Q1 2025 Cognizant Technology Solutions Corp Earnings Call
Well, ladies and gentlemen, welcome to the cognizant technology solutions first quarter 2025 earnings conference call all.
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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 have received a copy of the earnings release and the Investor supplement for the company's first quarter of 2025 results. If you have not copies are available on our website cognizant dotcom. The speakers. We have on today's call are Ravi Kumar, Chief Executive Officer, and Jonathan <unk>, 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. 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 the call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors reconciliation of non-GAAP financial measures where appropriate to the corresponding GAAP measures can be found on the Companys earnings release and other filings with the SEC.
Ravi: With that I'd now like to turn the call over to Ravi. Please go ahead.
Ravi: Thank you Tyler and good afternoon, everyone.
Ravi: Thank you for joining us quarter, one 2025 earnings call.
Ravi: We started the year strong delivering revenue growth and adjusted operating margin ahead of our expectations.
Ravi: Our performance reflects the breadth and the strength of the portfolio. We have built in recent years, along with continued sharp focus on our strategy and.
Ravi: Disciplined operational rigor.
Ravi: We are building, a resilient and a durable company.
Ravi: One that ties in both low and high velocity markets.
Ravi: As we can pursue the right opportunities to our clients as they navigate complex and uncertain times.
Ravi: Let me provide a brief summary of the key drivers of quarter one results.
Ravi: Then I'll update you on the current operating environment and our strategic progress.
Ravi: First quarter revenue grew by eight 2% year over year in constant currency to 5.1 billion.
Ravi: Growth was driven by our <unk> acquisition and organic growth in health Sciences financial services.
Ravi: Organically constant currency revenue growth accelerated to 4% year over year compared to 2% in the fourth quarter.
Ravi: Importantly, I am pleased to say our quarter one results puts us squarely in the winner's circle and.
Ravi: And the ambition, we articulated last month at our Investor day.
Ravi: While we are encouraged to weigh up by a progress it's consistency and sustained momentum that will define winning performance.
Ravi: Looking more closely at our revenue Health Sciences led the way up over 11% year over year in constant currency grew.
Ravi: Growth was again broad based across payer provider and life Sciences. As recently won large deals more than offset discretionary spendings mash ups.
Ravi: Our financial services segment grew for the third quarter third straight quarter up six 5% year over year in constant currency, an acceleration from the fourth quarter.
Ravi: We saw.
Ravi: Healthy discretionary spending as clients continued to invest in cloud and data monetization and then building foundation for AI led innovation.
Ravi: On a trailing 12 month basis bookings grew 3% over the prior year, providing a healthy backlog to support our outlook for this year.
Ravi: We had four large deals in the first quarter, including a mega deals valued at more than $500 million PCB.
From large deals was up mid single digits year what else.
Ravi: And just sort of adjusted operating margin of 15, 5% improved by 40 basis points year over year, putting us on track to achieve our full year guidance of 20 to 40 basis points of expansion.
Ravi: Voluntary attrition ticked down 10 basis points and head count remained nearly flat from last quarter.
Ravi: Adjusted EPS grew 10% year over year, our sixth consecutive quarter of year over year growth.
Ravi: We are pleased with our strong first quarter performance, but as you know the macro environment changed sharply in early April and continues to evolve in real time.
Ravi: As our clients navigate this period of elevated uncertainty, they're partnering with us to re baseline the cost of technology deployment, and we continue to see opportunities related to productivity efficiency and cost takeout.
Ravi: The capabilities, we have built around productivity, including our AI platform investments puts us in a strong position to win in this environment.
Ravi: In fact, several recent large deals were driven by clients' desire for efficiency savings and the pipeline for these opportunities remains strong.
Ravi: Additionally, the steps we've taken in recent years aimed at developing leadership and talent strengthening our operational discipline and rebooting that innovation engine has reinvigorated the company positioning US ahead of the curve.
Ravi: Building resilience and durability.
Ravi: As we highlighted at our Investor day.
Ravi: We are investing heavily in AI powered software engineering at the intersection of digital and physical way.
Ravi: Making products intelligent connected and autonomous.
Ravi: We are now integrating all of our existing expertise and embedded software and Iot with the recently acquired capabilities from an M&A and autonomous technologies.
Ravi: Chip to cloud engineering, and Bev cans in the aerospace industry into a world class engineering capability for our clients.
