elsewhere, we see increasing demand for bundling services, often a combination of software that people take over infrastructure and services.

These deals have a potential to bring <unk> into the heart of clients business landscape, putting guys in a strong position to capture future services opportunities.

A third imperative is to enable vote intimate levels of client collaboration co innovation. This effort grows out of her heritage of claims center city and grassroots innovation.

Given the scale and diversity of a global teams. We believe we have the potential to harvest an abundance of ideas big and small that can contribute to a client focus.

Inspired by a blue bolts grassroots innovation movement launched in quarter, two or more than 35000 employees have generated 75000 ideas. We've already implemented about 14000 of these ideas nearly 6000 of which a client facing.

Ah strengthen the ability to coin a word with clients is especially valuable as the grapple with understanding and applying generative air.

During the quarter, we launched telco assurance 360, a cloudburst powered solution built on service now and designed to provide telcos with real time visibility into network issues and fast proactive resolution to a I've covered under Linux.

We also signed the multi year agreement with a leading provider of digital and cloud enabled solutions that are vital to the administration of health and human services programs across the U S.

<unk> will serve as a client Sol global Ids services and operations partner to help drive transformation of scale. We also provide.

The client with access to her AI machine learning and generative attitudes along with a <unk> Zeta platform to advance revenue growth increase the administrative efficiency and improve the member expedients.

What's more we are expanding our strategic collaboration with Qualcomm technologies to giant to implement the ibis solutions at the edge as a part of a car to cloud initiative.

We encourage our clients who wanted to transform the businesses by being gay I first to begin the journey by Modernising the data architecture cloud infrastructure and core business applications. Today, we are running more than 150, plus early client engagements that incorporates the use of generative air.

Some of the examples of this will conclude general productivity use cases related to writing called.

<unk> analysis and troubleshooting.

Knowledge management, and translating product specs into natural chat odd speech.

Business specific use cases for call center automation product prototyping.

Audience prediction claims management medical Scribing and research and development.

And demand specific use cases like on boating, new employees validating the documents and financial statement planning analytics.

We have 300, plus additional opportunities in a pipeline that we are planning to scale let's.

Let's turn to a quick update on at three long term strategic objective, starting with becoming unemployed of choice in our industry.

I see cognizant is a human capital company first.

And a <unk> and a technology company second.

Everything we do hinges on the quality of dedication and scared of of talent base.

That's why it is so consequential that a voluntary attrition continues to fall putting us on part of it the industry average we expect further improvement in our attrition and quite afford it also worth noting that in quantity, we had a <unk> head count increase for the first time in several quarters.

Has a human capital company.

Where did the mind to help improve the lives of workers around the world.

With that in mind, we announced a groundbreaking training any share the rest of your day called cognizant cognizant Slaps initiative a job training endeavor is aimed at empowering more than 1 billion individuals who they advanced technology skills, including generative AI and that they will need to type in the digital economy.

Intend to build a consortium of partners for training and jobs, which will that employ individuals who have upscale through a synapse any shade of.

Our next performance objective is to accelerate revenue growth.

When I joined cognizant in January I said large deals and one of my top priorities as I mentioned earlier, we are pleased to see a continuing large deals momentum, which is underpinned by the work we are doing to improve the capabilities required to seed shape and sell larger deals.

And our ongoing investment in the client facing role is needed for driving growth. These efforts have helped the partially offset what remains a softer discretionary spending environment and provides new growth opportunities following last year's muted bookings grow up.

A third performance objective is to ensure operational excellence across the company would.

We remain focused on simplifying their operations, including our sales and delivery structure. So we can continue to become more agile and get closer to clients in that unique business challenges.

In general.

We are operating with fewer less optimizing the day to day operations with enhanced system and tools and working to streamline the processes and automated information flows using guy.

Differentiation at the Tech services industry happens at the client's side of the project level, making relationships and strong execution key.

That's why I've invested so much time and meeting with over 270 clients. So far to see a building trust and learning all I can about cognizant can deliver more value to them.

Over the past three quarters I believe cognizant has made meaningful progress on a long term priorities. While we have a lot of work ahead. We also have much to be proud of.

This includes a continuing large deals momentum improved employee and client satisfaction scores declining attrition the scaling of an industry leadership with a platform centered approach heightened.

Operational X discipline and the launch of a grassroots innovation movement.

Operator: Ladies and gentlemen, welcome to the Cognizant Technology Solutions 3rd quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.

Looking ahead, we believe the soft depending on where it is unlikely to see it lappage rebound.

Operator: After the speaker is remarked, there will be a question and answer session. If you would like to ask a question at that time, please press star 1 on your telephone keypad. A confirmation until we'll indicate that your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you.

Therefore, we expect clients to continue tempering the discretionary spending at the big in the new year.

Given that market reality remained focused on winning efficiency led last is aimed at cost stay current vendor consolidation, which can offset current pressure on discretionary spending.

A focus on operating discipline and adhere to date progress on the next one program gives us confidence that.

But we can meet that expectation to deliver at 22 40 basis points of margin expansion next year yeah.

Tyler Scott: I would now like to turn the conference over to Mr. Tyler Scott, Vice President Investor Relations. Please go ahead sir. Thank you operator and good afternoon everyone. By now you should have received a copy of the earnings release and investor supplement for the company's 3rd quarter 2023 results. If you have not copies are available on our website cognizant.com.

Yan-bin shared more detail next year and in a moment.

Taking a longer view it might lead a business history periods of great uncertainty and periods of change rarely coin site. Today I believe we are in just such a period of simultaneous great uncertainty and deep seated change.

Tyler Scott: The speakers we have on today's call are Ravi Kumar, Chief Executive Officer, and Jan Seagment, 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 response steer questions may contain forward looking statements. These statements are subject to the risk and uncertainties as described in the company's earnings release and other filings with the SEC.

The uncertainty is being compounded by a number of intertwine domestic and international dress.

What can become a transfer made a change is being driven primarily by new general purpose technologies with immense public such as the general area, which I believe could become as ubiquitous and consequential for business or society as the as the Internet did three decades ago.

Tyler Scott: Additionally, during our call today, we will reference certain non-gap financial measures that we believe provide useful information for our investors. Reconciliation of non-gap financial measures where appropriate to the corresponding gap measures can be found in the company's earnings release and other filings with the SEC.

I expect this reality will leave most clients Hollywood focus they are on navigating uncertainty with no choice, but to make some big bets, if they're not to be left behind by their peers.

I believe cognizant is in a position in a great position to prepare them for this future.

Ravi Kumar: With that, I would like to now turn the call over to Ravi. Please go ahead. Thank you, Tyler.

Whether by helping them achieve significant savings to underwrite investments and transformation all by helping them build their own technology muscle, which can which can include becoming fully I already.

Ravi Kumar: Good afternoon everyone. Today I would like to cover three topics. Our 3rd quarter results, the demand environment, and a brief update on our strategic priorities. We are pleased with the company's continued progress in the 3rd quarter during which clients remained cautious amid economic uncertainty and discretionary spend was under pressure. Q3 revenue came in at 4.9 billion within our guidance range. With our sequential revenue growth of 20 basis points, year over year revenue grew 0.8% as reported or a modest decline of 20 basis points in constant currency.

In closing you are all aware that we recently appointed two.

To be cognizant next chief Financial Officer, and we're excited that he will be joining us in December.

Since this is yards lost earnings call with cognizant I want you all to know that what powerful patek has been to me across so many dimensions strategic financial operational and cultural.

He left a positive an indelible mark on a global organization and I'm, especially grateful that he agreed to stay with US until early next year to ensure smooth transition to Jackson.

Ravi Kumar: Our adjusted operating margin of 15.5% exceeded our expectations, mostly reflecting savings from our next generation program, which remains on track as well as from our operational discipline and the timing of spend on investment opportunities. We recorded another quarter of bookings growth up approximately 9% year over year. We ended Q3 with record trailing 12 month bookings growth of 26.9 billion, up 16% year over year and a strong book to bill of 1.4X.

With that I'll turn the call over to you and to provide additional details on this quarter.

Thank you rally for the kind words I want to thank all of our associates around the world for welcoming me into the cognizant family three years ago and for making my time here is such a memorable experience.

It has been a pleasure working with so many great people at cognizant at all of you on this call.

I'm confident that I'm, leaving the company in great hands with Jackson, who many of you know is an accomplished CFO and an experienced I T services executive.

Ravi Kumar: We have sustained our large deal momentum through Q3 approximately 30% of our in quarter Q3 bookings were large deals and 3 of these deals exceeded 100 million dollars each. I believe we are getting progressively better at building a creative deal generation engine and solutioning large deals. I am especially encouraged to see our continued decline in nutrition, trailing 12-month voluntary attrition for our tech services business declined to 16.2% down about 4% this point sequentially and down 13 points year over year.

Over the next several months I look forward to working with Robbie.

And and the rest of the leadership team to ensure a smooth transition.

With that let's turn to our third quarter results.

We delivered revenue within our guidance range, despite a soft discretionary spending environment and ongoing economic uncertainty.

Ravi Kumar: This decline in attrition was a positive factor in our just completed annual client net promoter score survey which showed significant improvement year over year and hit a historic high for Cognizant. Clients let us know that leadership, account management and delivery are especially important to them and the survey results show that in these areas we are doing a great job. This assessment of how clients perceive Cognizant underscores the interdependence of the employee and client experience and gives us confidence that the changes we are making will help strengthen the portfolio over the long run.

Hi, Justin operating margin exceeded our expectations.

