Q4 2023 Cognizant Technology Solutions Corp Earnings Call

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

Ladies and gentlemen.

Welcome to the cognizant technology solutions fourth quarter 2023 earnings conference call.

All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press star 2 if you would like to remove your question from the line.

After the Speakers' remarks, there'll be a question and answer session. If you'd like to ask a question at that time. Please press star one on your telephone keypad.

A confirmation tone wont figure lines in the question queue. You May press star two if he would like to remove your question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your headset before pressing the start button. Thank you. I would now like to turn the conference over to Mr. Tyler Scott, Vice President of Investor Relations. Who's yours? Thank you, operator, and good afternoon, everyone. By now, you should have received a copy of the earnings release and the investor supplement for the company's fourth quarter and full year 2023 results. If you have not, copies are available on our website, cognizant.com.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you I would now like to turn the conference over to Mr. Tyler Scott Vice President of Investor Relations. Please go ahead Sir.

Tyler Scott: Thank you operator, and good afternoon, everyone by now you Should've received a copy of the earnings release and the Investor supplement for the company's fourth quarter and full year 2023 results. If you have not copies are available on our website cognizant dot com.

Tyler Scott: The speakers we have on today's call are Ravi Kumar, Chief Executive Officer, and Jatin Dalal, 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 SEC. Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors. Reconciliations of non-GAAP financial measures, where appropriate, to the corresponding GAAP measures can be found in the company's earnings release and other filings with the SEC. With that, I'd now like to turn the call over to Robbie. Please go ahead.

Tyler Scott: The speakers we have on today's call are Ravi Kumar Chief Executive Officer, and got into law Chief Financial Officer.

Tyler Scott: 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.

Tyler Scott: These statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC.

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

Tyler Scott: 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 SEC.

Tyler Scott: With that I'd like.

Tyler Scott: I'd now like to turn the call over to Robin. Please go ahead.

Rayna Kumar: Thank you, Tyler. And good afternoon, everyone. Today, I would like to cover three topics. Cognizant's fourth quarter and full year results. An assessment of our progress in 2023 and a look ahead to our focus and outlook for 2024. I've been in the CEO role now for a full year, and I've used these 12 months to dig into the company's client relationships, operations, services portfolio, market environment, finances, and culture. I've met with about 400 clients and established a regular rhythm of listening to and speaking with our employees across the world.

Robin: Thank you Tiger and good afternoon, everyone today, I would like to cover three topics cognizant fourth quarter and full year results.

Robin: And assessment of our progress in 2023, and a look ahead to our focus on the outlook for 2024.

Robin: I've been in the CEO role now for a full year and I've used this 12 months to dig into the company's client relationships operations services portfolio market and government finances and culture.

Robin: I've met with about 400 clients and established a regular cadence of listening to and speaking with employees across the world.

Rayna Kumar: My full year immersion into everything Cognizant has confirmed my belief in the high level of initiative and motivation of nearly 350,000 employees as well as my belief in the company's distinctive core strength. I have confidence in our potential to increase our revenue growth, and I'll have more to say about that in a few minutes. Let's start with the fourth quarter, where we delivered on our commitments while continuing to implement our cost management program. I will call out three highlights.

Robin: My full year emotion into everything cognizant has confirmed my belief the high level of fiduciary and motivation of nearly 250000 employees as well as my belief in the company's distinctive core strengths.

Robin: I have confidence in our potential to increase that revenue growth and I'll have more to say about this in a few minutes.

Robin: Let's start with the fourth quarter, where we delivered on our company, while continuing to implement our cost management program.

Robin: To call out three highlights.

Rayna Kumar: First, we executed well, delivering revenue within our guidance range despite ongoing macroeconomic pressures and meaningfully exceeding our adjusted operating margin expectations. Second, we made further progress on our goal to increase the percentage of large deals, new clients, and business in the overall net. And third, we saw continued improvement in our voluntary attrition. Q4 revenue of $4.8 billion was in line with the guidance range we provided last quarter. Year-over-year Q4 revenue was down 1.7% as reported or down 2.4% in constant currency.

Robin: First we executed well delivering revenue within our guidance range, despite ongoing macroeconomic pressures in meaningfully exceeded our adjusted operating margin expectations.

Robin: Second we made further progress on our goal to increase the percentage of large deals new clients in business and do it without a next and third we saw continued improvement in our voluntary attrition.

Robin: Q4 revenue of $4 $8 billion wasn't aligned with the guidance range, we provided last quarter.

Yet over your Q4 revenue was down one 7% as reported or down two 4% in constant currency.

Rayna Kumar: The quarter developed much as we expected as clients remained cautious and limited their discretionary spending. However, our Q4 Adjusted Operating Margin of 16.1 was meaningfully stronger than we anticipated, driven by savings from our next-gen cost management program and better execution on our operational efficiency. We sustained a high deal momentum in the quarter, winning seven deals exceeding 100 million each. Of these seven deals, two were new business, and five were a mix of renewables and expansion. I am especially pleased to see our continued decline in employee attrition, trailing 12-month voluntary attrition for our tech services business declining to 13.8%, that is down 2.4 percentage points sequentially and down 12 points year-over-year. Turning to the full year, revenue of $19.4 billion was down slightly from the prior year and in line with the guidance we set on our Q3 call.

Robin: The quarter developed much as we expected as clients remained cautious and limited the discretionary spending.

Robin: Our Q4 adjusted operating margin of 16.1 was meaningfully stronger than we anticipated driven by savings from our Nexsan cost management program and better execution on our operational efficiencies.

Robin: We sustained a large deal momentum in the quarter, winning seventeens exceeding 100 million each of these seven deals to get new business and five at a mix of them than it was in the expansions.

Robin: I'm, especially pleased to see a continued decline in employee attrition trailing 12 month voluntary attrition for our Tech services business declined to 13, 8% that is down two four percentage points sequentially and down 12 points year over year.

Robin: Turning to the full year revenue of $19 $4 billion was down slightly from the prior year and in line with the guidance, we set on our Q3 call.

Rayna Kumar: A strong Q4 margin performance enabled us to achieve a full year adjusted operating margin of 15.1% compared with a guidance of approximately 14.7%. We ended Q4 with a trailing 12-month booking growth of $26.3 billion, up 9% year-over-year, resulting in a book-to-bill of 1.4x. For 2023, about 30% of our TCB exceeded 50 billion plus deals. Compared with approximately 20% of the previous year, we signed 17 deals that exceeded $100 million in TCV; total TCV for deals above $100 million increased 42% year-over-year.

Robin: Our strong Q4 margin performance enabled us to achieve our full year adjusted operating margin of 15, 1% compared with our guidance of approximately 47%.

Robin: We ended Q4 with the trailing 12 months bookings growth of $26 3 billion up 9% year over year, because I think in a book to Bill of one point Forex.

Robin: But 2023 about 30% of what do you see the exceeded 50 billion plus deals.

Robin: Paired with approximately 20% of the previous year, we signed 17 deals that exceeded 100 million T. C V. I Didnt figure dollars P. C V total PCB for deals about 100 million increased 42% year over year.

Robin: Okay.

Rayna Kumar: Several factors contributed to this progress. We have reoriented our teams to large-scale demand generation and execution across all service lines. We have strengthened our ability to seed, shape, and sell large, and we have made progress in industrializing delivery with automation and productivity tools to create repeatable solutions and enable a consistent and efficient delivery operating model for large businesses. Turning to our business segments, while Jatin will cover our financial performance, I want to comment on our two largest segments, Financial Services and Mobility. We are responding to a demand environment that remains challenging. We're increasing our efforts to stimulate growth. We've installed new leaders in a number of key positions across the segment.

Robin: Several factors contributed to this progress we have reoriented, our teams to large deal demand generation and execution across all service lines. We.

Robin: Have strengthened our ability to speak to seed shape and sell large deals.

Robin: And we have made progress in industrializing delivery with the automation of input and productivity tools to create repeatable solutions and enable a consistent and efficient delivery operating model for large deals.

Robin: Yeah.

Robin: Turning to our business segments, while Jeff will cover our financial performance I want to comment on our two largest segments in financial services. That's funding toward demand environment that remains challenging we are increasing our efforts to stimulate growth.

Robin: We've been starting new leaders in a number of key positions across the segment, we have invested in consulting in commercial resources and targets sub industries, and then partner relationships.

Rayna Kumar: We have invested in consulting and commercial resources in target sub-industries and in partner relationships. We are also focused on expanding our service offerings and on enhancing our industry solutions powered by new technologies like generative AI. In health sciences, as the healthcare industry continues to undergo major transformation, we believe Cognizant is well positioned to become the nucleus of an emerging healthcare ecosystem through our platforms, data, and solutions. With these dynamics in mind, we are investing in the expansion of our TriZetto platform and our healthcare BPAS. Solution Capabilities. We are also capitalizing on the opportunity Gen AI presents to the healthcare market. For instance, LLMs can be used to streamline payer administrative processes, automate clinical documentation, and enhance clinical decision support. I remain confident in the value our health sciences portfolio provides to clients.

Robin: We are also focused on expanding our service offerings and on enhancing our industry solutions powered by new technologies like generative AI.

Robin: In health Sciences, as the healthcare industry continues to undergo a major transformation transformation. We believe cognizant is well positioned to become the nucleus of an emerging health care ecosystem through our platform data and solutions.

Robin: With these dynamics in mind, we are investing in the expansion of our platform and our healthcare be paas solution capabilities. We're also capitalizing on the opportunity Jenny I presents to the health care market.

Robin: For instance, llm's can be used to streamline payer administrative processes automate clinical documentation and enhanced.

Robin: Clinical decision support systems.

Robin: I remain confident in the value of our health Sciences portfolio provides to plants for example.

Robin: Altria recently chose cognizant that this technology transformation partner to deploy a modern secure digital ecosystem to help them bring treatments to patients faster while strengthening its position in the life Sciences industry.

Rayna Kumar: Fortria recently chose Cognizant as its technology transformation partner to deploy a modern, secure digital ecosystem to help bring treatments to patients faster while strengthening its position in the life sciences industry. And Takeda, a global biopharma company with whom we have had a long relationship, selected us to help modernize their infrastructure and application management in support of the diesel transfer. Now let's turn to an assessment of how we will move the company forward in 2020. To begin, we made considerable progress enhancing three core strengths that, taken together, I believe Cognizant sets apart in the market in 2023. We further deepen our expertise at the intersection of technology and industry use cases to deliver industry-specific solutions in service of business outcomes. We also announced our collaboration and co-creation with clients and the broader partner ecosystem to stitch together industry-leading capabilities. An example is our strategic partnership with ServiceNow to advance the adoption of AI-driven automation across industries. We are also collaborating with ServiceNow to enhance Cognizant's Worknext modern workplace services solution with generative AI capabilities. Worknext aims to provide more intuitive and personalized experiences for employees while helping to better quantify and improve the return on experience for enterprise customers.

Robin: And Takeda Global Biopharma company, with whom we have signed a long.

Robin: <unk> selected us to help them modernize their infrastructure and application management and support of their digital transformation.

Robin: Now, let's turn to an assessment of how we move the company forward in 2023.

Robin: To begin we made considerable progress enhancing three core strengths that.

Taken together I believe cognizant set apart in the market.

Robin: First industry expertise and.

Robin: In 2023.