Ravi: The future of it services will be powered by the double engine transformation of AI technologies, both for hypo productivity and innovation led opportunities.
Ravi: Consistent with our heritage we sense of this opportunities early and we've been investing in building these capabilities training partnerships and platforms.
Ravi: Pace. We believe has been ahead of our peers since 2023.
Ravi: The scaling laws of AI, continuing to accelerated computing efficiency cost reductions and accessibility unlocking new use cases at a rapid pace and making the output is more accurate and cheaper.
Ravi: Looking at gross cognizant, we now have approximately 1400 early journey engagement.
Ravi: <unk> 100 at the end of the fourth quarter.
Ravi: As I have noted in prior discussions we see the development of AI playing out in three distinct vectors.
Ravi: In the near term, we see vector one which is focused on AI led productivity.
Ravi: As an opportunity for enterprises to address the estimated two trillion dollars of technical debt on their balance sheets in quarter, one and AIA written cord increased more than 20% for us and is a pioneering opportunity for our developer communities.
Ravi: Sharing this AI, let hydro productivity as being among the key differentiator for us in originating large deals led by productivity and lowering technology deployment costs.
Ravi: Victor to involve in the slides, we believe every company needs unique plumbing to successfully adopt AI by localizing customizing, a integrating AI enterprise technology landscapes.
Ravi: In addition to our efforts with Hyperscale are partners like Microsoft AWS, and Google and Enterprise software providers like service now in Salesforce among others.
Ravi: The first quarter, we deepened our partnership with Nvidia.
Ravi: Work together will be aimed at accelerating the cross industry adoption of AI technology in five key areas enterprise AI agents industry specific large language models digital twins for smart manufacturing foundational infrastructure for AI and cognizant neuro AI platform for integration of Nvidia AI technology.
Ravi: Orchestration across the enterprise technology stack.
Ravi: Yeah.
Ravi: And thirdly, we expect the evolving vector three opportunity of identification will be the largest as it has the potential to unlock many new labor pools and to create a significant multiplier effect on total addressable spend.
Ravi: We are seeing early identification experiments from our clients in financial services retail and health care.
Speaker Change: To illustrate an example, working with Google LLM models teams have developed more than 20 years in Tech solutions.
Ravi: Addressing many of health care's, most pressing challenges.
Speaker Change: I worked at your sufficiency customer experience clinical Decisioning and regulation it spans across prior authorization appeals and deliver answers member portals.
Speaker Change: <unk> auto adjudication among other areas in this space, we have secured pilot.
Speaker Change: Pilot engagements and are focusing on transitioning them to scale deployments.
Speaker Change: With the help of AI labs, where we are significantly strengthening our neural suite of platform, which allows our clients to embrace AI on an accelerated path.
Speaker Change: As an example, just recently we achieved a groundbreaking milestone in LLM uncertainty estimation.
Speaker Change: This patent pending technology allows us to set uncertainty thresholds on 11 outputs to manage illicit nations and on a case by case basis fallback to rules based cord or human intervention, making multi agent system safer and more consistent this work adds to our 50 plus existing patent.
Speaker Change: AI.
Speaker Change: Stepping back to look at Gen AI over the long term, we see the market opportunity simultaneously powering both productivity and innovation and the three AI vectors reinforcing one another.
Speaker Change: As I mentioned at the start of my comments, winning requires consistency our consistent execution on our strategic priorities over the past two years has driven a pivot from stabilization to growth with our first quarter performance, serving as a strong proof point.
Speaker Change: As we look ahead, we believe winning also demands industry depth execution excellence.
Speaker Change: Evolution of how we operate.
Speaker Change: As we discussed at our Investor day, we reward our three strategic imperatives to the following.
Speaker Change: Amplifying talent.
Speaker Change: Scaling innovation and accelerating growth.
Speaker Change: Yeah.
Speaker Change: Let me share some recent client wins and business development within the context of our strategic imperatives.
Speaker Change: First with amplifying talent, we have we are strengthening our talent pipeline with skills needed for the <unk>.
Speaker Change: As you heard us talk about during the Investor day, we're upskilling, our workforce at scale, leveraging AI to meet demand faster and identifying talent pools to address new areas unlocked by law.
Speaker Change: Last month, we announced plans to establish a 14 acre immersive learning center in Chennai, India.
Speaker Change: Where we aim to train 100000 individuals annually in advanced AI technologies.