Reflecting savings from our next Gen program and the timing of investments.

Which is driving some modest upside in our guidance range that I will touch on later.

We were also pleased to deliver another quarter of southern bookings growth, which continued to be driven by larger longer duration engagements.

Moving on to the details of the quarter.

Third quarter revenue was $4.9 billion, an increase of 0.2% sequentially.

Over here revenue agree, 0.8%, but declined 0.2% a constant currency.

Ravi Kumar: While Lyon will cover our performance at a business segment level, I want to offer a quick word about financial services. We continue to reposition our financial services segment while responding to an increasingly challenged demand environment. One of the ways we are striving to reinvigorate growth is through a sharply focused sub-industry go-to-market approach in the Americas. Directly by highly experienced leaders we believe this change will increase our agility and deepen our domain expertise.

You over your growth includes approximately 110 basis points of contributions from our acquisitions.

Similar to last quarter.

9% quarterly bookings growth was driven primarily by larger and longer duration deals.

Oh, no trailing 12th month basis duration is up over 50% from the prior year period.

At the same time, we are continuing to experience softness and the smaller short duration contracts driven by week discretionary spending.

Ravi Kumar: Let's start the demand environment and what I'm hearing from clients. Clients remain focused on efficiency initiatives for reduced cost and consolidated providers as they increase their productivity and resilience and we are helping them do so. They should in turn enable them to underwrite their continuing investment in digital transformation. For example, during the quarter we expanded our relationship with Lineage, a global leader and temperature controlled logistics to help build an industry leading operating platform and establish a plan to support their operations through automation and infrastructure management.

This dynamic has negatively impacted our near term revenue, but we believe will put us in a better position to accelerate revenue growth in the future when discretionary spending improves.

Moving onto the segment results for the third quarter, where all growth rates discuss will be an year over year in constant currency.

Within financial services revenue declined 4%.

Reflecting the softer demand environment across regions and sub industries.

This decline was partially upset by the benefit from the resale of third party products in connection with our integrated offerings strategy that Rob you mentioned earlier and his prepared remarks.

Ravi Kumar: We also established a new multi-year relationship with Swedish firm Interim. We expect to provide and to end digital integration and core modernization services for their credit management technology platform. To dive deeper into clients, long-term objectives and discover new ways to strengthen our partnership with them, Carvis and Held, a two-day discovery summit last month for about 130 of our North America clients, our first large-scale client gathering in more than four years. We discussed the transformative power of gendered AI and how we believe it can reshape every industry.

Looking ahead, we believe the market remains challenging.

And we expect the macroeconomic uncertainty will again have a meaningful impact for this segment in the fourth quarter.

That said, we are working hard to correct what is in our control and I believe we can make meaningful progress under the new sub industry go to a market approach and leadership.

Ravi Kumar: We showed clients how to apply gendered AI to create more connected, collaborative and responsive relationships with their customers. We also ran live use cases at Cognizance Neural AI platform showing gendered AI working alongside legacy data and machine learning models to rapidly create end-to-end AI use cases to tackle client KPIs. As mentioned last quarter, we expect to invest approximately 1 billion in our gendered AI capabilities over the next three years, focusing on areas such as platform modernization, infrastructure, recruiting and upskilling.

Have scientists revenue declined 1%.

Growth was negatively impacted by a large renewal that resigned earlier this year with a pair customer which resulted in a lower revenue run rate, but meaningfully improve profitability.

In addition, several of our larger customers have been impacted by their own company specific and and market challenges, which hasn't turned led to softer discretionary spending.

Products and resources revenue grew less than 1%.

Reflecting the benefit from recently completed acquisitions strong performance from utility climbs driven.

Ravi Kumar: To that end, we opened a dedicated AI Innovation Studio in London. Later this year, we expect to open AI studios in New York, Dallas and We have trained about 55,000 of our employees on genitive AI this year and have an additional 40,000 employees from all levels of a company registered in pursuing training on Gen AI. We have also invested in AI partnerships and the experimental infrastructure to support early client engagements. We believe clients will depend on partners like Cognizant to generate significant productivity gains through automated AI-powered platforms for design, engineering and operations. This shift in client behavior further validates as recently defined strategy which is aimed at strengthening Cognizant's differentiation to help drive growth.

Driven by their grid modernization investments and growth among automotive clients in Europe.

Growth in these areas was partially offset by pressure in manufacturing.

Communications media and technology revenue increased 7%.

Flexing the benefit from recently completed acquisitions at the ramp of New contract Awards.

This includes the expansion of current eggs, a gauge them and with our largest customers in this portfolio, who are launching innovative vertical solutions and leveraging our expertise in these areas to rapidly scaled globally.

Continuing with yoga year revenue growth in constant currency from a geographic perspective in Q3.

Ravi Kumar: Our strategy is focused on three emperators. First, we are resolved to be a industry led creating value for clients by integrating technology with industry use cases to drive business outcomes. We are embedding industry expertise across our value chain and select industries. We are developing more enterprise scale platforms designed for industry and operational use cases. Partnerships have a major role to play here. We are focused on expanding a partner ecosystem across a range of technology providers among them, hyperscalers, cloud providers, enterprise software companies, digital software enterprises and emerging startups.

North America revenue was down less than 1% driven by declines within our financial services and health Sciences portfolios. This was partially offset by growth in C M T and products and resources.

Our global growth markets or G. C M, which include all revenue outside of North America grew approximately 1%.

Growth was led by Europe, which grew 3% and included strong growth with M. C. M. T life scientists customers within our health Sciences segment and products and resources.

Ravi Kumar: We believe this partner ecosystem will enable us to enhance our integrated offering by combining third-party products with our service solutions, helping to deliver enterprise-wide digital transformation. We believe this strategy as a full-stack provider opens new and significant managed services opportunities. Second, given today's more heterogeneous technology landscape and the desire of many clients to build their own technology muscle, we focus on operating a highly flexible business model to meet clients where they are in that digital transformation journeys.

Finally, the resale of third party products contributed 120 basis points to our overall revenue growth in Q3.

The majority of which was in the financial services segment.

Now moving onto margins.

During the quarter, we incurred approximately $72 million a pus related to our next Gen program.

Negatively impacted our GAAP operating margin by approximately 150 basis points <unk>.

Ravi Kumar: We can support them across a range of project types, whether that structure deals, traditional managed services, build operate transfer, co-innovation, partner solutions or large technology transformations. And to help clients trend in their technology expertise, we can either lend our human capital along with our human capital value chain, which includes learning, development, automation and AI infrastructure and more. A business model flexibility is well suited to the changing nature of large deals where we see increasing demand for bundling services, often a combination of software people take over infrastructure and services.

Excluding this impact adjusted operating margin was 15.5%.

Similar to last quarter hour adjusted operating margin included the negative impact from increased compensation cost attributable to our to marriage cycles over the last 12 months.

This was partially upset by savings from our next Gen program and Tailwinds from the depreciation of the Indian rupee.

Oh, a gas tax rate in the quarter was 26.8% ajar.

Just the tax rate in the quarter was 25.7% Q3 diluted gap a P. S was a dollar and four cents and Q3 adjusted EPS was one dollar and 16.

Ravi Kumar: These deals have a potential to bring cognizant into the heart of clients, business landscape, putting us in a strong position to capture future services opportunities. Our third imperative is to enable more intimate levels of client collaboration and co-innovation this effort grows out of our heritage of client centricity and grassroots innovation. Given the scale and diversity of our global teams, we believe we have a potential to harvest an abundance of ideas big and small that can contribute to our client's focus.

Now turning to the balance sheet.

We ended the quarter with cash and short term investments of $2.4 billion or net cash at 1.7 billion.

D. S O of 77 days increased two days sequentially and.

Three days you over a year.

Free cash flow in Q3 was $755 million, which brings you to date free cash flow to approximately 1.4 billion.

Ravi Kumar: Inspired by our blue bolts, grassroots innovation movement launched in quarter to more than 35,000 of our employees have generated 75,000 ideas, we have already implemented about 14,000 of these ideas, nearly 6,000 of which are client facing, a strength and ability to co-innovate with clients is especially valuable as the grapple with understanding and applying During the quarter, we launched Telco Assurance 360, a cloud-based AI-powered solution built on service now, and designed to provide Telco with real-time visibility into network issues and fast proactive resolution through AI-powered analytics. We also signed a multi-agreement with a leading provider of digital and cloud-enabled solutions that are vital to the administration of health and human services programs across the US.

For the four year, we continue to expect free cash flow flow.

Ah to represent approximately 90% of net income.

During the quarter, we repurchased 4 million shares, but $300 million under our share repurchase program and returned 147 million to shareholders through regular dividend.

You to date, we have repurchased approximately 11 million shares for about $700 million.

At quarter, and we had $2.1 billion remaining under our share repurchase authorization.

Ravi Kumar: Cognizant will serve as the client's sole global IT services and operations partner to help drive transmission at scale. We also provide the client with access to a AI machine learning and genitive AI tools, along with a tri-Z of platform to advance revenue growth, increase administrative efficiency, and improve the member experience. What's more, we are expanding our strategic collaboration with Qualcomm Technologies to jointly implement the AI-based solutions at the edge as a part of our CAR2 cloud initiative.

Turning to our forward outlook.

For the fourth quarter, we expect revenue in the range of 4.692 $4.82 billion.

Presenting a year over year decline of 3.1% to 0.3% or a decline of 4% to 1.2% in constant currency.