Robin: We further deeper expertise at the intersection of technology and industrial use cases to deliver industry specific solutions and service of business outcomes.

Robin: We also announced a collaboration and co creation with clients and the broader partner ecosystem to stitch together, our industry leading capabilities.

Robin: A good <unk>.

Robin: Example, is our strategic partnership with service now to advance the adoption of AI driven automation across industries.

Robin: We are also collaborating with service now to enhance cognizant work next modern workplace services solution with generative AI capabilities.

Robin: What's next aims to provide more intuitive and personalized experiences for employees, while helping to better quantify and improve the return on our experience for enterprise customers.

Robin: Our second core strengths, we are collaborative partners to our clients as mentioned on our Q3 call. Our annual client net promoter score survey hit a historic high for cognizant last year.

Robin: Empathy for clients as a part of our DNA and we believe we have become even better at listening carefully to learning from and working with clients to earn that trust solve their problems and help them succeed.

Rayna Kumar: A second co-strength, we are collaborative partners to our clients. As mentioned on our Q3 call, our annual Client Net Promoter Scores survey hit a historic high for Cognizant last year. Empathy for clients is a part of our DNA, and we believe we have become even better at listening carefully to, learning from, and working with clients to earn their trust, solve their problems, and help them succeed.

Robin: We have passionate innovators.

Robin: Last April we launched cognizance Glueball grassroots innovation program, calling on all of our employees to help us solve client problems look for unmet or less and client needs and challenge the status quo.

Robin: In just nine months, our employees generated more than 100000 ideas 21000 of which we have already implemented we expect to augment that glueball program through a new collaboration with Microsoft to launch the innovation assistant degenerative AI powered tools built on Azure open AI service.

Rayna Kumar: Third, we are passionate innovators. Last April, we launched Cognizant's Blue Bolt grassroots innovation program, calling on all our employees to help us solve client problems, look for unmet or latent client needs, and challenge the status quo. In just 9 months, our employees generated more than 100,000 ideas, 21,000 of which we have already implemented. We expect to augment our Blue Bolt program through a new collaboration with Microsoft to launch the Innovation Assistant, a generative AI-powered tool built on Azure OpenAI services. Shortly after my arrival, we consolidated our performance objectives. The way we measure success...

Robin: Shortly after that I will be consolidated up performance objectives, the way we measure success.

Robin: So just three long strategic priorities long term strategic priorities.

Robin: Become the employer of choice in our industry.

Robin: Accelerated revenue growth and simplify our operations.

Robin: I'll touch on our progress beginning with employer of choice.

Robin: Well literally attrition improved throughout 2023 to multi year lows, while our employee engagement scores improved.

Robin: <unk> cognizant entrepreneurial spirit, we have given greater autonomy and accountability to the business unit leaders. This is this is helping increase our responsiveness to client needs and market conditions.

Rayna Kumar: So just three long-term strategic priorities, long-term strategic priorities. Become the employer of choice in our industry. Accelerate revenue growth and simplify our operations. I'll touch on our progress beginning with the employer. Our voluntary attrition improved throughout 2023 to multi-year lows while our employee engagement scores improved. To catalyze Cognizant's entrepreneurial spirit, we have given greater autonomy and accountability to business unit leaders.

Robin: We remain committed to providing our teams with continuous learning Upskilling and professional development in 2023 nine.

Robin: 90% of our global workforce spend time in learning.

Robin: With 270000 of our employees acquiring at least one new skill proficiency.

Robin: And <unk> 88000, completing AI and generative AIA process.

Robin: We've also established programs provide more opportunities for employees to advance their <unk> I'm pleased to say, we promoted nearly 30000 people across the company last year.

Rayna Kumar: This is helping increase our responsiveness to client needs and market conditions. We remain committed to providing our teams with continuous learning, upskilling, and professional development in 2023. 90% of our global workforce spends time learning, with 270,000 of our employees acquiring at least one new skill or knowledge, and 88,000 completing AI and generative AI courses. We've also established programs to provide more opportunities for employees to advance their careers.

Robin: Net of this month will bring together, our entire employee population and gatherings physical and virtual do recognize excellence across the business with cognizant company wide Awards program the impact of warrants.

Robin: Late last year, we introduced an initiative called Chuck TWD unify women centric programs to further advance carriers and Bush women leadership and technology.

Robin: Schuch, Cleveland and campus cognizant leadership development programs for our senior level women globally and for a mid level women in India, along with a paid up skilling program for women returning to work after a career break.

Rayna Kumar: I'm pleased to say we promoted nearly 30,000 people across the company last year. Later this month, we'll bring together our entire employee population in gatherings, physical and virtual, to recognize excellence across the business with Cognizant's company-wide awards program, the Impact Awards. Late last year, we introduced an initiative called Shakti that will unify our women-centric programs to further advance careers and boost women leadership in technology. Shakti will encompass Cognizant's leadership development programs for senior-level women globally and for mid-level women in India, along with our paid upskilling program for women returning to work after a career break.

Robin: Our second performance objective is to accelerate revenue growth.

Robin: We've invested heavily in platform centric approaches to further differentiate cognizant in select industries I've talked about our core platforms just transitory in healthcare shared investigator in life Sciences and asset performance in smart manufacturing to name a few.

Robin: Last year, we also began in the <unk> solutions for the next wave of technologies without AI portfolio.

Robin: We introduce cognizant.

Robin: Operations at AI led platform built to reduce the complexity and cost of enterprise infrastructure.

Robin: We launched cognizant Sky greater cloud orchestration platform designed to help clients rapidly transition to modern cloud native architectures.

Robin: In addition, we introduced cognizant developed to speed clients adoption of generative AI.

Rayna Kumar: Our second performance objective is to accelerate revenue growth. We've invested heavily in platform-centric approaches to further differentiate Cognizant and select industries. I've talked about core platforms such as Triseto in healthcare, Shared Investigator in life sciences, and asset performance in smart manufacturing, to name a few. Last year, we also began industrializing solutions for the next wave of technologies with our AI portfolio. We introduced Cognizant Neuro IT Operations, our AI-led platform built to reduce the complexity and cost of enterprise infrastructure. We launched Cognizant SkyGrader, a cloud orchestration platform designed to help clients rapidly transition to modern cloud native architecture.

Robin: We are able to quickly build AI enablement used cases for clients that are specific to their businesses.

Robin: And just last week, we expanded our J I portfolio with the introduction of cognizant flow source.

Robin: Developed to help engineering teams delivered high quality called faster with increased control and transparency.

Robin: Today, we have over 250 early engagements that incorporate the use of generative AI.

Robin: Some examples are creating a virtual coach for diabetic patient for a pharma company predicting the size of target audiences for television network connecting sentiment analysis and summarization of us a call.

Robin: Comments for the large bag developing a field services expert advisor for a manufacturer, enabling conversational intelligence for an insurance call center and the origin trading a sales pitch for a tech company.

Rayna Kumar: In addition, we introduce Cognizant NeuroAI, developed to speed clients' adoption of generative AI. With NeuroAI, we are able to quickly build AI enablement use cases for clients that are specific to their business. And just last week, we expanded our JAI portfolio with the introduction of Cognizant FlowSource, developed to help engineering teams deliver high-quality code faster with increased control and transparency. Today, we have over 250 early engagements that incorporate the use of generative AI. Some examples are creating a virtual coach for a diabetic patient for a pharma company, predicting the size of target audiences for a TV network, conducting sentiment analysis and summarization of user comments for a large bank, developing a field services expert advisor for a manufacturer, enabling conversational intelligence for an insurance call center, and auto-generating a sales pitch for a tech company.

Robin: We have another 350 plus opportunities in our pipeline that we are planning to scale.

Robin: We aim to infuse AI not only into our core offerings, but into everything we do including using generative AI to create industry and functional services.

It's worth mentioning that more of an integrated practices intuitive operations in automation, which helps clients build and run modern operations crossed $2 $5 billion of revenue in 2023.

Robin: But in modern BP automation services helps clients achieve higher levels of productivity and reap benefits of generative value the core processes.

Robin: We strive to stay attuned to market shifts, which is why last month, we acquired <unk> and elite service now partner that specializes in solutions for the service and our platform I think turn it brings and on and near shore Global President Stuart on servicing our business group with.

Robin: So data will continue to advance the efforts of our strategic partnership with service now to build a 1 billion combined business focused on AI driven automation.

Rayna Kumar: We have another 350 plus opportunities in our pipeline that we are planning to scale. We aim to infuse AI not only into our core offerings but into everything we do, including using generative AI to create industry and functional services. It's worth mentioning that one of our integrated practices, Intuitive Operations and Automation, which helps clients build and run modern operations, crossed $2.5 billion in revenue in 2023. Tech-driven modern BPO and automation services help clients achieve higher levels of productivity and reap benefits of generative AI in the core process.

Robin: Our current performance objective is to simplify our business, we executed well on that next <unk> next Gen program.

Robin: Which is aimed at simplifying our operating model optimizing corporate functions and consolidating and realigning work space to reflect the post pandemic working with unmanned our cost management enabled us to achieve a 2023 adjusted operating margin performance that exceeded our expectations from earlier in the year.

Robin: Simplifying our business goes beyond structurally reducing costs. It also helps us become more agile and <unk>.

Robin: Productive and innovative.

Robin: Last year, we further streamlined our operating model and what we what was a complex matrix structure to focus primarily on our markets and integrated service lines, we are moving towards fewer layers in the organization, which we believe will bring us closer to our clients and associates helped drive strong coordination across the company and further empower account teams to make decisions.

Rayna Kumar: We strive to stay attuned to market shifts, which is why last month, we acquired Third Era, an elite ServiceNow partner that specializes in solutions for the ServiceNow platform. Adding Third Era brings an on and near-certain global presence to our own ServiceNow business group. With Third Era, we'll continue to advance the efforts of our strategic partnership with ServiceNow to build a $1 billion combined business focused on AI-driven automation. Our third performance objective is to simplify our... We executed well on our next-gen program, which is aimed at simplifying our operating model, optimizing corporate functions, and consolidating and realigning workspace to reflect the post-pandemic work environment. Our cost management enabled us to achieve an adjusted operating margin performance in 2023 that exceeded our expectations from earlier in the year. However, simplifying a business goes beyond structurally reducing costs. It also helps us become more agile and productive and innovative. Last year we further streamlined our operating model, and what we did was a complex matrix structure to focus primarily on our markets and integrated service line.

Robin: <unk>.

Robin: In summary, 2023 was the year of strengthening our company's fundamentals.

Robin: Now, let's talk let's look at look to our focus in 2024.

Robin: We have selected six strategic imperatives that will help further sharpen our differentiation across clients' primary needs, while strengthening our ability to achieve our performance objectives.

Robin: These imperatives growing select industries expand internationally.

Robin: Big large data capabilities.

Robin: Capture the AI opportunity deliver our talent strategy and implement it roadmap.

Speaker Change: In the interest of time I'll focus on only one of those initiatives, which is capturing the substantial AI opportunity.

Speaker Change: Although consumer use of generative AI is starting to explore the enterprise use cases have been ramping slowly that said, we expect the pace of enterprise adoption to pick up soon and believe that after a slow takeoff movement up this curve will accelerated sharply.

Speaker Change: The results we have seen from initial gen. AI proof of concepts are very encouraging with.

Speaker Change: We believe system integrators like cognizant will play a major role in managing governing and optimizing generative AI initiatives at scale. This includes building accuracy.