Speaker Change: In India, we continue to expand into smaller cities, we expect to inaugurate the latest one Gibson <unk> chocolate.
Speaker Change: And over the last 18 months of synapse initiated a strained over 400000 people across the world, putting us well on our way to our goal of training 1 million individuals.
Speaker Change: Second.
Speaker Change: We are scaling our innovation engine and expanding our domain expertise to drive transformation in key industries for example.
Speaker Change: <unk> flagship grassroots innovation initiative is celebrating its two year Mark with 385000, plus ideas generated to date over 69000 have been implemented with our clients during the quarter with service now we introduced an AI powered solution tailored for mid market banks that uses gen AI and smart automation to cut.
Speaker Change: Manuel was speedup resolutions and boost customer satisfaction.
Speaker Change: Earlier. This month, we were honored to receive several awards at Google Cloud next to 2025, including data and analytics global partner of the year for our work, helping clients modernize the data ecosystems and retail industry solutions partner of the year.
Speaker Change: For our work developing a custom order management system, leveraging AI for the top North American retailer.
Speaker Change: And during the quarter, we were named to Fortune's 2025 list of America's most innovative companies for the third straight year.
Speaker Change: Finally to accelerate growth, we are unlocking new opportunities by painting, a talent initiatives bold innovation with a sharp focus on AI and embedded engineering.
Speaker Change: Let me share a few examples of our innovation in action.
Speaker Change: With pharmaceutical company Boehringer Ingelheim, we launched a cloud based system called one medicine platform aimed at streamlining drug development and accelerating the delivery of innovative therapies by replacing over 20 legacy systems.
In embedded engineering, we teamed with Omron Japanese electrical equipment manufacturer to engineered new products that integrate information technology and operational technology and manufacturing.
Speaker Change: We plan to take the solutions jointly to industrial and automotive clients with the goal of helping clients boost productivity reduce operational losses and infuse AI led insights.
Speaker Change: We also expanded our relationship with Manulife, John Hancock retirement, our collaboration includes helping establish a new record keeping system and enhancing the digital ecosystem leveraging AI capabilities to simplify the retirement planning experience.
Speaker Change: Next we continue to strengthen our global capability Center, our GCC strategy.
Speaker Change: We are undertaking more engagements to support clients on the GCC journey, establishing new centers and equipping them with strategic AI tooling and platforms needed to drive operational strength.
Speaker Change: Just two weeks ago, we announced a new GCC with citizens financial that will be located on our Hyderabad campus.
Speaker Change: The GCC will serve as an innovation hub enhancing citizens enterprise technology data and analytical capabilities.
Speaker Change: We will support the center with a new inflow sorts AI platforms, delivering advanced services in cloud computing data management and cyber security.
Speaker Change: As we discussed at our Investor Day review Gcc's as a growth opportunity for both clients and ourselves.
Speaker Change: Our differentiators in the GCC space include deep domain expertise in the industries we serve.
Speaker Change: <unk> progress and our capability strength in India, and the United States.
Speaker Change: These partnerships reinforce our position as a trusted transformation partner and Marc new growth opportunities.
Speaker Change: Finally, belk and opened in aerospace and defense have been to lose to better support global demand and local Oems I'm also thrilled that <unk> was recently named GE aerospace supplier of the year.
Speaker Change: In closing at mist near term uncertainty.
Speaker Change: We are proud of our strong all round performance and momentum we believe our early bets on the combined with investments in practical tooling and distinctive strengths at the crossroads of design technology, and engineering and operations positions us to lead in today's dynamic market.
Speaker Change: Employee and client metrics remain at a historic high.
Speaker Change: And our operational rigor cost discipline and productivity first mindset are helping expand our profitability when fueling continued investments into our future.
Speaker Change: We are confident the portfolio we have built.
Speaker Change: We will drive sustained progress towards the growth targets, we outlined at the Investor day, including top tier revenue growth consistent margin expansion and the EPS growth outpacing revenue growth.
Jonathan: And now I would like to turn the call over to Jonathan.
Jonathan: Thank you Robbie and thank you all for joining us.
Jonathan: We are pleased with our first quarter results, which demonstrate continued progress on our part to industry leading growth.
Jonathan: Despite an increasingly complex economic environment, we exited the high end of our revenue guidance range and expanded adjusted operating margin by 40 basis points year over year.
Jonathan: Driving adjusted EPS growth of 10%.