Our guidance assumes currency will have a benefit of approximately 90 basis points as well as an inorganic contribution of approximately 100 basis points.

Ravi Kumar: We encourage our clients who want to transform their businesses by being AI first, to begin their journey by modernizing the data architecture, cloud infrastructure, and core business applications. Today, we are running more than 150 plus early client engagements that incorporate the use of genitive AI. Some of the examples of this work include general productivity use cases related to writing code, code analysis, and troubleshooting, knowledge management, and translating product specs into a natural chat or speech.

R. Q for revenue guidance range is wider than our historic a practice reflecting.

Reflecting a heightened level of uncertainty regarding client discretionary spending and recent pace up decision, making heading into the end of the year.

For the full year, we expect revenue will be in the range of 19.32 $19.4 billion.

Which is down approximately 0.7% to flap, both as reported and in constant currency as we do not expect a material impact from foreign exchange rates.

Ravi Kumar: Business specific use cases for call center automation, product prototyping, audience prediction, claims management, medical striping, and research and development. And domain specific use cases like onboarding new employees, validating deep documents, and financial statement planning and Linux. We have 300 plus additional opportunities in our pipeline that we are planning to scale.

This compares to our prior guidance range of 19.22, $19.6 billion or negative, 1% or plus 1% growth in constant currency.

We still expect inorganic contribution to be approximately 100 basis points.

Ravi Kumar: Let's turn to a quick update on our three long-term strategic objectives, starting with becoming an employer of choice in our industry. I see CAR2 isn't as a human capital company first, and a technology company second. Everything is essential that our volunteer iteration continues to fall, putting us on par with the industry average. We expect further improvement in our iteration in quarter four. It also worth noting that in quarter three, we had a net sequential headcount increase for the first time in several quarters. As a human capital company, we are determined to help improve the lives of workers around the world.

Our next Gen program remains on track and our assumptions for cost savings are unchanged from last quarter.

I'm also pleased to share that we are further reducing our expectations for next gen cough.

We now expect to incur a $300 million in total charges versus $350 million previously.

With $200 million this year versus $250 million previously.

The reduction as a result of lower real estate cost as we are now as we now expect to incur about $100 million related to the net consolidation of office space in 2023 versus $150 million previously.

This reflects slower expected third party costs associated with the real estate exits.

Ravi Kumar: With that in mind, we announced a groundbreaking training initiative yesterday called Cognizance Synapse Initiative, our job training and never is aimed at empowering more than one million individuals with advanced technology skills, including genitive AI, and that they will need to thrive in the digital economy. We intend to build a consortium of partners for training and jobs, which will then employ individuals who have upskilled through our synapse initiative.

As we have spoken about previously we still intend to reinvest the majority of the next gen savings and growth opportunities and 2024 and beyond.

Moving on to adjusted operating margin.

We are modestly increasing our guidance to 14.7%.

Which is the high end of our prior range.

Ravi Kumar: Our next performance objective is to accelerate revenue growth. When I joined Cognizant in January, I said large deals are one of my top priorities. As I mentioned earlier, we are pleased to see our continuing large deals momentum, which is underpin by the work we are doing to improve the capabilities required to seed shape and sell large deals.

As a reminder, our queue for operating margin is typically seasonally lower than Q3 levels.

We still anticipate 2023 interest income of approximately $115 million and then adjust the tax rate of approximately 34% versus the range of 23 to 24 previously provided.

In addition, we now expect to deploy approximately $1 billion on share repurchases in 2023 versus hour prior expectations of approximately $800 million, which assumes an additional $300 million of share repurchases in the fourth quarter.

Ravi Kumar: Our third performance objective is to ensure operational excellence across the company. We remain focused on simplifying our operations including our sales and delivery structures so we can continue to become more agile and get closer to clients in the unique business challenges. In general, we are operating with fewer layers, optimizing the day-to-day operations with enhanced system and tools and working to streamline our processes and automate information flows using AI. Differentiation of the tech services industry happens at the client size and the project level making relationships and strong execution key. That's why I've invested so much time in meeting with over 270 clients so far this year, building trust and learning all I can about Cognizant can deliver more value to them.

In total we expect to return approximately $1.6 billion to shareholders, who share repurchases and dividends in 2023.

Our guidance for shares outstanding is unchanged at approximately 506 million.

This leads to a four year adjusted earnings per share guidance of $4 and 30, $924 and 42 verses.

$4, and 25 and $4 and 48 previously.

Reflecting our updated expectations for revenue and adjusted operating margin.

With that we will open the call for your questions.

Ravi Kumar: Over the past three quarters, I believe Cognizant has made meaningful progress on our long-term priorities. While we have a lot of work ahead, we also have much to be proud of. This includes a continuing large deals momentum, improved employee and client satisfaction scores, declining attrition, the scaling of an industry leadership with a platform centered approach, heightened operational discipline and the launch of a grassroots innovation movement.

Thank you.

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Clinton.

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Yeah.

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Ravi Kumar: Looking ahead, we believe the soft demand and environment is unlikely to see a rapid rebound. Therefore, we expect clients to continue tempering the discretionary spending as they begin the new year. Given that market reality, we remain focused on winning efficiency-led large deals, aimed at cost-taker and vendor consolidation, which can offset current pressure and discretionary spending. A focus on operating discipline and our year-to-date progress on the next year's program gives us confidence that we can meet our expectation to deliver our 20-40 basis points of margin expansion next year. Jan will share more detail on next year in a moment.

Thank you.

Our first question comes from the lineup Brian broken with talent. Please proceed with your question.

Good afternoon. Thank you.

I appreciate you offering their early commentary on the 2024 margin expansion potential I just want to clarify for instance, that's off the base of that 14.7 raised adjusted Martin here and then understanding the environment quite dynamic, but based on what you're seeing in bookings activity and and deal duration backlog.

Pipeline can you share any thoughts or guardrails for 2024 girls now as well.

Ravi Kumar: Taking a longer view with my read of business history, periods of great uncertainty and periods of change rarely coincide. Today, I believe we are in just such a period of simultaneous great uncertainty and deep-seated change. The uncertainty is being compounded by a number of intertwined domestic and international risks. What can become a transformative change is being driven primarily by new general purpose technologies with immense power such as generative AI, which I believe could become as ubiquitous and consequential for businesses society as the internet did three decades ago.

Yeah, So Bryan I'll I'll catch the easy one first yes, the reaffirmation of our intend to expand our margins by 22 40 basis points us up mid point of our expectation all our our point of landing at at 14.7. So that's a good assumption for the book and some momentum.

Robbie might be giving you a little bit of a color around what we're seeing in the market.

Yeah, So Brian you know.

I've been saying this for the last.

Ravi Kumar: I expect this reality will leave most clients. However focused they are on navigating uncertainty with no choice but to make some big bets if they are not to be left behind by the pier. I believe Cognizant is in a position, in a great position, to prepare them for this future, whether by helping them achieve significant savings to underwrite investments in transformation or by helping them build their own technology muscle which can, which can include becoming fully AI ready.

Two quarters in this quarter as well.

Ah Ah deal momentum and Ah bookings momentum is very strong we are continuing to see good traction.

Spoken about to swim lanes, there's assembly on transformation led deals and I've spoken about cost efficiency when the consolidation.

Mm efficiency led you know kind of Ah deals, we see more in this category versus the transformation, but we also see this category underwriting the savings to the transformation. So a lot of times you don't remember you know one of the things I spoke on my in my in my initial remarks is this is a period of <unk>.

Ravi Kumar: Imclosing, you are all aware that we recently appointed Jatin Dalal to be Cognizant's next Steve Financial Officer and we are excited that he will be joining us in December. Since this is Jan's last earnings call with Cognizant, I want you all to know that what a powerful partner he has been to me across so many dimensions, strategic financial, operational and cultural. He left a positive and indelible mark on our global organization and I am especially grateful that he agreed to stay with us until early next year to ensure smooth transition to Jatin.

Maybe a change coming together so clients of navigating the two there is change significant change edifice and price of wondering <unk>. The capex cycle. So the ability to take cost out on the right. The savings to the transformation I think is that great template and I think we are well positioned for that.

What happens in the short run though is the discretionary spending is really fallen over the last three quarters. I mean, it's been very very soft. So the deals. We are one of the first of the second quarter, we have to backfill that as well as.

Jan Siegmund: With that, I will turn the call over to Jan to provide additional details on this quarter. Thank you, Ravi, for the kind words. I want to thank all of our associates around the world for welcoming me into the Cognizant family three years ago and for making my time here such a memorable experience. It has been a pleasure working with so many great people at Cognizant and all of you on this call.

You know you know that large deals actually come with the gestation period two [noise].

To get to the peak levels of sad potential.

So we are hopeful that the large deal momentum continues it continues over the next year and of course the deals. We want this year will contribute more to the next year. What I don't know is what happens to discretionary spend I mean the the.

Jan Siegmund: I am confident that I am leaving the company in great hands with Jatin, who many of you know is an accomplished CFO and an experienced IT services executive. For the next several months, I look forward to working with Ravi, the Jatin and the rest of the leadership team to ensure a smooth transition.

Is very soft.

So we will have to wait and see how the discretionary happens, but I'm very optimistic about how the large deal momentum is especially on cost state government consolidation.

Jan Siegmund: With that, let's turn to our third quarter results. We delivered revenue within our guidance range despite a soft discretionary spending environment and ongoing economic uncertainty. Adjusted operating margin exceeded our expectations, reflecting saving from our next-gen program and the timing of investments, which is driving some modest upside in our guidance range that I will touch on later. We were also pleased to deliver another quarter of solid bookings growth, which continued to be driven by larger, longer duration engagements.