Rayna Kumar: We are moving towards fewer layers in the organization, which we believe will bring us closer to our clients and associates, help drive strong coordination across the company, and further empower account teams to make. In summary, 2023 was a year of strengthening our company's fundamentals. Now, let's look to our focus in 2024. We have selected six strategic imperatives that will help further sharpen our differentiation across clients' primary needs while strengthening our ability to achieve our performance objectives. These imperatives are to grow in select industries, expand internationally, and build large deal capability. Capture the AI opportunity

Speaker Change: Output, reducing hallucinations continued reinforced learning and testing and corporate incorporating transparency and accountability and iteratively driving performance optimization.

Speaker Change: Therefore, and as mentioned on our prior calls we expect to invest approximately $1 billion.

Speaker Change: And our generative AI capabilities over the next few years spanning people platforms partnerships and M&A.

Speaker Change: We believe generative AI is becoming a driving force for the economy and society in partnership with Oxford Economics, Cognizant developed and published in the new economy compared to the end of last month's World Economic Forum that predicts generative AI could inject up to one trillion dollars into the U S economy over 10 years.

Rayna Kumar: Deliver our talent strategy and implement our IT roadmap. In the interest of time, I'll focus on only one of those initiatives, which is capturing substantial AI. Although consumer use of generative AI is starting to explode, enterprise use cases have been ramping slowly. That said, we expect the pace of enterprise adoption to pick up soon and believe that after a slow take-off, movement up the S-curve will accelerate sharply. The results we have seen from initial Gen-AI proof-of-concepts are very encouraging. We believe system integrators like Cognizant will play a major role in managing, governing, and optimizing generative AI initiatives at scale. This includes building accuracy in output, reducing hallucinations, continued reinforced learning, and testing incorporate.

Speaker Change: Our research also predicts that 90% of the jobs that were disrupted in some way by this technology.

Speaker Change: From 2023 to 2032 the percent of jobs with high exposure scores, meaning the degree to which an occupation will be affected by generative I could increase from 8% to 52% setting the stage for a profound shift in how we approach work productivity and economic growth.

Speaker Change: One last topic to cover and that's the demand environment, we see little change from the assessment. We have provided in recent quarters about uncertain and weak discretionary spending in the early part of 2024.

Speaker Change: Given the clients had experiencing a period that has bought both change and uncertainty together, we expect them to continue to focus on reducing costs consolidating windows modernizing their data and processes and increasing the productivity. So that they can apply savings to AI led transformation.

Rayna Kumar: Incorporating Transparency and Accountability and iteratively driving performance optimization. Therefore, as mentioned on our prior calls, we expect to invest approximately $1 billion in our generative AI capabilities over the next three years, spanning people, platforms, partnerships, and M&A. We believe generative AI is becoming a driving force for the economy and society. In partnership with Oxford Economics, Cognizant developed and published a new economic impact study ahead of last month's World Economic Forum that predicts generative AI could inject up to $1 trillion into the U.S. economy over 10 years. Our research also predicts that 90% of jobs will be disrupted in some way by this technology.

Speaker Change: On a closing note we celebrated our 30 <unk> anniversary just last month.

Speaker Change: We have stood the test of time, and we are determined to sustain and extend the momentum we have created last year.

Speaker Change: As optimistic as I was about our company's future when I joined last January I'm definitely so now.

Speaker Change: Whatever the future may hold I believe we are in a significantly strong position today than we were one year ago to seize the market opportunity ahead.

Speaker Change: Now, it's my pleasure to turn the call over to Jonathan who joined US on December 4th for his initial observations about cognizant and additional details on the quarter.

Jonathan: Thank you Ravi and good afternoon, everyone I am very excited to joined cognizant and would like to thank the entire organization for such a warm welcome I would also like to thank you for helping me in making the onboarding experience so seamless aisle.

Rayna Kumar: From 2023 to 2032, the percent of jobs with high exposure scores, meaning the degree to which an occupation will be affected by generative AI, could increase from 8% to 52%, setting the stage for a profound shift in how we approach work, productivity, and economic growth. There is one last topic to cover, and that's the demand environment. We see little change from the assessment we have provided in recent quarters about uncertain and weak discretionary spending in the early part of 2024. Given that clients are experiencing a period that has brought both change and uncertainty together, we expect them to continue to focus on reducing costs, consolidating vendors, modernizing data and processes, and increasing productivity so that they can apply savings to AI-led transformation. On a closing note, we celebrated our 30th anniversary just last month.

Jonathan: My cognitive growth mindset.

Jonathan: Centricity and entrepreneurial culture.

Jonathan: While it has only been two months since I joined the energy and passion across the organization.

Jonathan: I have also had the opportunity to participate in a global sales kickoff event in January.

Jonathan: This has further strengthened my conviction in <unk> capability and our market opportunity.

Jonathan: I'm excited to partner with Ravi and the entire leadership team to build on the progress. We have made in 2023 as we strive to reach our full growth potential.

Jonathan: In doing so I believe there is a tremendous opportunity to create long term sustainable value for our associates clients and shareholders.

Jonathan: With that let's turn to our fourth quarter and full year revenue results.

Jonathan: Fourth quarter revenue was $4 8 billion, representing a decline of one 7% year over year or a decline of two 4% in constant currency.

Rayna Kumar: We have stood the test of time, and we are determined to sustain and extend the momentum we created last year. As optimistic as I was about our company's future when I joined last January, I'm doubly so now. Whatever the future may hold, I believe we are in a significantly stronger position today than we were one year ago to seize the market opportunities ahead. Now, it's my pleasure to turn the call over to Jatin, who joined us on December 4th, for his initial observations about Cognizant and additional details on the quarter. Thank you, Ravi, and good afternoon everyone.

Jonathan: <unk> performance includes approximately 90 basis points of growth from our acquisitions.

Jonathan: This led to full year revenue of $19 4 billion, which declined 0.4% year over year or 0.3% in constant currency.

Jonathan: Year over year growth includes approximately 110 basis points of growth from acquisitions.

Jonathan: Adobe discussed financial services, and health services, which declined six 6% and two 7% year over year in constant currency respectively.

Jatin Dalal: I am very excited to join Cognizant and would like to thank the entire organization for such a warm welcome. I would also like to thank Jan for helping me to make the onboarding experience so seamless. I have always admired Cognizant's growth mindset, client-centricity, and entrepreneurial culture. While it has only been two months since I joined, the energy and passion across the organization are apparent. I also had the opportunity to participate in our global sales kick-off events in January.

Jonathan: So I will quickly comment on our other two segments.

Jonathan: Products and resources revenue was roughly flat year over year in constant currency, which included contribution from recently completed acquisitions and the ramp of new business. This helped offset the macro driven discretionary spending pressure.

We saw relatively better performance in North America, particularly among auto utility and travel and hospitality clients.

Jonathan: Communications media and technology revenue increased 2% in constant currency.

Jatin Dalal: This has further strengthened my conviction in Cognizant's capability and our market opportunities. I am excited to partner with Ravi and the entire leadership team to build on the progress we have made in 2023 as we strive to reach our full growth potential. In doing so, I believe there is a tremendous opportunity to create long-term sustainable value for our associates, clients, and shareholders. With that, let's turn to our fourth quarter and full year revenue results. Q4 revenue was $4.8 billion, representing a decline of 1.7% year-over-year or a decline of 2.4% in constant currency.

Jonathan: The growth reflected the benefit from recently completed acquisitions and the ramp of new bookings.

Jonathan: Now moving onto margins.

Jonathan: During the quarter, we incurred approximately $40 million of costs related to our next Gen program.

Jonathan: This negatively impacted our GAAP operating margin by approximately 90 basis points.

Jonathan: Excluding this impact adjusted operating margin was 16, 1%.

Jonathan: Year over year margin included savings from our next Gen program and tailwind from the depreciation of the Indian rupee.

Jonathan: This helped partially offset increased compensation cost.

Jonathan: As a reminder, the prior year.

Jonathan: Period also included a negative impact from a noncash impairment charge related to our health Sciences custom.

Jonathan: Our GAAP tax rate in the quarter was 286% adjusted tax rate in the quarter was 25, 4% Q4 diluted GAAP EPS was 111, which is one point $11 in Q4, adjusted EPS was $1 $18.

Jatin Dalal: Year-over-year performance includes approximately 90 basis points of growth from our acquisition. This led to full year revenue of 19.4 billion which declined 0.4% year over year or 0.3% in constant currency. Year-over-year growth includes approximately 110 basis points of growth from acquisition. Ravi discussed financial services and health services, which declined 6.6% and 2.7% year-over-year in constant currency.

Jonathan: Okay.

Jonathan: Now, we turn to the balance sheet, we ended the quarter with cash and short term investments of $2 6 billion or net cash of two beliefs.

Jonathan: So 77 days was flat sequentially and increased three days year over year, driven by our business mix freak.

Jonathan: Free cash flow in Q4 was $659 million, which brings full year 2023 free cash flow two 2 billion or approximately 95% of the net income. This was slightly ahead of our expectations.

Jatin Dalal: So I will quickly comment on our other two segments. Products and resources revenue was roughly flat year-over-year in constant currency, which included contributions from recently completed acquisitions and the ramp of new business. This helped offset the macro-driven discretionary spending pressure. We saw relatively better performance in North America, particularly among auto, utility, and travel and hospitality clients. Communication, media, and technology revenue increased 2% in constant currency. The growth reflected the benefit from recently completed acquisitions and the ramp of new, Now moving on to Madhya... During the quarter, we incurred approximately 40 million in costs related to our NextGen program. This negatively impacted our gap operating margin by approximately 90 basis points. Excluding this impact, adjusted operating margin was 16.1%.

Jonathan: During the quarter, we repurchased over 4 million shares for $313 million and returned $146 million to shareholders through our regular dividend.

Jonathan: For the full year, we returned about $1 7 billion to shareholders, including $1 1 billion through share repurchases and $591 million through our regular dividend.

Jonathan: As of December 31, we had $1 8 billion remaining under our share repurchase authorization.

Jonathan: Turning to our forward outlook for the first quarter, we expect revenue in the range of $4 68 grew $4 76 billion.

Jonathan: Representing a year over year decline of two seven to one 2% or a decline of 321, 5% in constant currency.

Jatin Dalal: Year over year, Margin includes savings from our NextGen program and tailwinds from the depreciation of the Indian rupee. This helps partially offset increased compensation costs. As a reminder, the prior year Period also included a negative impact from a non-cash impairment charge related to a health sciences customer. Our gap tax rate in the quarter was 26%. Adjusted tax rate in the quarter was 25.4%.

Jonathan: Our guidance assumes currency will have a positive impact of approximately 30 basis points.

Jonathan: For the full year, we expect revenue to be in the range of 19% to $19 8 billion, which is a decline of one 8% to growth of two 2% year over year or a decline of 2% to growth of 2% in constant currency.

Jonathan: Inorganic contribution is expected to be up 200 basis points, and we anticipate approximately 20 basis points positive impact for the year from the currency.

Jatin Dalal: Q4 Diluted Gap EPS was $1.11, which is $1.11, and Q4 Adjusted EPS was $1.18. Now we turn to the balance sheet. We ended the quarter with cash and short-term investments of 2.6 billion, or net cash of 2 billion. DSO of 77 days was flat sequentially and increased 3 days year over year driven by our business. Free cash flow in Q4 was 659 million, which brings full year 2023 free cash flow to 2 billion or approximately 95% of net income. This was slightly ahead of our expectations. During the quarter, we repurchased over 4 million shares for Rs.