Jonathan: Let's turn to the details of the quarter.
Jonathan: Fourth quarter revenue of $5 1 billion grew eight 2% year over year in constant currency led by strong organic growth in health Sciences and financial services.
Jonathan: Revenue growth included approximately 400 basis points of inorganic contribution primarily from building.
Jonathan: We did not see a significant impact on our business from the recent macroeconomic uncertainty during the first quarter.
Jonathan: And we have not had any material customer cancellation during the quarter and through today.
Jonathan: In April we did begin to see some slowdown in client decision, making and discretionary spending.
Jonathan: This has been more pronounced with select clients in certain segments, including health Sciences and products and resources.
Jonathan: We believe the impact has been isolated so far in the second quarter and we are closely monitoring development for implications across our broader portfolio.
Jonathan: On the positive side demand in our financial services segment remains healthy.
Jonathan: Despite the uncertainty.
Jonathan: This environment is presenting opportunities as clients prioritize cost optimization vendor consolidation and productivity to drive resiliency in that wound business.
Jonathan: We believe we are well positioned to capture this demand as <unk>.
Jonathan: <unk> end to end partners like cognizant with capabilities that can help drive near term cost savings, while supporting their longer term innovation and modernization agenda.
Jonathan: Now, let me provide some color by segment.
Ravi: As Ravi mentioned.
Ravi: Health Sciences year over year growth was again broad based.
Ravi: Our clients are carefully watching the potential impact from changes to government healthcare programs and are navigating rising costs.
Ravi: That said our backlog remains healthy and we believe we are well positioned long term as a strategic partner to our clients as they navigate the near term uncertainty.
Ravi: Financial services has demonstrated resilience across capital markets card and payment Trintech and commercial banking clients.
Ravi: I am really in North America.
Ravi: Revenue accelerated from the fourth quarter, and we saw healthy discretionary spending.
Ravi: In products and resources Q1 growth was driven by railcar.
Ravi: Organically the demand environment for this segment has been weak due to discretionary spending pressure.
We see clients slowing their spending decisions and preparing for a more direct impact from changes in tariff policies.
Ravi: We are building a pipeline of cost takeout and productivity led deals to support our clients in moving forward in this environment.
Ravi: Communications media and technology revenue was roughly flat sequentially as the discretionary demand here has been stable, but is not yet improving.
Ravi: That said our pipeline for Gen AI led productivity and cost takeout deals remain remains healthy and we are laser focused on converting the pipeline to bookings.
Ravi: By geography, we saw year over year revenue growth in all regions led by North America, which grew 10% year over year in constant currency driven by Belgian and the ramp of large deals.
Ravi: We believe we are outperforming many of our peers on an organic basis and achieve top tier revenue growth in the region in Q1.
Ravi: Europe grew 3% year over year in constant currency driven by growth among life Sciences, and financial services clients, including UK public sector, which helped drive strong constant currency sequential growth of about 4% in the UK.
Ravi: We are encouraged by our momentum in Europe, which has been driven by new logos and a more focused sales strategy.
Ravi: The rest of the world increased about 7% year over year in constant currency growth was driven by recent large deals, particularly within comps media and technology and financial services.
Ravi: Okay.
Ravi: Turning to bookings fourth quarter bookings declined 7% year over year, driven by a decline in rest of the World region, which had 200 million dollar plus deals in the prior year period.
Ravi: The mix of new and expansion bookings grew significantly year over year and represented more than 50% of our quarterly bookings.
Ravi: On a trailing 12 month basis bookings grew 3% year over year to $26 7 billion and represented a one three book to Bill.
Ravi: Our pipeline continues to grow, particularly for large deal and we hope the VLT and healthy demand in applications AI and cyber security.
Ravi: Turning to margins.
Ravi: During the quarter, we sold an office complex in India for proceeds of $70 million and recorded a gain on transaction of $62 million.
Ravi: Excluding the positive impact of this transaction adjusted operating margin was 15, 5%.
Ravi: Year over year margin improved by 40 basis points, primarily reflecting the net savings generated from our next Gen program and the benefit from the depreciation of the Indian rupee.
Ravi: This was partially offset by increased compensation cost.
Ravi: Utilization also increased to approximately 85% driven by operational discipline.
Ravi: Now moving to cash flow and capital allocation.
Ravi: DSO of 81 days increased by three days from both the end of 2024, and the year ago quarter, driven by business mix.