<unk> deals that we are seeing across the spectrum and I think we are winning well you can see the bookings momentum this year.

So the the one which is unknown is discretionary that's the peace be we are not shut off hopefully.

As <unk> as the cost Takeouts continue if they kind of play the capex cycle for transformation, hopefully that happens and if that happens we are going to catch it early on.

Okay understood in my policy just on the resale pizza.

The third party products that you mentioned 120 bps in the corner, how does that compare to maybe the average over the last four to six quarters and are you assuming retail amounts in the forward outlook.

Jan Siegmund: Moving on to the details of the quarter. Third quarter revenue was $4.9 billion in increase of 0.2% sequentially. Year over year revenue grew 0.8%, but declined 0.2% in constant currency. Year over year growth includes approximately 110 basis points of contributions from our acquisitions. Similar to last quarter, our 9% quarterly bookings growth was driven primarily by larger and longer duration deals. On a trailing 12-month basis, duration is up over 50% from the prior year period.

Yeah, So Brian I had spoken about a strategy of large deals with all in all semblance you know all the way from productivity too.

People take over to software led to efficiency led and I've spoken about it that our participation is going to be in all of them.

Now sometimes what happens in in these in this in these situations is you have upstream software is coming in and do a downstream services coming out and it's the timing I mean.

Jan Siegmund: At the same time, we are continuing to experience softness in the smaller, shorter-ration contracts driven by weak discretionary spending. This dynamic has negatively impacted our near-term revenue, but we believe will put us in a better position to accelerate revenue growth in the future when discretionary spending improves.

Software upstream there is significant downstream services, which is attached to it.

So you know we've had 60 basis points before Cindy in the year. Then we have added in this quarter, but what you really have to look at is the timing of this deals.

Jan Siegmund: Groups. Moving on to the segment results for the third quarter, where all growth rates discussed will be in year-over-year and constant currency. Within financial services, revenue declined 4%, reflecting the softer demand environment across regions and sub-industries. This decline was partially offset by the benefit from the resale of third-party products in connection with our integrated offering strategy that Ravi mentioned earlier in his prepared remarks. Looking ahead, we believe the market remains challenging and we expect the macroeconomic uncertainty will again have a meaningful impact for this segment in the fourth quarter.

Now.

In.

In order to be announced a strategic partnership with the service now four.

Billion dollars, a joint partnership and we have offering which actually has a bundle of software reusable assets services attached to it.

And it is a managed services model.

And that's the that's the opportunity we are pursuing and as as large deals come you're always going to see the timing in one in one particular part of your craft softer nobody can afford or you could have services downstream. So it's that's the that's the process of how you how you see this sometimes there are people <unk>, sometimes there is productivity.

Jan Siegmund: That said, we are working hard to correct what is in our control and I believe we can make meaningful progress under the new sub-industry go-to-market approach and leadership. Health sciences revenue declined 1%. Growth was negatively impacted by a large renewal that we signed earlier this year with a pair customer which resulted in a lower revenue run rate but meaningfully improved profitability. In addition, several of our larger customers have been impacted by their own company specific and end-market challenges which has internal led to softer discretionary spending.

Upfront and I forgot upfront and sometimes you have transition upfront and you'll have service or something on the on the downstream. So it's hard to pick which quarter, you're gonna you're gonna see this but you know the nature of large deals gives you that.

That.

Floor, and if I may in terms of how they get constructed quote unquote.

Okay I appreciate that thank you.

Thank you next question comes from the lineup Ashwin.

City. Please proceed with your question.

Uhm. Thank you.

Hi.

Jan Siegmund: Products and resources revenue grew less than 1%. Reflecting the benefit from recently completed acquisitions, strong performance from utility clients, driven by their grid modernization investments, and growth among automotive clients in Europe. Growth in these areas was partially offset by pressure and manufacturing. Communications, media and technology revenue increased 7%. Reflecting the benefit from recently completed acquisitions and the ramp of new contract awards. This includes the expansion of current engagement with our largest customers in this portfolio who are launching innovative vertical solutions and leveraging our expertise in these areas to rapidly scale globally.

Yes, before I start again.

This is going to be your last earnings call.

Thank you for all the all the work and Netflix.

Alright.

Alright.

The question is.

Come to cognizant you made a number of changes you talked about the largest need infrastructure it seems to be in a good place.

How would you date cognizant ability to win and be competitive.

Two.

Especially work that he's in there now.

But you will need need to be competitive in the venue when it does come back because it seems to me is going to be the difference next year will be fine.

Low single digits and mid single digits.

Yeah.

I I I'll give a little bit of an answer, but I think robbie will be adding much more color to this the the overall position that we have and with our clients I think has really meaningful Li improved over the last three or four quarters.

Jan Siegmund: Continuing with your revenue growth and constant currency from a geographic perspective in Q3, North America revenue was down less than 1% driven by the clients within our financial services and health sciences portfolios. This was partially offset by growth in CMT and products and resources. Our global growth markets, or GGM, which include all revenue outside of North America, grew approximately 1%. Growth was led by Europe, which grew 3%, and included strong growth within CMT, life sciences customers within our health sciences segment, and products and resources. Finally, the resale of third-party products contributed 120-base points to our overall revenue growth in Q3, the majority of which was in the financial services segment.

We have and the net promoter score said property was reporting on this kind of afraid of the statistical average of this coming in at a store at high but we can just see from the comments and the number of Escalations is another one we haven't talked in the call about it but obviously that has been in parallel coming down so the service quality.

That's been better that's partially fueled by a low attrition rates. So the overall relationships that we have with our clients have really very meaningfully improve and I think we have embraced it's kind of a philosophy of meeting declined where the client has needs and right now the needs.

Jan Siegmund: Now moving on to March. During the quarter, we incurred approximately $72 million of costs related to our next-gen program. This negatively impacted our gap operating margin by approximately 150 basis points. This resulted well to our two merit cycles over the last 12 months. This was partially offset by savings from our next-gen program and tailwinds from the depreciation of the Indian Ruby.

More on the structural cost improvement in productivity type vendor consolidation type deals and discretionary spending has taken a back row, we want to be there for our clients when that discretionary spend comes in the transformative and.

And Ah deals are popping up and going part of it. So we're gonna be having deeper relationships with our clients in the high focus on clines relationships and and I feel we should be ready for that to do so Robbie yeah. So thank you yeah, and I think nobody will set so it should be and thank you for that.

Question.

Ah you're absolutely right.

Jan Siegmund: Our gap tax rate in the quarter was 26.8%, adjusted tax rate in the quarter was 25.7%, Q3 diluted gap EPS was $1.04, and Q3 adjusted EPS was $1.16.

This is the the large deals muscle is consistently improved over the last three quarters. This is something which did not exist before.

I came in in January and built muscle and I'm very confident that we can sustain it with sustained it for three quarters that we are very confident we can do that for the future.

And we have actually now invested an institutional infrastructure to support it all the way from productivity to automation infrastructure to the classical diva.

Jan Siegmund: Now turning to the balance sheet. We ended the quarter with cash and short term investments of $2.4 billion or net cash of $1.7 billion. DSO of 77 days increased two days sequentially and three days year over year. Free cash flow in Q3 was $755 million, which brings year-to-date free cash flow to approximately $1.4 billion. For the full year, we continue to expect free cash flow to represent approximately 90% of net income.

Which you apply in in managed services cost stakeout kind of deals.

We did have good good muscle on discretionary before I mean the transformation.

The infrastructure of the company is strong as the sprint comes back a big confident that because we have good engagement with a client. We are also going to naturally be the the provider's for discretionary spend you know you you could in some ways use the strength of current deal momentum.

To support the discretionary the historic discretionary muscle of the company.

Jan Siegmund: During the quarter, we repurchased $4 million shares for $300 million under our share repurchase program and returned $147 million to shareholders to our regular dividend. Year-to-date, we have repurchased approximately $11 million shares for about $700 million. At quarter end, we had $2.1 billion remaining under our share repurchase authorization.

No I think the entrees important point, which I think is very very important.

You know we ran the net promoter score survey to see.

And we have a historic high schools and the three or four things, which have come come out of that our attrition rates have gone down.

They've gone down and they are trending downward even even into the next quarter.

Ah Ah and probably satisfaction scores on an all time high.

Jan Siegmund: Turning to our forward outlook. For the fourth quarter, we expect revenue in the range of $4.69 to $4.82 billion. Representing a year-over-year decline of 3.1% to 0.3% or a decline of 4% to 1.2% in constant currency. Our guidance assumes currency will have a benefit of approximately 90 basis points as well as an inorganic contribution of approximately 100 basis points. Our Q4 revenue guidance range is wider than our historical practice. Reflecting a heightened level of uncertainty regarding client discretionary spending and recent pace of decision-making heading into the end of the year.

Clients satisfaction scores on an all time high.

Customers are engaging with us much more or whatever idea of swim lanes, which means when the discretionary comes back to each of <unk> back to that you know back to the strength of those relationships. So you know in fact, one cause one thing, which which really registered with me.

On the on the net promoters goes survey, which is about.

Customers, saying cognizant is back and some farm.

Phase and get cognizant is back or the module is back I think that is the momentum which will allow us to get back the discretionary spend as and when our customers type of spending it.

So you know I think we have set the foundation very strong foundation. The two things which are clients have spoken about it aside cognizant is back to the second is we have a much more stable.