Jonathan: Our next Gen program remained on track this quarter and we still expect to incurred total cost of approximately $300 million.

This includes $2 9 million incurred in 2023, and our expectation for an additional.

Jonathan: $70 million in 2024, there are no changes to our savings assumption from Nexgen, and we still intend to reinvest the majority of the savings in the growth opportunity in 2024 and beyond.

Jonathan: Moving on to adjusted market.

Jonathan: We are pleased with the strong finish to 2023.

Jonathan: Which allowed us to deliver our full year adjusted operating margin of 15, 1% versus our guidance of 14, 7%.

Jatin Dalal: 313 million and returned Rs. 146 million to shareholders through our regular dividends. For the full year, we returned about $1.7 billion to shareholders, including $1.1 billion through share repurchases and $591 million through our regular dividends. As of December 31st, we had $1.8 billion remaining under our share repurchase authorization.

Jonathan: In 2024, we continue.

Jonathan: Do I expect 20 to 40 basis points of operating margin expansion.

Jonathan: This represents an adjusted operating margin range of 15, 3% to 15, 5%.

Jonathan: We remain focused on driving further efficiency in our business model through improved utilization increased operational discipline and automation of tools and processes.

Jonathan: We are also introducing guidance for net interest income versus our prior practice of providing growth in gross interest income.

Jatin Dalal: Turning to our forward out. For the first quarter, we expect revenue in the range of 4.68 to 4.76 billion, representing a year-over-year decline of 2.7 to 1.2% or a decline of 3 to 1.5% in constant current. Our guidance assumes currency will have a positive impact of approximately 30 billion. For the full year, we expect revenue to be in the range of 19 to 19.8 billion, which is a decline of 1.8% to growth of 2.2% year over year or a decline of 2% to growth of 2% in constant currency. Inorganic contribution is expected to be up to 100 basis points, and we anticipate approximately 20 basis points of positive impact for the year from the currency.

Jonathan: For the full year, we anticipate net interest income of approximately $40 million.

Jonathan: Our expectation for the full year adjusted tax rate is 24% to 25%.

Jonathan: Yeah.

Jonathan: For the full year, we expect free cash flow will represent about 80% of net income. This includes an anticipated negative impact of approximately $360 million because of a ruling on January eight in India relating to a previously disclosed 2016 tax matters in connection with shell.

Jonathan: Repurchase transaction undertaken by our Indian subsidiary.

Jonathan: The ruling required to deposit the funds with India tax authorities to proceed with our appeal process.

Jonathan: The funds deposited with tax authority.

Jonathan: Previously held in bank deposit.

Jonathan: And Elliot and and as of December 31st.

Jatin Dalal: Our next-gen program remains on track this quarter, and we still expect to incur a total cost of approximately 300 million. This includes 229 million incurred in 2023 and our expectation for an additional 70 million in 2024. There are no changes to our savings assumption from next-gen, and we still intend to reinvest the majority of the savings in the growth opportunity in 2024 and beyond. Moving on to Adjusted Marks.

Jonathan: Presented on our balance sheet under long term investments.

Jonathan: The outflow will negatively impact our operating cash flow, but will not impact the cash and cash equivalents amounts on the balance sheet and therefore, we do not anticipate any impact to our capital allocation priorities.

Jonathan: Final amounts refunded to cognizant or due to tax authorities will be determined at the end of the appeal process. We.

We continue to believe that we have complied with all tax regulations applicable to this matter in accordance with the law.

Jonathan: And intend to vigorously defend our position.

Jatin Dalal: We are pleased with the strong finish to 2020, which allowed us to deliver a full year adjusted operating margin of 15.1% versus our guidance of 14.7. In 2024, we continue to expect 20 to 40 basis points of operating margin expansion. This represents an adjusted operating margin range of 15.3% to 15.5%.

Jonathan: Moving on to capital allocation, we expect to return over $1 billion to shareholders in 2024, including at least $400 million through share repurchases and $600 million through regular dividends.

Jonathan: We will also continue to pursue acquisition opportunities aligned with our strategy.

For the full year, we therefore, I expect to deploy more than 100% of free cash flow given the negative impact of the free cash flow from the aforementioned additional reported with the India tax authorities.

Jatin Dalal: We remain focused on driving further efficiency in our business model through improved utilization, increased operational discipline, and automation of tools and processes. We are also introducing guidance for net interest income versus our prior practice of providing gross interest income. For the full year, we anticipate net interest income of approximately 40 million. Our expectation for the full year adjusted tax rate is 24% to 25%. For the full year, we expect free cash flow to represent about 80% of net income. This includes an anticipated negative impact of approximately 360 million because of a ruling on January 8 in India relating to a previously disclosed 2016 tax matter in connection with share repurchase transactions undertaken by our Indian subsidiaries. The ruling required Cognizant to deposit the funds with India's tax authorities to proceed with its appeals process.

Jonathan: Based on our anticipated share repurchases our guidance for shares outstanding is approximately $497 million. This leads to our full year adjusted earnings per share guidance of four five to $4 $600.

Speaker Change: With that we'll be open to take your questions.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press Star two 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.

Speaker Change: In places, where we can poll for questions.

Ashwin Shirvaikar: And our first question comes from the line of Ashwin sure.

Ashwin Shirvaikar: <unk> with Citi. Please proceed.

Ashwin Shirvaikar: Thank you.

Speaker Change: And again welcome.

Speaker Change: Welcome.

Ashwin Shirvaikar: My first question is with regards to bookings if you can provide some color as it relates to <unk> versus <unk> expectations.

Ashwin Shirvaikar: New versus.

Ashwin Shirvaikar: New versus renewals by by sizing, perhaps I know you provided by count.

Jatin Dalal: The funds deposited with the tax authority were previously held in bank deposits under LIAN and, as of December 31st, were presented on our balance sheet under long-term investments. The outflow will negatively impact our operating cash flow but will not impact the cash and cash equivalent amounts on the balance sheet, and therefore, we do not anticipate any impact on our capital allocation priorities. Final amounts refunded to Cognizant or due to tax authorities will be determined at the end of the appeals process. We continue to believe that we have complied with all tax regulations applicable to this matter in accordance with the law, and we intend to vigorously defend our goals. Moving on to Capital Role. We expect to return over $1 billion to shareholders in 2024, including at least $400 million through share repurchases and $600 million through regular dividends.

Ashwin Shirvaikar: And.

Ashwin Shirvaikar: In terms of just cadence of when you expect new contracts to start kicking in and influencing growth ACP.

Speaker Change: If you can comment on that that'd be great.

Speaker Change: Thank you.

Speaker Change: Hope, you're doing well and I'm going to start this is Ravi here I'm going to start in the.

Rayna Kumar: Oscar just into Japan.

Rayna Kumar:

Rayna Kumar: If you look at.

Rayna Kumar: How we shaped our 2023 bookings.

Rayna Kumar: We have significant upside on the category about $15 million.

Rayna Kumar: $100 million and actually about 450 million PCB.

Rayna Kumar: Because these are large deals managed services cost takeout opportunities because 2023 was a lot of them.

Jatin Dalal: We will also continue to pursue acquisition opportunities aligned with our strategy. For the full year, we therefore expect to deploy more than 100% of free cash flow given the negative impact of the free cash flow from the aforementioned additional deposit with the India Tax Authority. Based on our anticipated share repurchases, our guidance for shares outstanding is approximately $497 million. This leads to our full year adjusted earnings per share guidance of $4.5 to $4.68. With that, we'll be open to take questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in. You may press star 2 if you would like to remove your question from the line. For participants using speaker equipment, it may be necessary to pick up your headset before pressing.

Rayna Kumar: So it has a longer PD, Ed if I may and comparison to shorter deals in the range of zero to five zero to $10 million.

Rayna Kumar: The zero to $10 million deals actually.

Rayna Kumar: They kind of get consumed in the same year.

As the as the as deform and it is actually in some way is driven by the discretionary spend.

Rayna Kumar: So we have more skewness, we don't comment on the S. E. T. C V. We don't publicly say that but we have more skewness on large deals in comparison to the smaller deals the large deals actually.

Rayna Kumar: We have significantly gone up over the previous years.

Rayna Kumar: Also we have new renewables.

Rayna Kumar: New expansion, I mean, renewables, new expansions and new logos.

Operator: One moment, please, while we go to the polls for questions. And our first question comes from the line of Ashwin Shirvaikar with Citi. Thank you. Hi Ravi and Ajay, welcome.

Rayna Kumar: In the mix I would say Ah, we again have a significant upside on new and expansion likely have commented on the numbers of deals I think even in the TCE number you will find new business and expansion being very very high in fact, we also made a point to <unk>.

Rayna Kumar: My first question is with regard to bookings, if you can provide some color as it relates to ACV versus TCV expectations, new versus, and renewals by sizing, perhaps I know you provide it by count. And, you know, in terms of just the cadence of when you expect new contracts to start kicking in and influencing growth, if you can comment on that, that'd be great. Thank you, Ashwin.

Rayna Kumar: Make sure that we published some of these names in the in the market. For example, this quarter the important ones. We published his 40 year end.

Rayna Kumar: Altria is won't be.

Rayna Kumar: One of the customers.

Rayna Kumar: And I'm going to start, this is Ravi. I'm going to start and ask Jatin to chip in. You know, if you look at how we shaped our 2023 bookings. We have a significant upside on the category above 50 million, above 100 million, and actually above 250 million TCV. Because these are large deals, managed services, cost takeout opportunities, because 2023 had a lot of them. It also has a longer period, if I may, in comparison to shorter deals in the range of, say, zero to five or zero to 10 million. The zero to 10 million deals actually, you know, they kind of get consumed in the same year as they form, and it is actually, in some ways, driven by discretionary spend. So we have more skewness. But we don't comment on the ACV versus TCV.

Rayna Kumar: Customers, we signed a large deal with we also publish one on Takeda.

Rayna Kumar: So effectively what it does is it gives you a good backlog for the future.

Rayna Kumar: Because the large deals have a longer period, so that they give you a good backlog for the future.

Rayna Kumar: But.

Rayna Kumar: They also have a runway into the current deal where you win but they have a bigger runway into the future years. As you go forward. When we hit 2023, we didn't have that luxury from 2022, because the large disproportion was much lower now that we are entering 2020 for what we what we've what we.

Rayna Kumar: One in 2023 will contribute to 2020 forward. It did contribute to 'twenty, two but really contribute more to 2024 and it will create a backlog backlog for the future.

Rayna Kumar: Now the question is what does it do to.

Rayna Kumar: In our revenues.

Rayna Kumar: We don't publicly say that, but we have more skewness on large deals in comparison to the smaller deals. The large deals actually have significantly gone up over the previous years. Also, we have new renewals and new expansions.

Rayna Kumar: As much as it starts to contribute to revenues.

Rayna Kumar: There is also <unk>.

Rayna Kumar: Discretionary softness, which we had in 2023, which kind of let you know.

Rayna Kumar: But the portion of it sets off.