Ravi: This remains in line with the assumptions in our 2025 and cash flow guidance.
Ravi: Fourth quarter free cash flow was $393 million.
Ravi: This includes the $70 million from the sale of an office complex in India, which we plan to redeploy in India over the next several years, including for the development of a new 14 acre learning campus in July that we announced earlier this month.
Ravi: During the quarter, we return $364 million of capital.
Ravi: To shareholders through share repurchases and dividend.
In March.
Ravi: We repaid.
Ravi: The $300 million outstanding under the credit facility and we ended the quarter with cash and short term investments.
Ravi: Of $2 billion, our net cash of $1 4 billion.
Ravi: Now turning to our forward outlook.
Ravi: For the second quarter of 2025, we expect revenue to grow five to six 5% year over year in constant currency.
Ravi: The remaining guidance items I will discuss are for the full year 2020.
Ravi: In 2025, we expect revenue to grow three 5% to 6% in constant currency.
Ravi: Since we last gave guidance, we have seen certain foreign currencies strengthen considerably versus the U S. Dollar.
Ravi: While our constant currency guidance is unchanged our reported range has increased by approximately $200 million.
Ravi: As a reminder, our guidance is based on current foreign currency exchange rates.
Ravi: We continue to expect full year inorganic contribution.
Ravi: A little more than 250 basis points.
Ravi: The low end of the revenue guidance.
Ravi: Assumed further deterioration in the demand environment.
Ravi: And the midpoint incorporate the deterioration we have seen to date with offsets from pipeline conversion and the large deals the CV growth we saw in the fourth quarter.
Ravi: The high end assumes an improvement in the demand environment further supported by our large deal pipeline.
Ravi: As Rob will discuss the dynamics are shifting in real time.
Ravi: And this guidance reflects the visibility we have today.
Ravi: Our adjusted operating margin guidance remains in the range of 15, 5% to 15, 7% representing 20 to 40 basis points of expansion.
Ravi: Given the new realities of the macro environment, we expect growth opportunities will continue to be led by larger cost takeout and productivity led bookings.
Ravi: Based on this dynamic we now expect margin expansion will be driven primarily by cost discipline and SG&A operating leverage.
Ravi: That said, we remain focused on strengthening our operational rigor through AI led efficiencies pyramid optimization and automation to improve gross margin over the medium term.
Ravi: Our adjusted tax rate guidance is unchanged at 24% to 25%.
Ravi: Our EPS guidance of $4 98, $2 5.14, compared to our prior range of $1 four point.
Ravi: <unk> zero $2, 5.06, primarily reflecting the currency tailwind to revenue and a lower share count.
Ravi: This represents 528% growth.
Ravi: And we continue to expect free cash flow to represent more than 90% of net income.
Ravi: As we discussed at our Investor Day, we expect to return approximately $1 7 billion to shareholders in 2025, including one 1 billion in share repurchases and $600 million in dividends.
Ravi: This reflects the incremental $500 million of share repurchases planned for this year that we announced on our Investor day.
Ravi: We believe this strategy also gives us flexibility to pursue opportunistic M&A.
Ravi: Therefore, we now expect a weighted average diluted share count of about 491 million compared to 493 million previously.
Ravi: We expect to be active in the market repurchasing shares when our trading window opens.
Ravi: And we remain very confident in our long term growth opportunities and our leadership team to consistently deliver on our strategy.
Ravi: With that.
Ravi: We will open the call for your questions.
Ravi: Thank you we will now be conducting a question answer session if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that you are in the question queue. You May press star two to remove yourself from the queue or assistance using speaker equipment may be necessary to pick up your handset before.
Ravi: Pressing star keys in the interest of time, we ask that you limit yourself to one question and one follow up one moment, while we poll for questions.
Speaker Change: And our first question comes from Tien Tsin Huang with Jpmorgan. Please proceed with your question.
Speaker Change: Thanks, so much congrats on getting to the winner circle. This this quarter here. So quickly I wanted to ask on the if you don't mind on the bookings and pipeline. All the commentary was really helpful. I'm just curious if there's any shift in the quality of bookings our growth projects being replaced.
Speaker Change: By cost cutting projects sounds like that's the case I'm just not sure about the pacing of that and then maybe Youll see more awards.
Speaker Change: Faster for example, because of it and any interesting trends on pricing and margin to win these larger deals.