Jan Siegmund: For the full year, we expect revenue will be in the range of $19.3 to $19.4 billion, which is down approximately 0.7% to flat, both as reported and in constant currency, as we do not expect a material impact from foreign exchange rates. This compares to our prior guidance range of 19.2 to 19.6 billion dollars or negative 1% to plus 1% growth and constant currency. We still expect inorganic contribution to be approximately 100 basis points.

Leadership.

Good execution, agile <unk> responses and and much lower significantly much lower turnover of employees and these these these would actually double off on the.

On the discretionary as it comes back.

Good to hear the second question again, you know.

It's a it's a good job on on the margin performance the question.

Is on the deals that you are signing you mentioned that there is no need to be flexible in terms of structuring and tons of bringing various partners together and so on so forth.

Jan Siegmund: Our next trend program remains on track and our assumptions for cost savings are unchanged from last quarter. I'm also pleased to share that we are further reducing our expectations for next-gen costs. We now expect to incur $300 million in total charges versus $350 million previously. With $200 million this year versus $250 million previously. The reduction is a result of lower real estate costs as we now expect to incur about $100 million related to the net consolidation of office space in 2023 versus $150 million previously.

Does any of what you were doing today to get new deals.

<unk>, how do you think of future margin potential.

Yeah, so when we sign up the the deal. So obviously they are in a competitive environment and we apply disciplined approach to those fields in order to.

To keep a balance of growth and continued margin expansion and it played out this quarter ashwin really to the benefit of the margin because we had anticipated some investments are a little bit stronger than we actually needed in this quarter on for example.

Jan Siegmund: This reflects lower expected third-party costs associated with the real estate assets. As we have spoken about previously, we still intend to reinvest the majority of the next trend savings and growth opportunities in 2024 and beyond. Moving on to adjust an operating margin, we are modestly increasing our guidance to 14.7%, which is the high end of our prior range. As a reminder, our Q4 operating margin is typically seasonally lower than Q3 levels.

<unk> and to log it deals with maybe initially lower margins and and.

And we didn't need a neat, though and the best men. So I think there's a view that we have about very carefully.

Layering our large do your portfolio and supporting it with a disciplined approach on on Ah Nonbillable and administrative cost controls is playing out and I think we're entering that year next year with that confidence that that that balance.

Jan Siegmund: We still anticipate 2023 interest income of approximately $115 million and then adjust the tax rate of approximately 24% versus the range of 23 to 24 previously provided. In addition, we now expect to deploy approximately $1 billion on share purchases in 2023 versus our prior expectations of approximately $800 million, which assumes an additional $300 million of share purchases in the fourth quarter. In total, we expect to return approximately $1.6 billion to shareholders to share repurchases and dividends in 2023.

As in tact and.

I I think I mentioned it in a prior call in the large steel expected business profile that we do have deals that we expect to exhibit lower margin profile, but we also have a deal said I have very meaningful the actually renewals of historic deals that have very meaningful the improved our.

Most margin profile in that we're in negotiations so in a net profile, but the impact has been actually a more muted and that may not continue all at all into the future but for now it has been a very balanced outcome my website.

Jan Siegmund: Our guidance for shares outstanding is unchanged at approximately $506 million. This leads to our full-year adjusted earnings for share guidance of $4.39 to $4.42 versus $4.25 and $4.48 previously, reflecting our updated expectations for revenue and adjusted operating margin.

So I was pulling up you know we have you know the first thing we just changed as we are participating.

Deals across disciplines like spoke about and.

And we are comforted have enough and we have been to the institutional infrastructure to support execution and actually better performance to the matrix, which we come out when we.

When we.

When those deals.

Tyler Scott: With that, we will open the call for your questions. Thank you.

So we have to keep spending that this was always work in progress we have to continue to stay compensate us and we have to continue the pies them to win and deliver them to margins as I call. It and we continue to keep a comprehensive mess by strengthening that productivity tools and and automation tools and they're AI tools. So this is.

Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation someone will indicate that your line is in the question Q. You may press star 2 if you would like to remove your question from the Q. For participants using speaker equipment, it may be necessary to pick up your handset before press star 2, and the star keys.

Operator: In the interest of time, we ask that you limit yourself to one question and to one follow-up. One moment please, will we pull for questions?

Ongoing the ongoing process and and you have to keep a <unk>.

You have to keep changing the baseline because you know as as you want to be compensated you'll have to continue to keep working on the productivity neighbors. Unlike in the past where this productivity leave us with a neighbor oriented I would say.

There were classical now that our technology oriented and hence we have a unique opportunity to to to create some nonlinearity in the past.

Operator: Thank you.

Bryan Bergin: Our first question comes from the line of Bryan Bergin with P.D. Talon. Please proceed with your questions. Hi, good afternoon. Thank you. So, I appreciate you offering the early commentary on the 2024 Margin Expansial Potential. I just want to clarify first that that's off the base of that 14.7 raised adjusted margin here. And then understanding the environment's quite dynamic, but based on what you're seeing in bookings activity and deodoration and back off behavior and pipeline.

We did not participate in those deals now we are participating and Ah and winning them. So the confidence has been really hot.

Thank you both.

Our next question comes from the line.

Bank of America.

With your question.

Bryan Bergin: Can you share any thoughts or guardrails for 2024 growth now as well? Yeah, so, Bryan, I'll catch the easy one first. Yes, the reaffirmation of our intent to expand our margins by 2240 basis points is off the midpoint of our, our, our point of landing at 14.7. So that's a good assumption. For the booking momentum, Ravi might be giving you a little bit of a color around what we're seeing in the market.

Hi, Good evening Ruffian Yawn. This is Tyler Dupont oncentration. Thanks for taking the questions I wanted to ask about the demand environment, you're seeing actually start as we look into the end of 2023 and as we started to look into even the beginning of 2024 when looking at the updated revenue guidance being narrowed.

I'm, just curious what incremental trends you've you've seen over the past couple of months, whether it's changes in winter, it's ramp times or softness whether that particular service offering vertical geography anything like that that may be driving the additional cautious stamps.

Bryan Bergin: Yeah, so, Bryan, you know, I've been saying this for the last two quarters and this quarter as well. Our deal momentum and our bookings momentum is very strong. We are continuing to see good traction. I've spoken about two swim lanes. There is a swim lane on transformation led deals and I've spoken about cost efficiency, vendor consolidation, efficiency led, you know, kind of deals. We see more in this category versus the transformation, but we also see this category underwriting the savings to the transformation.

I think you know the the cautiousness is related to.

The uncertainty around the discretionary spend I think.

Everybody in the market is facing it including us.

What we have certain is ideal momentum and as.

And the large deals and Ah bookings continues to be very vibrant.

What what we do not know.

Especially in a seasonally you know slow quote unquote for is always seasonally slope because of federal those as well.

What we are unable to predict is how much of the discretion that he gets gets impacted and how much of her largely momentum. We've got neutralized by this and does that extent, we we we felt it was only fair that we.

Bryan Bergin: So a lot of times, you know, remember, you know, one of the things I spoke on my early in my initial remarks is this is a period of uncertainty and change coming together. So clients are navigating the two. There is change significant change out of us and clients are wondering who funds the capex cycle. So the ability to take cost out and underwrite the savings to the transformation. I think is a great template and I think we are well positioned for that.

We.

Keep it keep it risks that we keep the risk adjusted to what we believe could be soft in court for.

Okay. That's that's very helpful. Thank you and then I guess just to kind of go even just a little bit deeper into visibility into 2024 budgeting decisions.

Bryan Bergin: What happens in the short run, though, is the discretionary spenders really fallen over the last three quarters. I mean, it's been very, very soft. So the deals we have won in the first and the second quarter, we have to backfill that as well as, you know, you know, that large deals actually come with a gestation period to get to the peak levels of their potential. So we are hopeful that the large deal momentum continues.

No it's still early and and you don't give guidance on 24 anything yet.

Given the current rather choppy macro environment that we're seeing and have seen can just speak to sort of conversations what happened with clients regarding 24 budgets sort of how does that visibility compared with this time last year and and you know it's there more certainty in certain vertical than others or just any clarity there would be it would be very appreciated.

Bryan Bergin: It continues over the next year. And of course, the deals we won this year will contribute more to the next year. What I don't know is what happens to discretionary spend. I mean, the environment is very soft. So we will have to wait and see how the discretionary happens, but I'm very optimistic about how the large deal momentum is, especially on cost takeout, when the consolidation efficiency led deals that we are seeing across the spectrum.

Yeah, I'll I'll jump in for the number one I think we actually kind of gave a lot of half of the P&L, we already disclosed because we we really committing two hour 42 20 basis points of margin expansion and so now the revenue arrange going for.

It will be subject to our guards fall in three months, but if you. What we know today is as Rob you said that I think gradually economic uncertainty has increased and discretionary spending has softened throughout the last three quarter. So we have seen that trend not not stopping.

Bryan Bergin: And I think we are winning well, you can see the bookings momentum this year. So the one which is unknown is discretionary. That's the piece we are not sure of. Hopefully, as these deals stick as the cost takeouts continue, if they kind of trigger capex cycles for transformation, hopefully that happens. And if that happens, we are going to catch it early on. Okay, understood. And my follow-up here, just on the resale piece of the third-party product that we can mention 120 bips in the quarter.

Yet and part of our lack of knowledge, if it's stopping in the fourth quarter or if it's gonna turn around early in the year later in the year, it's really not known to us to be quite honest as well and our clients will be forming their budgets and they I T budget at the same time as we are developing our own budget. So there's this kind of always a simultaneous.