Rayna Kumar: I mean, renewables, new expansions, and new logos. In the mix, I would say we again have a significant upside on new and expansion. Like we have commented on the numbers of deals, I think even in the TCV numbers, you will find new business and expansion to be very, very high. In fact, we also made a point to make sure that we published some of these names in the market. For example, this quarter, the important one we published is Fortia.

Rayna Kumar: So the question is in 2024, how much is the discretionary going to hoard, depending on which you could see the impact I mean I'd.

Rayna Kumar: It's unknown at this point of time early in the year.

Rayna Kumar: What is going to happen to discretionary in 2024.

Rayna Kumar: Discretionary in 2023 went down and it kind of made up.

Rayna Kumar: Neutralized by the extraordinary run we had on large deals 2024.

Rayna Kumar: We don't know what's going to happen to discretionary, but it will the 23 wins will contribute to it and the continued momentum in 'twenty four it will contribute to it as well.

Rayna Kumar: And if Fortia is one of the customers we signed a large deal with, we also published one on Takeda. So effectively, what it does is it gives you a good backlog for the future because the large deals have a longer period, so they give you a good backlog for the future, but they also have a runway into the current year where you win, but they have a bigger runway into the future years as you go forward. When we did 2023, we didn't have that luxury in 2022 because the large deal proportion was much lower. Now that we are entering 2024, what we won in 2023 will contribute to 2024. It did contribute to 2023, but it will contribute more to 2024.

Rayna Kumar: So.

Rayna Kumar: As it relates to your outlook.

Rayna Kumar: What are you assuming beyond one Q.

Rayna Kumar: In terms of discretionary and if this actually does not actually come back to a good extent.

Would you still expect.

Rayna Kumar: Things like the investment in <unk>.

Rayna Kumar: In consulting relationships partnerships and so on to at least incrementally contribute.

Rayna Kumar: Or are we just in a waiting game.

Rayna Kumar: So it's really if you if you do the math you will notice that.

Rayna Kumar: And it will create a backlog for the future. Now, the question is, what does it do to revenues? As much as it starts to contribute to revenues, it, you know, there is also a discretionary softness, which we had in 2023, which kind of sets off a portion of it. So the question is, in 2024, how much is the discretionary going to hold, depending on which you can see the impact? I mean, it's unknown at this point of time, early in the year, what is going to happen to discretionary spending in 2024. Discretionary in 2023 went down, and it kind of made up, it kind of got neutralized by the extraordinary run we had on large deals. In 2024, we don't know what's going to happen to discretionary, but it will, you know, the 23 wins will contribute to it, and the continued momentum in 24 will contribute.

There is some sick.

Rayna Kumar: Sequential growth.

Rayna Kumar: Assumed in our numbers.

Rayna Kumar: So if you if you do the math you will you will get that there is sequential growth assumed in our numbers.

Rayna Kumar: We have good traction on cost take out when the consolidation.

Rayna Kumar: Productivity deals those are the large deals we are winning so we want to double down on those opportunities. We think we have a winning formula and we will continue to.

Run on it which will give us the new business, and which will give us the expansion on our existing clients.

Rayna Kumar: So discretionary today is unknown I mean, and that's why you feel if you notice our guidance range is broader because we we do not know what we do not know.

Rayna Kumar: But the.

Rayna Kumar: Our thesis is very simple we want to be prepared for it for a comeback of discretionary we won't be fully prepared for it we will get our operating engine will get out fulfillment engine and will double down now as it comes so that we don't Miss the opportunity.

Rayna Kumar: So, as it relates to your outlook, what are you assuming beyond 1Q in terms of discretionary, and if discretionary does not actually come back to a good extent, would you still expect things like the investment in consulting relationships, partnerships, and so on to at least incrementally contribute or be just in a waiting game? So, Ashwin, if you do the math, you will notice that there is some sequential growth assumed in our numbers, so if you do the math, you will see that there is sequential growth assumed in a number. We have good traction on cost takeout, vendor consolidation, and AI-led productivity deals. Those are the large deals we're winning. So we're going to double down on those opportunities.

Rayna Kumar: Equally on a separate swim lane, we've got a winning formula on large deals for cost takeout, which will demand irrespective of discretionary it comes back or not so we want to write on them as well we've got to continue on that momentum from 2023, which has contributed to new business and new logos. So we will go behind it so we want to be prepared.

Rayna Kumar: On one swim lane, and we're able to double down on the other one.

And if that comes back we want to be.

Rayna Kumar: We want to be seizing those opportunities.

Rayna Kumar: Oh.

Speaker Change: Very helpful as always all the best.

Speaker Change: Our next question comes from the line of Tien Tsin Huang with Jpmorgan. Please proceed.

Speaker Change: Yes.

Speaker Change: Alright, Thanks, Scott Good afternoon, the margin outlook was encouraging so I was hoping for a little more detail on the gross margin versus operating margin dynamic it sounds like utilization rates should improve your talk about nextgen benefits productivity pricing that kind of thing. So I just want to make sure.

Rayna Kumar: We think we have a winning formula and we will continue to, you know, run on it, which will give us new business and which will give us expansion on our existing client. So discretionary today is unknown. I mean, you and that's why if you notice our guidance range is broader, because we do not know what we do not know. But our thesis is very simple.

Speaker Change: I understand the call us for for the for Mark just for you across gross margin and operating margin. If that's okay. That's all I had thank you.

Rayna Kumar: We are going to be prepared for a comeback of discretionary spending. We're going to be fully prepared for it. We will gear our operating engine, we'll gear our fulfillment engine, and we'll double down as it comes so that we don't miss the opportunity, equally on a separate swim lane. We've got a winning formula on large deals for cost takeout, which will remain, irrespective of whether discretionary comes back or not. So we're going to ride on them as well.

Speaker Change: Sure thing.

Speaker Change: The I think the opportunity exists on both lines and the drivers would be clearly different.

Speaker Change: And.

Speaker Change: No.

Speaker Change: The driver for gross margin would be really the efficiency of operations kicking in.

Speaker Change: Vito.

Speaker Change: Quite a bit of.

Utilization upside that one can capture as the growth returns.

Rayna Kumar: We're going to continue on that momentum from 2023, which has contributed to new business and new logos. So we will go behind it. So we're going to be prepared for one swim lane, and we're going to double down on the other one. And if that comes back, we want to be, you know, we want to be seizing those opportunities.

Speaker Change: The second is is really deploying the tools and.

Speaker Change: Processes related around AI and automation to to get.

Speaker Change: Some operational benefits out so that's the that's the opportunity on on gross margin apart from the traditional opportunity I don't they don't made and in season.

Speaker Change: Season and related traditional measures on an operating margin definitely.

Rayna Kumar: All the best. Our next question comes from the line of Tin Sin Huang with J.P. Morgan. Hi, thanks. Good afternoon.

Speaker Change: There will be.

Speaker Change: And upside on SG&A front led by some of the cost take out related with.

Jatin Dalal: The margin outlook was encouraging, so I was hoping for a little more detail on the gross margin versus operating margin dynamic. It sounds like utilization rates should improve. You talk about next-gen benefits, productivity, pricing, that kind of thing, so I just want to make sure we understand the call outs for the march marches for the year across gross margin and operating margin, if that's okay. That's all I have. Thank you. Sure, I think the opportunity exists on both lines, and the drivers would be clearly different.

Speaker Change: The tail end of next Gen program that will complete in 2024, so I would I would be I mean, we will work on both and we'll see that.

Speaker Change: Where we go by the.

Speaker Change: Individual lines, but overall, we think we have a sufficient.

Speaker Change: Sufficient.

Speaker Change: Sufficient actions around the orderly expansion, we have spoken about.

Speaker Change: Okay.

Speaker Change: <unk> said.

Speaker Change: Very pleased with our performance on the next Gen program.

Speaker Change: We do think we have an opportunity for a full year impact this year on the next Gen program.

Jatin Dalal: The driver for gross margin would be really the efficiency of operations kicking in, quite a bit of www.cognizant.com. The second is really deploying the tools and.., um processes related around AI and automation to get some operational benefits out, so that's the opportunity on gross margin apart from the traditional opportunity around pyramid and and and and and you know gen C's and and and and and related traditional measures. On operating margin, definitely, there So I would be, I mean, we'll work on both, and we'll see where we go on the individual lines.

Speaker Change: Equity is jet and also pointed out.

Speaker Change: In addition to the classical NIE was on gross margin.

Speaker Change: We do have.

Speaker Change: I mean, classical leavers being better operational efficiency higher utilization better pyramid higher offshoring I mean all of these.

Speaker Change: We are very encouraged with the progress.

Speaker Change: But we also have this unique opportunity to share the productivity benefits with our clients, which is the technology arbitrage what's is the labor arbitrage.

Speaker Change: Driven by a generative AI tooling and I think we are ahead of the curve, which is the reason why we are winning a lot of these large deals and sharing those benefits of productivity, which will then start to contribute to growth and operating margin as we go forward.

Speaker Change: Yeah.

Speaker Change: Great. That's what I was looking for thank you.

Speaker Change: Our next question comes from the line of Marshall Tier with Wedbush Securities. Please proceed.

Jatin Dalal: But overall, we think we have sufficient actions around the overall expansion we are seeing. Just to add to what Jason said, we are very pleased with our performance on the NextGen program. We do think we have an opportunity for a full year impact this year on the NextGen program. Equally, as Jatin also pointed out, in addition to the classical levers and gross margin, we do have, I mean, classical levers being better operational efficiency, higher utilization, better pyramid, and higher offshoring. I mean, all of these are, you know, we are very encouraged by the program.

Marshall Tier: Hey, Thanks for taking my question and Jonathan Welcome Greg.

Marshall Tier: Great to work with you again.

Marshall Tier: So a couple of questions.

Marshall Tier: If we're looking at revenue growth and we're looking at the deal flow that you've been winning since he came on board Ravi.

Marshall Tier: Do you think we could see that inflection point.

Marshall Tier: And revenue growth, especially as you start seeing some of these deals ramping on.

Comparable what you won last year and obviously is a.

Marshall Tier: Factoring the.

Marshall Tier: The fact that it takes some time for these deals to ramp that's my first question.

Rayna Kumar: But we also have this unique opportunity to share the productivity benefits with our clients, which is the technology arbitrage versus the labor arbitrage driven by generative AI tooling. And I think we are ahead of the curve, which is the reason why we're winning a lot of these large deals and sharing those benefits of productivity, which will then start to contribute to growth and operating margin as we go forward. That's what I was looking for.

Speaker Change: Thank you Marsha good to hear from you again.

Speaker Change: You know.

Speaker Change: The wins in 2023 started to ramp in 2023.

Speaker Change: Of course, they have a partial benefit in the first year and then start to get to more benefits in the second and the third year.

Speaker Change: Equally the momentum as we got into the into the backend of last year, we actually had more new business more new logos in the percentage mix of large deals, which means it will have higher impact in the future years.

Rayna Kumar: Thank you. Our next question comes from the line of Moshe Katri with Wetbush Securities. Hey, thanks for taking my question and Jatin. It'll be great to work with you again. So, a couple of questions.

Speaker Change: So what this really does to us it makes a business sticky it increases our backlog for the future and therefore you are you.

Rayna Kumar: If we're looking at revenue growth and we're looking at the deal flow that you've been winning since you came on board, Ravi, when do you think we could see that inflection point in revenue growth, especially as you start seeing some of these deals ramping on top of what you won last year? And obviously, you know, factoring in the fact that it takes some time for these deals to ramp up. That's my first question. Thank you, Moshe.