Tien Tsin: Thank you Tien tsin.
Ravi: This is Ravi here im going to start in.
Tien Tsin: As Jeff into Japan.
Ravi: Clearly.
Ravi: The productivity gain.
Ravi: Leveraging AI.
Ravi: And sharing the benefits of lower cost of deployment.
Ravi: I think we seem to be leading that.
Ravi: Swim Lane.
Ravi: We are not only winning in the marketplace, but we're also originating new deals and.
Ravi: And when we originate we have the opportunity to sole source it.
Ravi: These are deals where you could consolidate if you have the wallet share in the clustered.
Ravi: The trust of our clients.
Ravi: So that is going well, that's what is making a large deals.
Ravi: Standout.
Ravi: Now in.
Ravi: Specific industries like financial services.
Ravi: There is also discretionary growth works coming back I mean, there is.
Ravi: It was expected that financial services will go to a level of deregulation.
Ravi: It will pull.
Ravi: Pull back discretionary I mean, it will lead to accelerated.
Ravi: Accelerated discretionary so that is coming back I mean look at where we added financial services.
Ravi: One of last year 2024, we were minus six 5% y on y.
Ravi: Quarter, one this year all organic we had six 5% Y on y positive.
Ravi: So.
Ravi: I would say the growth vector is already starting to apply in financial services.
Ravi: And it is slowly inching back more innovation led projects.
Ravi: The 1400 AI projects I spoke about.
Ravi: Those are starting to see especially in financial services, we're starting to see more innovation led growth legs.
Speaker Change: Health care.
Speaker Change: In commercial health care, I would say commercial healthcare larger to places we are seeing.
Speaker Change: A lot of innovation.
Speaker Change: Innovation legwork.
Speaker Change: And finally this quarter, we announced the Mega deal.
Speaker Change: And we're really happy about the Mega deal, we announced in fact, the <unk> of all our large deals.
Speaker Change: Is higher than the PCB, we had.
Speaker Change: Last year.
Speaker Change: And we have a couple of mega deals in the pipeline in quarter, two I am very hopeful if we if we happen to close the finishing line on that it will help us grow.
Speaker Change: <unk> journey and these are the Mega deals segment I'm not talking about large deals.
Speaker Change: $500 million and above so we're kind of starting to feel excited about.
Speaker Change: Uh huh.
Speaker Change: Nice pipeline of Mega deals.
Speaker Change: Aligning up.
Speaker Change: Yep Thanks, Jamie.
Speaker Change: Just.
Speaker Change: Ed on your <unk>.
Speaker Change: <unk> answer related with the pricing and the margin expectations from the from the large deal sort of Mega deals.
Speaker Change: Very clearly.
Speaker Change: Your ability to win these deals is a factor of three things the strength of your solution. Your demonstrated execution in past on similar deals and third is the our ability to provide the productivity, which is commensurate with today's environment and what the potential of <unk>.
Speaker Change: Hey, I can offer.
Speaker Change: And we have scored well on all three.
Speaker Change: And consistently therefore, our pricing easy equation, but it is not a question of rate card, but it's really that.
Speaker Change: The quality of solutions that you are able to do and how much of <unk> productivity the vector one.
Speaker Change: Sort of dynamics, you're able to bring in to the answer.
Speaker Change: Has been has been the key driver.
Speaker Change: It does have margin implications in the initial year, but but now now we have a portfolio of <unk>.
Speaker Change: We have been in large deals.
Speaker Change: For two years now and the ones that we won the nine of 22 beginning of 'twenty three.
Speaker Change: Added a place where we are now executing it.
Speaker Change: Better margin than what we had in Chile.
Speaker Change: So you manage it as a portfolio because the initial margins you will have to work with.
Speaker Change: In the context of the larger business in larger portfolio.
Speaker Change: And if I may just add one other differentiate us.
Speaker Change: The AI productivity.
Speaker Change: We are the only one and my peer group, which has actually called it out.
Speaker Change: And we are continuing to monitor it inside and we are bold enough to tell our clients that this is <unk>.
Speaker Change: We can.
Speaker Change: We can benefit with our client work so I mean.
Speaker Change: That's an evolving flywheel, which we believe we are.
Speaker Change: Fiercely competitive in the market.
Speaker Change: Thank you both for that it's interesting just as a quick follow up I think it's relevant just what the utilization moving up a little bit just testing their productivity as well as the.