Private process, what has improved for US is obviously the visibility of the longer term deals that are now in our portfolio and there will be contributing and scaling and 24. So that gives us a little bit of a planning safety and then we have to just kind of really make assumptions on and you can do that for your own self was like are you.

Bryan Bergin: How does that compare to maybe the average over the last, you know, four to six quarters? And are you assuming resale amounts in the forward outlook? Yeah, so Bryan, you know, I had spoken about a strategy of large deals with all in all swim lanes, you know, all the way from[inaudible] Yeah, I'll give a little bit of an answer, but I think Ravi will be adding much more color to this. The overall position that we have with our clients I think has really meaningfully improved over the last three or four quarters.

Bullish on the discretionary spending.

Economic development or next year or are you, the same or or or a more bearish here and I think that will then determine revenue outcome for for next year to do so I think that's really what we will go under every I haven't finished that process and.

But in January and February beginning February what would commit to that.

Okay, great. Thank you I appreciate it.

Thank you.

Question comes on the line.

J P. Morgan. Please proceed with your question.

Thanks, So much good afternoon, just just wanted drilling maybe for yonder.

T C V versus a C V.

And how to consider that in the short term. The next couple of quarters <unk> book, the bills quite high went out for but.

In terms of translation with just mix shift towards larger deal.

How would you guide us there between a C V M N T C. B. This yeah. Thank attention for that the I gave in my in my remarks. This duration comment yeah, and I think we had in previous calls and historically it is close at our average duration was roughly around two years and now our duration in the fucking says.

Four years, so it's a meaningful increase and obviously then a C V. The the annual revenue expectations for this is is down and.

And that's actually on top you have also that that makes shift a larger deals need some scaling. So they have the a T. V is not completely symmetrical that goes in the first year, you're building up the infrastructure and just started transferring the S. S. N. Do you think what do you need to do to get ready so some of the <unk>.

You have the larger dios's delayed and will come and 24 and at the same time, we have a decline of deals below $5 million of T. C V, which is typically D. O said always translate in year two revenue. So those things together basically Ah Ah Ah 90 per cent.

<unk>, what you see in all revenue trend actual in the last few quarters and I'm anticipating unless the discretionary spend is coming back roaring that that one change now so that we're entering the year with all these moving parts probably in a position that is not too different from last year.

In terms of visibility of revenue going forward Ah Ah Ah, so Ah and mysteriously.

Mysteriously balances out because some of our larger deals now maturing and scaling having a little bit better contribution to next year, and then well as I said in my apartment. So we all have our estimate to Megan how short term demand, it's gonna be a developing ah so ah.

The net of it is that that.

Factors within the fed up have changed compared to the beginning of 20.

Three bedroom twenty-four we're kind of approximately in a similar position to start.

Just to add to that what you said you know.

Bryan Bergin: We have in the net promoter scores that Ravi was reporting on is kind of really the statistic of average of this coming in at a historic high, but we can just see from the comments and the number of escalations is another one we haven't talked in the call about it, but obviously that has been in parallel coming down so the service quality has been better, that's partially fueled by low attrition rates. So the overall relationships that we have with our clients have really very meaningfully improved and I think we have embraced kind of a philosophy of meeting the client where the client has needs and right now the needs are more on the structural cost improvement and productivity type, vendor consolidation type deals and discretionary spending has taken the back row.

Because we didn't have large deals are in the previous year.

What the slope at the head of the C in terms of.

You know realizing this year.

Did not happen.

What's gonna happen for next year, though is you Wanna have a tail velocity of beans, with one this year, which will accrue revenues next year.

And and that's it you know that's a change because we have consistently done it from quite a one or two now called a three we have done the percentage of her large deals has gone up.

The percentage of new in this large deals is also gone out. So that's a that's a positive change the question the unknown pieces that discretionary spent.

Bryan Bergin: We want to be there for our clients when that discretionary spend comes and the transformative and deals are popping up and going part of it. So we're going to be having the relationships with our clients and the high focus on client relationships and feel we should be ready for that to do so. Ravi? Yeah, so thank you Jan, I think very well said. Sushwin, thank you for the question. You're absolutely right.

Got it I appreciate all of your comments.

Our next question comes from the lineup.

Men with BMO capital markets.

With your question.

Yeah. Thanks, very much I wanted to follow up on that set of comments.

And as you're thinking about next year, you've talked a lot about the the large steel program ramping and contributing to revenue growth and mentioned that discretionary still a headwind can you give us a sense of proportionality.

Bryan Bergin: The large deals muscle is consistently improved over the last three quarters. This is something which did not exist before. I came in January and built that muscle and I'm very confident that we can sustain it. We've sustained it for three quarters and we're very confident we can do that for the future. And we have actually now invested on institutional infrastructure to support it all the way from productivity to automation infrastructure to the classical divorce which you apply in managed services and cost-takeout kind of deals.

How much discretionary is that'd be their revenues bookings any kind of metric and how that has changed from what it is to begin year cause it seemed to me as we start to think about growth that percentage of.

Low duration deals, if you will or discretionary spend.

Is that a levels such it would be less of a headwind next year as you anniversary the March quarter when it.

When it first impacted cognizant and many others.

Bryan Bergin: We did have good muscle on discretionary before. I mean, the transformation infrastructure of the company is strong. As the spend comes back, I'm very confident that because we have good engagement with our clients, we are also going to naturally be the providers for discretionary spend. You know, you could in some ways use the strength of our current deal momentum to support the discretionary, the historic discretionary muscle of the company. Now, I think Jan raised the important point which I think is very, very important.

You know it's a difficult.

Question to answer.

Now on how it's going to be next year.

I mean.

You don't see this.

The assembly enough lodged.

<unk> two eight and that is 30 per cent of bookings.

The assembly and of largely has been doing.

Always the savings of those large deals <unk>.

Some of the smarter clients are not necessarily taking it.

To savings, but they're necessary they are actually underwriting get for transformation.

Bryan Bergin: You know, we ran the net promoters course survey this year and we have historic high schools and the three or four things which have come out of that are attrition rates have gone down. They've gone down and they're trending downwards even into the next quarter. Employees satisfaction scores are on an all-time high. Our client satisfaction scores are on an all-time high. Our customers are engaging with us much more over a variety of swim lanes, which means when the discretionary comes back, each of these swim lanes is not a contribute, back to the strength of those relationships.

Which means if some of them can trigger capex cycles, then you're going to see some of that discretionary coming back because the savings you do on productivity.

Who will allow you to you know trigger the Catholics like because I mean, I spoke about 150, plus a I smell you know preliminary early AI engagements that.

The reality is if they have to scale up you need the capex the capex will either come because our clients of themselves navigated the uncertainty and got the Capex.

[noise] colored awed.

They would use some of the savings from the from the cost cutting costs take out they have done related.

Bryan Bergin: So in fact, one thing which really registered with me on the Net Promotions Coal Survey, which is about our customers saying Cognizant is back in some form, a paraphrasing it, Cognizant is back, or the Mojo is back, I think that is the momentum which will allow us to get back the discretionary spend as and when our customers start to spending it. So, I think we have set the foundation, very strong foundation, the two things which are clients have spoken about as I said, Cognizant is back, the second is we have a much more stable leadership, good execution, agile response responses and much lower, significantly much lower turnover of employees, and these would actually rub off on the discretionary as it comes back.

Related technology to leverage it into into into discretionary I've been many of my clients today I might do 70 of them. This year, they're not saying they want to take their I D budget style, what they're really saying is can you do more for less.

And can you actually direct the savings too.

And that was the savings to the transformation, they're they're looking forward to and they are very very anxious about the transformation because we are all living in the spirit of change.

The the issue is what we what I do not know is whether.

The economy and the overall environment, which is really a headwind.

That will change significantly next year, that's something that's hard to predict now, but if that uncertainty continuous you're obviously not gonna see the discretionary spend coming back, but if you see that triggering positively then you're going to see the savings of all of this costs takeout initiate us to move into transformation and that.

Bryan Bergin: Good to hear. The second question, again, it's a good job on the margin performance. The question I have is on the deals that you are signing, you mentioned that there is now need to be flexible in terms of structuring, in terms of bringing various partners together and so on and so forth. Does any of what you are doing today to get new deals affect how you think of future margin potential? Yeah, so when we sign up the deals, obviously they are in a competitive environment and we apply a disciplined approach to those fields in order to keep a balance of growth and continued margin expansion.

Will trigger another cycle of spend which in turn hopefully with the revenue cycles for our clients, which will then hopefully created.

Which was positive cycle, so I'd say a tricky one to answer you know you'll need a trigger for the capex cycles of discretionary at all the discretionary spend his yard mentioned these are all deals between zero to $10 billion. They all get they all get realized within the same ER because these are small deals.

So you don't say it.

It's a very unusual time, you know a time of uncertainty at a time of change coming simultaneously.

So.

The cost takeout deals potentially can fund them and that's the point I'm, making and if they don't then there are other triggers of Capex cycles, where you have to find out.

Okay, Okay, Yeah, and I wanted to also thank you for all the work you've done over the last couple of years and then direct the question is do you think about the 20 to 40.

Bryan Bergin: And it played out this quarter, Ashwin, really, to the benefit of the margin because we had anticipated some investments a little bit stronger than we actually needed in this quarter for example investments into larger deals with maybe initially lower margins and we didn't need those investments. So I think this view that we have about very carefully layering our large deal portfolio and supporting it with a disciplined approach on non-billable and administrative cross-controls is playing out and I think we are entering that year next year with that confidence that that balance is intact.