Speaker Change: Youre entering the yogurt tailed velocity.

Speaker Change: The only unknown and the mix is the.

Speaker Change: <unk> zero to $5 million deals, which had discretionary in nature.

Speaker Change: And.

Speaker Change: They kind of neutralize if the fall off they kind of neutralize what you win on the large deals.

Speaker Change: I think part of that happened in 2023, because discretionary was pretty soft in 2023 2024.

Speaker Change: We do not know what's going to happen to discretionary otherwise I would say the flow of those deals. The large deals is continuing and it will trend in 'twenty, four and 'twenty five and it will actually be fully realized.

Rayna Kumar: Good to hear from you again. The winds in 2023 started to ramp up again. Of course, they have a partial benefit in the first year, and they start to get more benefits in the second and the third year. Similarly, the momentum, as we got into the back end of last year, we actually had more new business, and more new logos in the percentage mix of our large deals, which means it will have a higher impact in the future years. So what this really does to us is it makes the business sticky. It increases our backlog for the future. And therefore, you're entering the year with tail velocity. The only unknown in the mix is...

Speaker Change: It does though is the unknown and the mix is.

Speaker Change: How much does that get neutralized by softer discretionary the discretionary is not soft it comes back we want to be prepared. It then starts to show the momentum so I would say.

Speaker Change: The interesting part because it's not about the large deals. It's also about the small deals because it's a small deal start to neutralize this even if the plateau than the large these will start to show.

Speaker Change: Revenue momentum.

Rayna Kumar: The zero to five million dollar deals which are discretionary in nature, and, You know, they kind of negate if they fall off; they kind of negate what you win on the large deal. I think part of that happened in 2023 because discretionary was pretty soft in 2023. In 2024, you know, we do not know what's going to happen to discretionary. Otherwise, I would say the flow of those deals, the large deals, is continuing, and it will strengthen in 2024 and 2025, and it will actually be fully realized. What it does, though, is, I mean, the unknown in the mix is how much that gets neutralized by soft discretionary. If the discretionary is not soft, it comes back.

Speaker Change: That's how I see it so.

Speaker Change: We are executing to this deal is pretty well.

Speaker Change: And you know this machine that is the first year, they always start with them.

Speaker Change: <unk> they start with.

Speaker Change: Yeah.

Speaker Change: Slower trajectory and then once the takeoff they get to a steady state of revenue so that I'm not as worried about I continue I continue to believe that we are in good shape on that what's what certainly I do not know as discretionary.

Speaker Change: Okay. Okay that makes sense and then the second one is more related to the strategy I've always been intrigued and.

Speaker Change: In terms of what cognizant does with twice that.

Speaker Change: And that used to be a pretty big part of your health care practice and I think you've indicated.

Our first introduction when you came on board.

Speaker Change: That you will be taking a second look at cranes that are trying to kind of maybe revived the business.

Rayna Kumar: We want to be prepared. It then starts to show the momentum. So it's an interesting part because it's not just about the large deals. It's also about the small deals because if the small deals start to plateau, then the large deals will start to show revenue momentum. That's how I see it. So, you know, we are executing on these deals pretty well. And you know this, Moshe, that in the first year, they always start with a, you know, transition; they start with a slower trajectory, and then once they take off, they get to a steady state of revenue. So that I'm not as worried about it. I continue to believe that we are in good shape on that. What's certainly I do not know is discretion.

Speaker Change: Are there any actions that you're doing there to for us to.

Speaker Change: You see more of that reflected in the numbers in the health care vertical thanks a lot.

Speaker Change: Most of you have to say this the health care ecosystem for cognizant is the strongest in the market.

Speaker Change: I'd say its a industry, which will go through a significant transformation. So we are on a pole position in health care in the health care economy, all the way from payer provider.

Speaker Change: Pharma benefits management to life Sciences, we have an extraordinary.

Speaker Change: Strength of platforms plus services, just look at the order of magnitude of what we do on <unk>.

Speaker Change: 250 million plus claims.

Speaker Change: On an annual basis approximately.

Speaker Change: 100 million plus enrollments on an annual basis.

Rayna Kumar: Okay, okay, that makes sense. And then the second one is more related to strategy. I've always been intrigued in terms of what Cognizant does with Trisetto.

Speaker Change: <unk> 3 billion.

Speaker Change: Electronic data interchange transactions.

Speaker Change: So we have an extraordinary story of 60.

Speaker Change: 60, plus percent of the U S insured population goes through our platforms, it's the fulcrum and the nucleus of our health care ecosystem. So we're able to invest and double down on it and seize the opportunities which come on this transformational journey for our clients.

Rayna Kumar: And that used to be a pretty big part of your healthcare practice, and I think you've indicated, in our first introduction when you came on board, that you would be taking a second look at Triseto and trying to kind of maybe revive the business. Are there any actions that you're doing there for us to see more of that reflected in the numbers and the healthcare vertical? Thanks a lot.

Speaker Change: This is going to be a sector, which will significantly transform and we have we have an exciting.

Rayna Kumar: Moshe, I have to say this, the healthcare ecosystem for Cognizant is the strongest in the market. It's an industry that will go through significant transformation, so we are in a pole position in healthcare, in the healthcare economy, all the way from payer-provider, pharma benefits management to life sciences. We have an extraordinary strength of platforms plus services. Just look at the order of magnitude of what we do on TriZeto. 250 million plus claims, on an annual basis approximately, hundreds of millions plus enrollments on an annual basis. We do 3 billion. Electronic Data Interchange Transaction. So we have an extraordinary story of Triseto.

Speaker Change: Clientele base across the spectrum.

Speaker Change: We've invested on generally I am we have done multiple announcements last year of embedding generative AI.

Speaker Change: Building a partnership with Microsoft to leave open AI opening I had piece, which we have embedded into the entire stack.

Speaker Change: So we are very excited about <unk> I haven't actually doubly sure that that is going to be an integral part of our health care strategy for the future.

Speaker Change: Thanks, a lot.

Speaker Change: Our next question comes from the line of surrenders things with Jefferies. Please proceed.

Surinder Singh Thind: Thank you.

Surinder Singh Thind: Just.

Surinder Singh Thind: On the AI component and the potential acceleration that you may see as the year progresses.

Jefferies: When you roll up with new products and services.

Rayna Kumar: 60 percent or more of the U.S. insured population goes through our platform. It's the fulcrum and the nucleus of our healthcare ecosystem. So we want to invest in and double down on it and seize the opportunities which come on this transformational journey for our clients. This is going to be a sector which will significantly transform, and we have an exciting clientele base across the spectrum. We've invested in generative AI. We made multiple announcements last year of embedding generative AI, including a partnership with Microsoft on the OpenAI piece, which we have embedded into the entire stack.

Jefferies: Is there a pricing conversation that you have with clients is there a way to price differently.

Jefferies: Can you command more.

Jefferies: Or is it just that the expectation is you'll get a lot more on consulting services down the road.

Jefferies: Can you maybe provide some color on that.

Speaker Change: Certainly that's a great question. Thank you for that.

Speaker Change: I would say three swim lanes cylinder.

Speaker Change: The first is.

Speaker Change: The last.

Speaker Change: The last mile.

Speaker Change:

Speaker Change: Yeah.

Speaker Change: Holding the ability to take foundational models, which are available in the market.

Speaker Change: And create a fee.

Speaker Change: Funneled to make them enterprise grade, which is the work you have to do it on the last mile all the way from managing governing and orchestrating Lodge language models.

Rayna Kumar: So we are very excited about Trisato. I am actually doubly sure that that is going to be an integral part of our healthcare strategy. Thanks a lot. Our next question comes from the line of Surinder Thind with Jeffries, please.

Speaker Change: Or a foundation models.

Speaker Change: And that's a variety of tax it starts from accuracy of the models to reducing hallucinations to doing.

Rayna Kumar: Thank you. Just on the AI component and the potential acceleration that you may see as the year progresses, when you roll out these new products and services, is there a pricing conversation that you have with clients? Is there a way to price this differently?

Speaker Change: Performance cost.

Speaker Change: Optimization.

Speaker Change: Two three.

Speaker Change: Reinforced learning unlike software.

Speaker Change: Jeremy I it goes through reinforced learning even after you implement it because it learns through the process. So there is a lot of heavy lift needed to take the foundation models.

Rayna Kumar: Can you command more? Or is it just that the expectation is that you'll get a lot more in consulting services down the road? Can you maybe provide some color?

Rayna Kumar: Surinder, that's a great question. Thank you for that. I would say three swim lanes.

Speaker Change: And make it production grade enterprise grade and I think.

Speaker Change: We have a unique opportunity and I'm excited about what I have actually seen with the platforms. We have built the platforms, we announced to the market.

Rayna Kumar: The first is... The last, The Last Smile, holding the ability to take foundational models which are available in the market and create a funnel to make them enterprise-grade, which is the work you have to do on the last mile, all the way from managing, governing, and orchestrating large language models or a foundation model. And that's a variety of things. It starts from accuracy of the models to reducing hallucinations to doing a performance cost optimization to reinforce learning, unlike software.

Speaker Change: And how we are helping our clients to get that.

Speaker Change: We have 250, plus prototypes and I think we have 250 plus.

Speaker Change: In the pipeline whenever those capex cycles triggered off.

I think we are in a good position to monetize on that that's the first swim lane.

Speaker Change: So ex U.

Speaker Change: You could call it consulting and your language the way you put it but it is actually a bunch of things you want to work on.

Speaker Change: There is a second swim lane I would say, which is about how do you apply to your productivity.

Rayna Kumar: You know, general AI goes through reinforced learning, even after you implement it because it learns through the process. So there is a lot of heavy lifting needed to take the foundation model and make it production grade enterprise grade. And I think we have a unique opportunity and I'm excited about what I have actually seen with the platforms we have built, the platforms we have announced to the market, and how we are helping our clients to get there. We have 250 plus prototypes running. We have 350 plus in the pipeline whenever those CAPEX cycles trigger off. I think we are in a good position to monetize all that. That's the first. So, you know, you could call it consulting in your language the way you put it, but it is actually a bunch of things you want to work on. There is a second swim lane, I would say, which is about how you apply it to your productivity. And that kind of switches on to two things.

Speaker Change: And that's kind of switches onto two teams how does what does it do to developer productivity what does it do to technology lifecycle. So all the way from design to tap.

Speaker Change: Testing too.

Speaker Change: Writing code to all of it.

Speaker Change: And I call them to sub six sub segments, because one is to cannibalize the business you do and share the benefits with your clients. The second is to go and cannibalize rather go and.

Speaker Change: Proposed something Pablo Caito.

Speaker Change: On the work.

Speaker Change: We don't do as an incumbent but we could actually create better productivity to our clients.

Speaker Change: And one of them one of the reasons why we are winning those large deals. So that's a pivot on our AD rep on a large deal story, we actually go and disrupt.

Rayna Kumar: How does it affect developer productivity? What does it do to technology life cycles all the way from design to testing to, you know, writing code to all of it. And I call them two sub-segments because one is to cannibalize the business you do and share the benefits with your clients. The second is to go and cannibalize, or rather, go and propose something provocative about the work. We don't do it as an incumbent, but we could actually create better productivity to apply. And one of the reasons why we're winning those large deals is that it's a pivot on our large deal story. We actually go to and disrupt client landscapes, which is where we are not incumbents, with not just labor arbitrage but arbitrage powered by AI.