Speaker Change: The head Count question is there more room for that to improve given that anything to consider as we're thinking about utilization and margin in the coming quarters. Thank you.
Yes.
Speaker Change: So continuing on.
Speaker Change: Interesting question.
Speaker Change: Look.
Speaker Change: We went from 82% utilization last year same quarter to 85% utilization, so I'd say a huge lift.
Speaker Change: No.
Speaker Change: When you look good fulfillment you also need to build capacity for the future.
Speaker Change: This year, we are going to highest fresh us lot more because we want to size our pyramid.
Speaker Change: And when you get managed services work on fixed price work over the last two years has gone up managed services work has gone up so we can at least have settlement, but it also comes equally with.
Speaker Change: Overhead.
Speaker Change: Carrying higher bench at a lower cost.
Speaker Change: And actually offshore so I'm, a big fan of intertwining this with AI productivity.
Speaker Change: Utilization and right sizing the pyramid. So that's the next big step we have auto Tech AI productivity.
Speaker Change: Utilization and utilization of experienced talent.
Speaker Change: There is a little bit of room, but once you feed thresholds.
Speaker Change: You need you need some room for.
Speaker Change: Utilization too.
Speaker Change: Pick up so we are kind of playing on all three and we want to add freshness into the mix. This year. So that's broadly how we have.
Speaker Change: Approaching.
Speaker Change: Our cost of human capital.
Speaker Change: Thank you and our next question comes from the line of Ramsey El <unk> with Barclays. Please proceed with your question.
Ramsey El: Alright, thanks, so much for taking my questions. This evening.
Ramsey El: I wanted to ask about the April slowdown in decision, making that youre seeing in I guess in particular, there's a comment that Jason made about seeing the impact is isolated in the second quarter I'm just trying to understand the degree to which maybe you see it as particularly ring fenced by a particular client or geography or some way to.
Ramsey El: Make it feel like it's more.
Ramsey El: Poorly bounded rather than something that could get worse.
Ramsey El: Yeah sure. So clearly it is it is.
Ramsey El: Let me start with the positive news is that.
Ramsey El: As I mentioned that financial services continues to present, a lot of opportunity and there is a lot of strength.
Ramsey El: Ah <unk>.
Ramsey El: Communication media and technology is stable demand. It is it is certainly remains unaffected.
Ramsey El: We do see.
Speaker Change: Pockets of.
Ramsey El: Our caution in health.
Ramsey El: <unk>.
Ramsey El: Business because that is.
Ramsey El: There is.
Ramsey El: A little bit of a wait and watch and an assessment of what is the implication of.
Ramsey El: The final policies on the spend by some of our customers.
Ramsey El: The one where we see an impact its production resources.
Ramsey El: The switch, which has more direct impact and implications.
Ramsey El: Trump tariff.
Ramsey El: B the manufacturing sector, all our consumer.
Ramsey El: And retail sector. So there is that this is how we see the spectrum all segments and how that impacted within U S.
Ramsey El: Okay and.
Ramsey El: <unk>.
Speaker Change: Acknowledging your exposure to U S. Government work is really small and I know you also called out that you haven't seen any contract terminations.
Speaker Change: Well Belk and kind of completely Dodge the Doge ask just given the critical nature of the offerings there or is there still any risk that you are seeing again acknowledging that it is a very small part of your business that you could see some contracts terminated on the government side. Thanks.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: Mostly works on engineering, and not an enabling technology, so engineering as <unk>.
Speaker Change: Building tanks for the future.
Speaker Change: And in some ways engineering has always been on the revenue side.
Speaker Change: Of the equation or building side of the equation was is enabling side. So that is one part.
Speaker Change: The second is.
Speaker Change: The exposure to Gulf.
Speaker Change: Government is.
Speaker Change: Very little for them.
Speaker Change: And some of it is a little bit through the primes and contractors. It is primarily a lot of commercial land.
Speaker Change: Aerospace work, they do which has no impact on <unk>.
Speaker Change: So far we have not seen any impact.
Speaker Change: And the exposure they have is pretty small.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line.
Heller: Heller with Wolfe Research. Please proceed with your question.
Hey, guys. Thanks, So your organic constant currency growth did look like you did continue to notably accelerated this quarter. So maybe just revisit that for a minute. If we other than the financial services discretionary talents youre starting to see which is good to hear.