A basis point range for margin improvement next year.

I know you don't want to give metrics associated with revenue, but just you know how do you think about the the upper end person at the lower end and.

In other words is as simple as you know discretionary it comes back on that okay.

It has a greater opex leveraged was or anything else puts and takes that we should be thinking about and particularly you did mention with a large steel ramps.

<unk> and the many cases have lower broaching margin profiles, just when he puts and takes that you want us to think about as it relates to the 20th of 40 basis points range.

Local wait we entering the the here with the next Gen initiative executing well and according to our plans and and we're gonna have what were some impact in the third quarter, but really not full run rate impact.

Bryan Bergin: And I think I mentioned it in a prior call in the large deal expected business profile that we do have deals that we expect to exhibit lower margin profile but we also have deals that have very meaningfully actually renewals of the store deals that have very meaningfully improved our gross margin profile in the renegotiations. So in the net profile, the impact has been actually more muted and that may not continue all into the future but for now it has been a very balanced outcome I would say.

Yet and so we will have a lot of momentum.

On next Gen next year so.

We offer the savings opportunity for 24 to read it for 25 to reach in real estate 100 million dollar savings and are you are you all have your own assumptions on our headcount reduction program easy to be calculated and that's a lot of efficiency that we can.

Bryan Bergin: So Ashwin, you know, you know, we are, you know, the first thing we just changed is we are participating on deals across the swim lanes that spoke about and we are competitive enough and we have built the institutional infrastructure to support execution and actually better our performance to the metrics which we commit when we win those deals. So we have to keep strengthening that, this is always work in progress, we have to continue to stay competitive and we have to continue to price them to win and deliver them to margins as I call it and we continue to keep our competitive mass by strengthening that productivity tools and our automation tools and our AI tools.

Book on our side.

Anticipate the revenue Ah momentum is obviously the tech next factor for us that will shift and and and in that revenue growth factor that determines the scale of our SG&A development and other elements is kind of probably a big factor in the second one I would give you to you is there.

The style and the execution of our large feels scaling and all that so it's all good deals or is it a little bit of a risk factor just by the nature of their scope involved and if we are executing well in the deals don't develop problems that will help us to be a very.

Bryan Bergin: So this is an ongoing process and you have to keep changing the baseline because, you know, as you want to be competitive, you have to continue to keep working on the productivity levers. I'm like in the past where these productivity levers were labor oriented or I would say they were classical. Now there are technology oriented and hence we have a unique opportunity to create some non-linearity. In the past, we did not participate in those deals. Now we are participating and winning them so the confidence has been really high. Thank you both. Thank you.

[noise] solid in our modern expectation and then if we if we run into some problems, maybe we'll need to invest a little bit more cost. So those will be the two major factors I think that we're gonna be considering as we gave our all margin range substantiation of it yeah.

Yeah. So you know also also just to add to what they haven't said.

You know.

The next improve them really kicked off at the end of the one we had it back from quarter to quarter tree.

You'll have a 48 in fact next year I'm in the savings will accrue next he had enough close to real estate savings come at the backend as well so we have.

We have we are going to look at incorporating that into the.

Tyler Dupont: Our next question comes from the line of Jason Cooperberg with Bank of America. Please proceed with your question. Hi. Good evening, Ravi and Jan. This is Tyler DuPont on for Jason. Thanks for taking the questions.

Into Ah Ah Ah workings as we as we work out the next year.

Next year margin and that's one of the reasons why the reiterated that the 20 to 40 basis points, we said.

Ravi Kumar: I wanted to ask about the demand environment you are seeing as we look into the end of 2023 and as we start to look into, even in the beginning of 2024, when looking at the updated revenue guidance being narrowed, I'm just curious what incremental trends you've seen over the past couple of months, whether that's changes in generates ramp times or softness, whether that's a particular service offering, vertical geography, anything like that that may be driving the additional cautious stance. I think the cautiousness is related to the uncertainty around the discretionary spend.

Linnean does he Ah, we probably have we wanted to reinforce that message that we can we can get that <unk>.

Imagine a margin expansion, which we earlier competent as of yet.

Okay. Many thanks.

Thank you.

Our final question of the night will come from the line of Jamie Friedman with.

Yeah.

You can proceed with your question.

Hi, Thank you for sticking me into your I was wondering if you could share some high level observations really about in sourcing trends is that any different than usual do you see acceleration or deceleration and do you see that as friend or foe.

Ravi Kumar: I think everybody in the market is facing it including us. What we are certain is that deal momentum and our large deals and our bookings continues to be very vibrant. What we do not know, especially in a seasonally slow quarter, quad four is always seasonally slow quarter because of furloughs as well. What we are unable to predict is how much of the discretionary gets impacted and how much of our large deal momentum will get neutralized by this. To that extent, we felt it was only fair that we keep the risk adjusted to what we believe could be soft in quad four.

Tyler Dupont: Okay, that's very helpful. Thank you.

That's a great question I see that as a friend and.

In fact, I stated that if you carefully observe my initial comment.

Even before you ask this question I had stated that.

If technology is strategic to appliance in November technology was an enabler for our clients now with this strategic to them because it's deeply embedded into their products. It is integrate into the differentiation in the market.

Every industry the tech industry.

We have to help our clients build their own technology muscle.

And to help our clients build their own technology muscle I think cognizant is probably best suited to do so I'd entrepreneur spirit of flexible operating modular co creation attitude and a co creation culture <unk>.

Jan Siegmund: And then I guess just to kind of go even just a little bit deeper into visibility into 2024 budgeting decisions. I know it's still early and you don't give guidance on 24 or anything yet, but just given the current rather choppy macro environment that we're seeing and have seen, can you just speak to sort of the conversations you're having with clients regarding 24 budgets, sort of how does that visibility compare with this time last year?

We think as company is built around technology muscle, we we will Linda human capital and they say to visit my remarks that we would even lenders value chain of human capital, which is not just the people to support the transformation, but potentially lending training infrastructure are learning infrastructure.

Jan Siegmund: And, you know, is there more certainty in certain verticals than others or just any clarity there would be very appreciated? Yeah, I'll jump in for the number one. I think we actually kind of gave a lot of half of the P&L we already disclosed because we we're really committing to our 40 to 20 basis points of margin expansion. And so now the revenue range going forward will be subject to our guides call in three months, but if you what we know today is as Robby said that I think gradually the economic uncertainty has increased and discretionary spending has softened throughout the last three quarter.

To actually help them build their own captives, if if they want to load up global capabilities centers and I think that is sticky because once you do so you can even lend your automation infrastructure AI infrastructure and actually take them through that maturity curve. So it's much more sticky them before so I see this as a unique opportunity for card.

And we wanted to double down on this offering.

And then you emphasized in your prepared remarks, and it did not go unnoticed the sequential increase in the head count and you're one of the few companies at least that I'm aware of that's grow into account.

So.

My question about that is Oh, you anticipating I would assume increased utilization and realization from that head count cause the commitment to the account.

Jan Siegmund: So we have seen that trend not not stopping yet. And part of our lack of knowledge if it's stopping in the fourth quarter or if it's going to turn around early in the year or later in the year is really not known to us to be quite honest as well. And clients will be forming their budgets and they are key budgets at the same time as we are developing our own budget.

Is is what we think of as a leading indicator. So but we were you planning to deploy those people and and what gives you the confidence to be growing them right now.

You don't have too many many quarters, we had sequential positive I had come to the right of course it is.

Jan Siegmund: So this is kind of always a simultaneous process. What has improved for us is obviously the visibility of the longer term deals that are now in our portfolio and that there will be contributing and scaling in 24. So that gives us a little bit of a planning safety and then we have to just kind of really make assumptions on and you can do that for your own self. It's like are you bullish on the discretionary spend and on economic development on next year or are you the same or or more bearish and I think that was in the term and revenue outcome for next year to do so. I think that's really what we will go wonder if we haven't finished that process and but in in January and in February we will commit to that.

Tyler Dupont: Okay. Great. Thank you. I appreciate it. Thank you.

A tiny number.

But it is reflective of the momentum of the commercial momentum of a large deals and bookings.

It is reflective of.

The needs for the future.

And has it affected the needs of the near future. So I'm. They they you know I'm I'm very confident that if we continue on the deal booking momentum. We will we will have to increase headcount to to fulfill and satisfy those programs. So it's encouraging Ah it's a very encourage.

Hum indicator about.

Ah well a commercial momentum is shaping up.

Got it thank you.

Thank you.

Dan Stanghwang: Our next question comes from the line of Dan Stanghwang with JP Morgan. Please proceed with your question. Thanks so much. Good afternoon.

It's the end of our question and answer session and I would like to turn the floor back over to management for closing comment.

Great. Thank you all very much for joining we look forward to catching up next quarter.

Jan Siegmund: Just just wanted to drill in maybe for Yanda the PCV versus ACV and how to consider that in the short term. The next couple of quarters I know the book book the bill is quite high at 1.4 but in terms of translation with this mixed shift towards larger deal. How would you guide us there between ACV and DCV? This I think attention for that the gave in my remarks this duration comment and I think we had in previous calls and historically disclosed that our average duration was roughly around two years and now our duration and the bookings is about three years so it's a meaningful increase and obviously then ACV the annual revenue expectations for this is down.

Thank you.

This concludes today's.

Cognizant Technology solutions third 2023 earnings conference call.