Client landscapes, with which is where we are not incumbents with not just labor arbitrage, but arbitrage powered by AI.

Speaker Change: So I would say there are opportunities all through all the way from applying it to the landscapes to applying productivity to the technology lifecycle speed our business, we do albeit a where we are not an incumbent.

Speaker Change: And.

Speaker Change: I would say this is a pervasive opportunity it will be.

Speaker Change: Shocked it will be a slow takeoff, but it'll be a short cycle office slow takeoff.

Rayna Kumar: So, I would say there are opportunities all the way from applying it to the landscapes to applying productivity to the technology life cycles, be it our business, we do, or be it where we are not an incumbent. And, I would say this is a pervasive opportunity; it will be a... It will be a slow take-off, but it will be a short cycle of a slow take-off, and it will then get into a sharp S-curve, as I mentioned in my preliminary comments.

Speaker Change: And it will then fall then get into a shop S curve as I mentioned on my preliminary comments. So it's a very pervasive technology diffusers very fast and it has a very good distribution network. So.

Speaker Change: So I'm excited about the prospects are excited about the investments we are making excited about how we're staying relevant with our clients. We also embed it into our platforms like <unk>.

Speaker Change: So we are equipped to seize these opportunities as the capex cycles of C&I triggered to enterprise great work.

Rayna Kumar: So it's a very pervasive technology, it diffuses very fast, and it has a very good distribution network. So I'm excited about the prospects, excited about the investments we're making, excited about how we're staying relevant with our clients. We've also embedded it into our platforms like Transerto.

Speaker Change: That's helpful and then.

Speaker Change: As a follow up just two.

Speaker Change: Kind of tease out what you're seeing in the discretionary spend environment.

Speaker Change: I guess the question I would ask is.

Speaker Change: How much more can clients really pulled back on.

Speaker Change: On that spectrum of spend and then I.

Speaker Change: The counter question here would be keep them.

Speaker Change: Relative.

Speaker Change: Economic resiliency.

Rayna Kumar: So we are equipped to seize these opportunities as the capex cycles of gender variety trigger enterprise-grade work. That's helpful. And then... As a follow-up, just to kind of tease out what you're seeing in the discretionary spend environment. I guess the question I would ask is... How much more can clients really pull back? on that spectrum of spend. And then I guess the counter question here would be, given the relative economic resiliency, why aren't clients spending more? Like, what's holding them back? Like, what do they need to see, or what are they signaling to you?

Speaker Change: Guang clients spending more at this point.

Speaker Change: Like what's holding them back.

Speaker Change: Do they need to see or what are they signaling to you.

Speaker Change: When you.

Speaker Change: They are willing to perhaps take some risk.

Speaker Change: So let me start and I'll ask Jesse to chip in.

Jesse: I would say.

Jesse: The <unk>.

Jesse: The discretionary.

Jesse: Spend if.

Jesse: If you take a industry view.

Jesse: Is the most in banking financial services and insurance.

Rayna Kumar: of when, you know, they're willing to perhaps take some risks. So let me start and ask Jatin to chip in. I would say... You know, the, the, the.

Jesse: That's a sector, which is burdened with high interest rates.

Jesse:

Jesse: And because of the high interest rates there is a wait and watch it that kind of a pause on discretionary work remember these are financial services as well as the sectors, which also has a strong technology retail organization.

Rayna Kumar: The discretion of the Pend, you know, if you take an industry view, is the most in banking, financial services, and insurance. That's a sector which is burdened with high interest rates, and because of the high interest rates, there is a wait and watch and a kind of a pause on discretionary work. Remember, financial services is one of those sectors which also has a strong technology retained organization. So what they outsource is dependent on how much discretionary they have. You know, let's see how the interest rates shape up in the year, and normally, based on my experience, if there are one or two repeatable cycles of Interstate Adjustments Downwards, you will start to see the spend come back.

Jesse: So what they outsource.

Jesse: Is dependent on how much is the discretionary.

Jesse: Let's see how the interest rates shape up.

Jesse: In the year.

Jesse: And normally what I have seen based on my experiences.

If there are one or two repeatable cycles of.

Jesse: Our interest rate adjustments downwards.

Jesse: We will start to see the spend to come back.

Jesse: <unk>.

Jesse: Discretionary is also tied to transformational work that means transformational work normally takes off when there is a period of certainty.

Rayna Kumar: You know, discretionary funding is also tied to transformational work. That means transformational work normally takes off when there is a period of certainty. I've said this before in my remarks that we see this as a period of uncertainty and a period of change. I mean, the change is...

Jesse: You know I've said this before in my remarks that we see this as a period of uncertainty in a period of change I mean the changes.

Jesse: The change there to Pfizer's is.

Jesse:

Jesse: This is such a positive catalyst.

Jesse: So if the uncertainty starts to go away I think that change will trigger discretionary to come back.

Rayna Kumar: The change ahead of us is such a positive catalyst. So if the uncertainty starts to go away, I think that change will trigger discretionary spending to come back. It's also a year where, you know, at the back end of the year, we, in many parts of the world, have elections, so I don't know what impact that will have on discretionary spending.

Jesse: It's also a deal that you know at the back end of the year.

Jesse: And in many parts of the world. There are elections, so I don't know what what impact it does to discretionary.

Jesse: But you know the.

Jesse: AI cyclic and triggered the discretionary back the interest the interest rates dropped considerably discretionary.

Jesse: Check.

Jesse: Financial services is the biggest one so we're hoping that our you know the stability in that sector based on the.

Rayna Kumar: But, you know, the AI cycle can trigger the discretionary back; the interest rates drop can trigger the discretionary. Financial services is the biggest one. So we are hoping that, you know, the stability in that sector based on interest rate cuts can drive that discretionary spending back. So, you know, it's a little bit of, you know, I'm waiting for how the interest rates shape up this year to really say whether it is going to come back or not. Yeah, so Surinder, my name is Jatin, I will just add to say that there is this, you know, if you see the history of IT services industries and, and shops, and shop recoveries are always event-driven, and as we all know, The current situation is not a shock, it's not an event, it is an overall high interest cost across the..., across the spectrum of the yield curve, which is weighing down on It is difficult to call when the discretionary comes back.

Jesse: Interest rate cuts can can drive that discretionary back.

Speaker Change: So you say, it's a little bit off.

Speaker Change: I'm waiting for how the interest rates shape up for the in this year or two to really say, whether there is going to come back on Ark.

Speaker Change: Yeah.

Speaker Change: I ended my this is Japan.

Speaker Change: And to say that there is this.

Speaker Change: If youll see the history of Ids, obviously industry, then and short and sharp recovery is always some event layered in.

As we all know.

Speaker Change: The current situation is not assured keeps not anyway. It is an overall high interest cost across the.

Speaker Change: Across the spectrum of the Yieldco.

Speaker Change: It is weighing down on minds of decision maker.

Speaker Change: Difficult to call when the when the discretionary comes back.

Jatin Dalal: It's very sector-specific, and it is little novel from what the world has seen in the last 20 years, where there was one big event, and then you actually saw interest rates go down very, very sharply, very quickly, and there was a bounce back of the demand. This time, it is a new slowdown that we are experiencing, and I'm sure all our customers are coping today in terms of how they react to it. Also, one other, I would say, you know, one other event in the mix is during the COVID era.

Speaker Change: This tech sector specific and it.

Speaker Change: It is little novel from what the World has seen in last 20 years, where there was one big event and then you actually to interest rates go down very very sharply very quickly and there was a bounce back of the demand. This time it is.

Our new slowdown that we are and I'm sure all of our customers are coping.

Speaker Change: In terms of how they react to it.

Speaker Change: Also one other what other Ah I would say now one of the.

EBIT in the mix is.

Speaker Change: During the Covid era.

Rayna Kumar: There was a heavy discretionary component in many... And that's kind of gone through a course correction, if I may, including the fact that there was uncertainty... So, you know, it's gonna be an interesting year to watch on discretionary, and that's probably, you know, as we go through the year, we'll probably get more visibility on it. That's very helpful. Thank you. Our next question comes from the line of James Fawcett with Morgan Stanley. Great, thank you very much.

There was a heavy discretionary in many sectors and that's going through it that went through that's kind of gone through a course correction, if I may and including the fact that there was uncertainty. So you know, it's it's going to be an interesting year to watch on discretionary and that's probably.

Speaker Change: You know as we go through the ER will probably get more visibility on it.

Speaker Change: That's very helpful. Thank you.

Speaker Change: Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed.

James Schneider: Great. Thank you very much and really appreciate all the color and detail.

Rayna Kumar: And I really appreciate all the color and detail you're giving today. I'm wondering, just in terms of the larger deals that you've talked about, can you talk about the win rate for Cognizant? Sounds like you're pretty confident, etc. But I just wanted to get a sense for how you're perceiving your competitiveness right now in the market. Yeah, so you would have noticed that these large deals we're doing, we're doing uh based on a differentiated value proposition, and we're holding up pricing. I mean, that's one of the reasons why margins were good enough good in 2023, and we gave 20 to 40 basis points of improvement this year.

James Schneider: Youre, giving today I'm wondering.

James Schneider: Just in terms of the larger deals that you've talked about can you talk about the chin there are win rates for cognizant sounds like youre pretty cockpit at Etsy.

James Schneider: Et cetera, but just wanted to get a sense for how you're perceiving.

James Schneider: Your competitiveness right now in the market.

Speaker Change: Yes, so you would have noticed.

Speaker Change: That.

Speaker Change: These large deals we're doing we're doing.

Speaker Change: Based on a differentiated value proposition and we're holding our pricing I mean, that's one of the reasons why our margins with them.

Speaker Change: Good enough good in 2023.

Speaker Change: And we gave a 20 to 40 basis points.

Speaker Change: The improvement this year.

Rayna Kumar: Our strength in our large deals is the following. We are able to unify the company together with a velocity which is in line with what our clients are looking for. I mean the velocity of these deals is very high because these are cost takeout, vendor consolidation, kind of deals. So you need that velocity; you need the unification of the company to come together. It's in our DNA.

Speaker Change: Our strength on our large deals.

Speaker Change: Is the following.

Speaker Change: We are able to unify.

Speaker Change: The company together.

Speaker Change: With a velocity.

Speaker Change: Which is in line with what our clients are looking for.

Speaker Change: I mean, the velocity of these deals is very high because these are cost take out when that consolidation.

Speaker Change: Kind of deals so you need that velocity you need the unification of to come together, it's it's in our DNA and so I have kind of a.

Rayna Kumar: So I have kind of... Energized the DNA, if I may, in 2023, and that has helped us significantly. The second thing I would say is there are sectors where we have strong capability, and in those sectors, we are a formidable force. We can be provocative in those sectors. We don't need to wait for a request for consolidation or a request for productivity. We can actually work with our clients. We are very sticky.

Speaker Change: Energizes the DNA, if I may in 2023, and that has helped US significantly the second I would say is there are sectors, where we have.

Speaker Change: <unk> strong capabilities.

Speaker Change: And in those sectors, we are a formidable force.

Speaker Change: We can be promulgated windows sectors, we don't need to wait for a request for a consolidation.

Speaker Change: At our request for productivity.

Speaker Change: We can actually work with our clients. We are very sticky I mean, we're also a company over the 30 years of of Cognizant heritage.

Rayna Kumar: I mean, we are also a company with over 30 years of Cognizant's heritage. We are very close to our clients, so we could be provocative with bold ideas. I see that as a trait and an integral part of the DNA, and as the CEO of the company, I've been able to lead those provocative conversations with our clients. That has helped us significantly. We have an extraordinary front-end team, if I may. The third, I would say, is that execution muscle which we built in the last one year. I'm very proud of it.

Speaker Change: We are very sticky to our clients. So we could be probably cater with bold ideas I see that as a trade.

Speaker Change: Integral part of the DNA and as the CEO of the company have been able to lead this probably could have conversations with our clients that has helped us.

Speaker Change: Significantly we have an extraordinarily.

Speaker Change: Okay.

Speaker Change: Front end team if I'm in the third I would say is that execution muscle, which we built in the last one year I'm very proud about it.

Rayna Kumar: And that has helped us to not just deliver these deals well but also hold our margins as we execute these deals. The last one I would say in the mix is that we also have, I would say, a uniquely differentiated value proposition related to productivity led by automation and AI, which can actually help that provocative, bold thinking to support the construction of these deals and share the benefits of the extraordinary opportunity AI provides us. So I would say these are the three or four things which have helped us to win deals, and I would like to continue that momentum in 2024. That's, that's great.

Speaker Change: And that has helped us to not just deliver these deals well, but also hold our margins as we execute these deals.

Speaker Change: The last one I would say in the mix is we also have I would say uniquely at <unk>.

Speaker Change: Differentiated value proposition related to productivity led by automation and AI.

Speaker Change: Which can which can which can actually help to that publication bold thinking to support construction of these deals and shared the benefits about the extraordinary opportunity AI provides to us. So I would say these are the three or four teams, which have helped us to win deals and Hum.

Speaker Change: I would like to continue on that momentum in 2024.

Speaker Change: That's that's great and then.

Jatin Dalal: And I wanted to ask you, It's interesting, though, each of the last couple of quarters, you've increased net headcount slightly. I think usually that's taken as a positive indicator. Can you just talk about, as you're maintaining headcount, even in the face of potentially being down as much as 2% at the bottom end of your guided range this year, how you're thinking about managing that, and what the nature of the people you're adding and retaining to serve these larger deals that you've already booked, and how much of it is just in anticipation that more discretionary and smaller deals could come back? Just trying to get a sense If the growth comes back, you should have sufficient flexibility on the bench.

Speaker Change: I wanted to ask is with.

Speaker Change: It's interesting in the each of the last couple of quarters.

Speaker Change: Increased net head count slightly.

Speaker Change: Usually that's taken as a positive indicator.

Speaker Change: Can you just talk about it.

Speaker Change: As you are maintaining head count even in the face of potentially being down as much as 2% at the bottom end of your guided range. This year, how youre thinking about managing that and it's the nature of the people, you're you're adding and retaining just to serve kind of these larger deals that you've already booked and how much of it is just.

Speaker Change: In anticipation of more discretionary than smaller deals could come back just trying to get a sense for how you're thinking about managing head count and you know what we should take from that.

Speaker Change: Yeah. So Jamie this is really.

Speaker Change: Combination of both that retaining sufficient flexibility for the growth to come.

Speaker Change: If the growth comes back you should have sufficient flexibility on the bench. That's one and two is really some planned edition that we do systematically to certain skill set and so then.

Jatin Dalal: That's one. And two is really some planned addition that we do systematically to certain skill sets and certain parts of our pyramid that have both contributed to this, you know, small addition that you're seeing on the total headcount. Also, just to add to what Jatin said, you should remember we have an extraordinary story of how well we have done on attrition. I mean, we are now really a top-notch player with industry-leading. Retention Plan. I mean, we have to, you know, look at where we were at the start of quarter one in 2023 compared to now. Our attrition has significantly improved. That is also helping us to be ready for the discretionary at any point in time when it comes back because it gives you the capacity and ability to fulfill. That's great. Thank you so much to both of you for your help.

Speaker Change: Part of that is what contributed to this.

Speaker Change: Small edition that Youre seeing on on the total head count.

Speaker Change: Also just to add towards it and said you should remember we have an extraordinary story on.

Speaker Change: How well we've done on attrition I mean, we are now really.

Speaker Change: A top notch player with.

Speaker Change: Industry, leading.

Speaker Change: Retention plan I mean, we have.

Speaker Change: Look at where we've added at the start of quarter. One in 2023 to now our attrition is significantly improved that is also helping us to be ready for the discretionary at any point in time. It comes back because it gives you the capacity and capacity to fulfill.

Speaker Change: That's great. Thank you so much to both of you for your help.

Rayna Kumar: Thank you. Our next question comes from the line of Ramzi Al-Asaw with Barclays. Hi, thank you for taking my question, Steve. I wanted to ask you if you could comment on how much visibility or maybe relative visibility that you have right now into fiscal 24, and I guess I mean relative to a more settled normal environment. And I guess the underlying question is, are you having to bake in more conservatism into your guidance this year to account for environmental external factors that are difficult to kind of see through at this point? This is the typical beginning of the year where we don't know what we don't know.

Speaker Change: Thank you James.

Speaker Change: Our next question comes from the line of Ramsey El <unk> with Barclays. Please proceed.

Ramsey El: Hi, Thank you for taking my questions evening.

Ramsey El: I wanted to ask you if you could comment on how much visibility or maybe relative visibility you have right now into fiscal 'twenty, four and I guess, I mean relative to a more settled normal environment and I guess the underlying question is are you having to bake in more conservatism into your guidance.

Ramsey El: This year to account for environmental external factors that are difficult to kind of see through at this point.

Ramsey El: Okay.

Speaker Change: The short answer is I mean this is a this is a typical beginning of the yard where we don't know what we don't know if you. If you really see mathematically if you dissect our guidance you would see that there is a certain growth sequential growth that via zoom.

Jatin Dalal: If you really look at the numbers, if you dissect our guidance, you would see that there is a certain growth, sequential growth that we have assumed during the course of the year. So there is a certain growth assumption that we are walking in with. But the environment remains uncertain, and it's certainly a slower start to the year as Ravi indicated in his opinion. Okay, thank you.

Speaker Change: During the course of the year. So there is a there is a certain growth assumption that we are walking in with but environment remains uncertain and its certainly a slower start to the year as Ed indicated in his opening remarks.

Rayna Kumar: And then a quick follow-up from me. Could you also give us your view on the extent to which clients are prepared to embrace generative AI? How much work still needs to be done on the core sort of underlying technologies at this point for enterprises to start taking advantage of the new technology? I would say in some areas.

Speaker Change: Got it okay. Thank you and then a quick follow up for me.

Speaker Change: Could you also give us your view on the extent to which clients are prepared to embrace generative AI, how much work still needs to be done on core sort of underlying technologies at this point for enterprises to start taking advantage of the new technology.

Speaker Change: I would say in some areas we are seeing more confidence.

Rayna Kumar: We are seeing more confidence. The two big areas I want to highlight are employee productivity, and the second is customer service. We see them getting faster to production grade. Employee productivity is, you know, amplifying human potential, as we call it. Customer service always had unique opportunities here because, remember, when robotic process automation, which is down the chain and the continuum of AI and... Generative AI, we also had the most adoption there. These are the two areas where they're ready.

Speaker Change: The two big areas I want to highlight is.

Employee productivity.

Speaker Change: And the second is customer service.

Speaker Change: We see them getting faster to production date.

Speaker Change: Employee productivity is.

Speaker Change: Amplifying human potential as we call it.

Speaker Change: Customer service has always had a uniquely opportunities here because remember <unk> robotic process automation, which is down the chain in the continuum of AI and degenerative AI. We also had the most adoption that these are the two areas where they are ready.

Rayna Kumar: I think the things they're grappling with are, as I mentioned, the need for a system integrator like Cognizant plays an important role. The other thing they're grappling with is the accuracy of the models. The explainability of the models, and the traceability of the data set so that the explainability could be judged. I mean, remember, this is output which is coming out of a computer which is building logic which means you need to have explainability behind it to make it responsible enough. And I think the other thing they're grappling with is, I mean, you know, we call that hallucinations, but that's what it means in different ways.

Speaker Change: The things that grappling with is I as I mentioned and the need of a system integrator like cognizant plays an important role.

Speaker Change: The things that they're grappling with is the accuracy of the models. They explain ability of the models are the traceability of the dataset.

Speaker Change: So that explain ability could be.

Speaker Change: Judged I mean remember this is a this is output which is coming out from it.

Speaker Change: Computer, which is building logic, which means you need to have explainable team behind it to make it responsible enough.

Speaker Change: And I think the other thing they are grappling with is a I mean, we call that Alison nations, but that's what it means in different ways and the other thing they are grappling with this performance versus cost.

Rayna Kumar: The other thing they're grappling with is performance versus cost. So that they can make it production grade, but you know, we will, you know, it will disrupt, one of the studies we did with Oxford Economics is that it will disrupt 90% of the jobs. Some jobs will get disrupted more, some jobs will get disrupted less, and tasks within jobs will get disrupted. And we created something called an exposure score on jobs, which gives us the opportunity to figure out which jobs will actually go through more disruption. But, you know, at a high level, I would say these are the two broad areas where customers are probably going to be more prepared to cross the bridge on embracing generative AI into enterprises.

Speaker Change: So that they can make it production grade.

Speaker Change: But you know we will.

Speaker Change: Is.

Speaker Change: It will disrupt you know one of the studies, we did with Oxford Economics Economics is it will disrupt 90% of the jobs.

Speaker Change: Some jobs.

We'll get disrupted mod some jobs, we get disrupted less.

Speaker Change: That tasks within jobs.

Speaker Change: We'll get disrupted and we created something called an exposure of scored on jobs, which gives us the opportunity to figure out with job season will actually go through more disruption.

Speaker Change: But you know.

High level I would say these are the two broad areas, where customers are probably going to be more prepared.

Speaker Change: Two.

Speaker Change: To.

Speaker Change: Cross the crossed the bridge on MB.

Speaker Change: Embracing generative AI.

Rayna Kumar: Needless to say, this is going to be one of the most pervasive technologies in our time. So I'm excited about the prospects, but I'm equally, I'm equally getting prepared for what it means for a system integrator. Very interesting fact.

Speaker Change: Into into enterprises.

Speaker Change: Needless to say this is going to be one of the most pervasive technologies.

Speaker Change: In time so.

Speaker Change: I'm excited about the prospects, but I'm equally.

Speaker Change: I'm equally getting prepared to what it means for a system integrator.

Speaker Change: Very interesting thanks.

Operator: Thank you. Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the call back to... Great. Thank you all for your interest in Cognizant and for joining our call. We look forward to catching up next quarter.

Speaker Change: Thank you ladies and gentlemen, this concludes our question and answer session I would like to turn the call back to management.

Speaker Change: Great. Thank you all for your interest in cognizant and for joining our call. We look forward to catching up next quarter. Thank you.

Operator: This concludes today's conference. You may now disconnect. Enjoy the rest of your day..., www.larryweaver.com

Speaker Change: This concludes today's conference you may now disconnect enjoy the rest of your evening.

Speaker Change: Hum.

Speaker Change: Mhm mhm.

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Yeah.