You may not disconnect your lines. Thank you for your participation.

Mm mm.

[music].

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[music].

Jan Siegmund: And that's actually on top you have also that mixed shift so larger deals need some scaling so they have the ACV is not completely symmetrical because in the first year you're building up the infrastructure and you're starting transferring an SS and do your thing what you need to do to get ready so some of the ACV of the larger deals is delayed and will come in 24. And at the same time we have a decline of deals below $5 million of DCV which are typically deals that always translate in year to revenue so those things together are basically a 90% explanation of what you see in our revenue trend actual in the last few quarters and I'm anticipating unless the discretionary spend is coming back roaring that that won't change.

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Jan Siegmund: Now so that we're entering the year with all these moving parts probably in a position that it's not too different from last year in terms of visibility of revenue going forward. So in mysteriously it balances out because some of our larger deals now mature and scaling having a little bit better contribution to next year and then as I said in my prior answer we'll have our estimate to make on how short term demand is going to be developing.

[music].

Jan Siegmund: So the net of it is that factors within the setup have changed compared to the beginning of 23 but in 24 we're kind of approximately in a similar position to start. You know, because we didn't have large deals in the previous year, what the slope it had of this year in terms of, you know, realizing this year did not happen. And that's a, you know, that's a change because we have consistently done it from quarter one, quarter two, now quarter three.

Mhm.

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Jan Siegmund: We've done the percentage of our large deals has gone up, and the percentage of new in this large deals has also gone up. So that's a, that's a positive change. The question, the unknown piece is the discretionary spent. Got it. No, I appreciate all your comments.

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Keith Bachman: Thank you. Our next question comes from a line of Keith Bachman with BMO Capital Markets. Please proceed with your question. Yeah, thanks very much. I wanted to follow up on that set of comments. And as you think about next year, you've talked a lot about the large deal program ramping and contributing to revenue growth. And mention that discretionary still had wind. Can you give us a sense of proportionality of how much discretionary is of either revenues, bookings, any kind of metric.

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Keith Bachman: And how that's changed today from what it is beginning year, because it seems to me as we start to think about growth that percentage of low duration deals, if you will, or discretionary spend. Is that a level such it would be less of a headwind next year as you anniversary the March quarter when it, when it first impacted cognizant and many others. It's a, you know, it's a difficult question to answer now on how it's going to be next year.

Keith Bachman: I mean, you know, the, the swim lane of large deals we're doing and that is 30% of bookings. The swim lane of large deals we're doing always the savings of those large deals. Some of the smarter points are not necessarily taking it to savings, but the necessary, they are actually underwriting it for transformation. Which means if some of them can trigger the capex cycles, then you're going to see some of that discretionary coming back because the savings you do on productivity will allow you to, you know, trigger that capex cycle.

Keith Bachman: I mean, I spoke about the 150 plus AI, you know, preliminary early AI engagements. The reality is, if they have to scale up, you need the capex, the capex will either come because our clients have themselves navigated the uncertainty and got the capex covered or they would use some of the savings from the, from the cost cutting and the cost take out they have done. Related technology to leverage it into into into this history.

Keith Bachman: I mean, many of my clients today, I've met 270 of them this year, they're not saying they want to take their ID budgets down. What they're really saying is, can you do more for less? and can you actually divert the savings to the transformation they are looking forward to? And they are very, very anxious about the transformation because we are only living in this period of change. The issue is what I do not know is whether the economic and the overall environment which is really a headwind.

Keith Bachman: Is that going to change significantly next year? That's something it's hard to collect now. But if that uncertainty continues, you are obviously not going to see the discretionary spend coming back. But if you see that triggering positively, then you are going to see the savings of this cost takeout initiated to move it to transformation. And that will trigger another cycle of spend which in turn hopefully will trigger revenue cycles for our clients which will then hopefully create a virtuous positive cycle.

Keith Bachman: So it's a tricky one to answer. You know, you need a trigger for the capex cycles of discretionary and all the discretionary spend as Jan mentioned, these are all deals between 0 to 10 million dollars. They all get, they all get realized within the same year because these are small deals. So, you know, it's a, it's a very unusual time, you know, a time of uncertainty and a time of change coming simultaneously. So the cost takeout deals potentially can fund them and that's the point I'm making. And if they don't, then there are other triggers of capex cycles which you have to fund them.

Keith Bachman: Okay. Yeah. And I wanted to also thank you for all the work you've done over the last couple of years.

Jan Siegmund: And then direct a question is you think about the 20 to 40 basis point range for margin improvement next year. I know you don't want to give metrics associated with revenue, but just, you know, how do you think about the operand versus the lower end. In other words, it is simple is, you know, discretionary comes back and that has greater off X leverage. There's anything else puts and takes that that we should be thinking about.

Jan Siegmund: And particularly you did mention to the large deal ramps can and indeed many cases have lower margin margin profiles. Just any puts and takes that you want us to think about as it relates to the 20 to 40 basis points range. Yeah. Look, we entering the year with the next gen initiative executing well and according to our plans and and we're going to have what were some impact in the third quarter, but really not full run rate impact yet.

Jan Siegmund: And so we will have a lot of momentum on next gen next year. And so you we offered the savings opportunity for 24 to read for 25 to reach and real estate a hundred million dollar savings and you all have your own assumptions on our head count reduction program. You see to be calculated and that's a lot of efficiency that we can book on our side, anticipate the revenue momentum is obviously the next factor for us that will shift in and in that revenue growth factor that determines the scale of our SNA development and other elements is kind of probably a big factor.

Jan Siegmund: And the second one I would give you to you is the the style and the execution of our large deal scaling and all this with larger deals is a little bit of risk factor just by the nature of their scope involved and if we are executing well and the deals don't develop problems that will help us to be very solid in our margin expectation. And if we if we run into some problems, maybe we'll need to invest a little bit more costs.

Jan Siegmund: So those will be the two major factors I think that we're going to be considering as we give our our margin range and the substituation of it. Yeah, so you know also also just to add to what the answer. The Nixon program really kicked off at the end of quarter one. We had impact in quarter two in quarter three. It'll have a full year impact next year. I mean the savings will accrue next year and of course the real estate savings come at the back end as well.

Jan Siegmund: So we have now we have we are going to look at incorporating that into our into our working as we as we work out the next year next year margins and that's all the reasons why we reiterated that the 20 to 40 basis points we said early early in this year we probably have we wanted to reinforce that message that we can we can get that margin margin expansion which we earlier committed in the year.

Keith Bachman: Okay, many thanks.

Operator: Thank you.

Jamie Friedman: Our final question of the night will come from the line of Jamie Friedman with Susquehanna. Please proceed with your question. Hi, thank you for sticking me in here. I was wondering if you could share some high level observations for the about in sourcing trends. Is that any different than usual. Do you see acceleration or deceleration and do you see that as friend or foe? That's a great question. I see that as a friend.

Jamie Friedman: In fact, I stated that if you carefully observe my initial comments even before you ask this question, I stated that if technology is strategic to our clients and remember technology was a way to enable our clients. Now, it is strategic to them because it's deeply embedded into the products. It is integral to the differentiation in the market. Every industry is a tech industry. We have to help our clients build their own technology muscle and to help our clients build their own technology muscle.

Jamie Friedman: I think cognizant is probably best suited to do so our entrepreneurial spirit of flexible operating model or co creation attitude and a co creation culture. We think as companies build their own technology muscle, we will lend a human capital and I stated this in my remarks that we would even lend us value chain of human capital which is not just the people to support that transformation, but potentially lending our training infrastructure, our learning infrastructure, our ability to actually help them build their own captives if they want to or global capability centers.

Jamie Friedman: I think that is sticky because once you do so, you can even lend your automation infrastructure AI infrastructure and actually take them through that majority curve. It's much more sticky than before. I see this as a unique opportunity for cognizant and we want to double down on this offer. And then you emphasized in your prepared remarks and it did not go a notice the sequential increase in the head count and you're one of the few companies at least that I'm aware of that's growing their head count.

Jamie Friedman: So my question about that is are you anticipating I would assume increased utilization and realization from that head count because the commitment to the head count. [inaudible] You know, is what we think of as a leading indicator.

Ravi Kumar: So, but where are you planning to deploy those people and what gives you the confidence to be growing them right now? You know, after very many quarters, we had sequential positive head count growth. Of course, it is a tiny number, but it is reflective of the momentum of the commercial momentum of large deals and bookings. It is reflective of the needs for the future and is reflective of the needs of the near future.

Ravi Kumar: So, I am very confident that if we continue on the deal booking momentum, we will have to increase our head count to fulfill and satisfy those programs. So, it is a very encouraging indicator about how well our commercial momentum is shaping up. Thank you.

Ravi Kumar: We have reached the end of our question and answer session and I would like to turn the floor back over to management for closing comments. Great. Thank you all very much for joining. We look forward to catching up next quarter. Thank you.

Operator: This concludes today's Cognizant Technology Solutions 3rd quarter 2023 earnings conference call. You may now disconnect your lines. Thank you for your participation. Bryan Bergin, Surinder Thind, James Friedman, Jason Kupferberg Bryan Bergin, Surinder Thind, James Friedman, Jason Kupferberg, Bryan Bergin, Surinder Thind, James Friedman, Jason Kupferberg, Bryan Bergin, Surinder Thind, James Friedman, Jason Kupferberg Bryan Bergin, Surinder Thind, James Friedman, Jason Kupferberg Bryan Bergin, Surinder Thind, James Friedman