Speaker Change: Is this associated with just large deals from the prior year transitioning into revenue now and where are we on the conversion from existing bookings into revenue and how can we expect the cadence from an organic standpoint to shake out for the rest of the year from your perspective.
Heller: So a large part of.
Heller: If you have seen the industrial vertical split a large part of our.
Heller: Organic growth has actually come from.
Heller: Health care and health care has been comprehensive all the way from Hawaii.
Heller: To life Sciences.
Heller: And financial services, which has gone through.
Heller: I mean, what is sectors has gone through significant upside for us and we've been looking at deals.
Heller: Deals in the last four years.
Heller: We did 20 $900 million deals.
Heller: Last year, we did 17 $100 million deals the year before.
Heller: And current the current year.
Heller: At the end of the second year in a.
Heller: Startled third year of the one said you'll start to see the <unk>.
Heller: See the ramp in a big way.
Heller: So certainly that's where we are seeing traction.
Heller: This is also a quarter, where all three geographies of five cylinders.
Heller: We've had some good traction in Europe.
Heller: We've had it.
Heller: If you remember the deal we did with <unk>.
Heller: Telstra in Australia that has had the traction that is already for the second year.
Heller: So large deals and discretionary small deals coming back in financial services I would say I would put these two as the.
Heller: As the mix in fact this quarter.
Heller: One of the things, we don't tell the street, but we kind of monitor internally is.
Heller: <unk>.
Heller: Our ACB on a year on year basis has gone up as well.
Heller: The size of the larger deals have gone up and the ACB has gone up.
Heller: Year over year. So that is certainly I mean, that's an important metric.
Heller: Book to Bill is at one three <unk> trailing 12 months.
Heller: But.
Heller: <unk> has gone up.
Heller: And.
Heller: Our net new proportion on.
Heller: Large deals has also gone up.
Heller: This this quarter, which kind of gives us incremental push.
Heller: So that's how we're seeing it.
Heller: Two big industries for us.
Heller: Are actually fighting cylinders, which is helping us.
Heller: Helping us in the process.
Heller: And these two sectors in some ways also don't have an indirect.
Heller: Related to the geopolitical.
Heller: Related to the <unk>.
Heller: Larger economy situation.
Heller: Around tariffs and everything else.
Speaker Change: Alright, Thats really helpful. Just maybe touch on the labor market conditions also on what Youre seeing there. Obviously, we saw attrition was pretty I think it was pretty flat quarter over quarter. So just help us understand where you where you stand there as well as any elements of wage inflation or any changes in the environment.
Speaker Change: Thanks, again, guys nice job.
Heller: Yeah.
Heller: Yes.
Heller: We see.
Heller: Stability on attrition as you can see it's been it's actually down slightly.
Heller: And we don't see any undue pressure off.
Heller: Attrition.
Heller: Therefore, either impact on on on wage, which can rates up or on any impact on our ability to deliver our projects to our customers I think we are in.
Heller: Good spot.
Heller: And how does this part in.
Heller: Between quarter, four and quarter, one there is a continuous stability on there.
Heller: The fact that there is one other aspect which helps on us.
Heller: Helps on our growth as fulfillment.
Heller: We've had an extraordinary.
Heller: Peter to fulfillment.
Heller: A number of people we can hire.
Heller: As an attractive employers.
Heller: The percentage of offers which get accepted and the percentage of people are coming back I've actually mentioned about it in my Cvs.
Heller: Public.
Heller:
Heller: Earnings that.
Heller: We have a huge number of return is coming back and we have a big type of thing that is helping us on fulfillment, which in turn is helping discretionary because distribution really is smaller projects.
Heller: With more experienced people so.
Heller: In addition to lower attrition flattish curve, we also seen good fulfillment.
Heller: Thank you.
Speaker Change: Our next question comes from the line of Jim Schneider with Goldman Sachs. Please proceed with your question.
Speaker Change: Good afternoon, and thanks for taking my question I was wondering if you could maybe just give us a bit of a perspective on sort of your level of comfort it seems like.
Speaker Change: The current emphasis on cost take out by your company. So it's really kind of playing to your strengths right now maybe give us a sense about relative to your.
Speaker Change: Your outlook for the year, how much backlog coverage do you have in the current revenue outlook for the year and then maybe secondly can you maybe talk a little bit about the the gross margin trends I think you talked about maybe not expecting so much of the margin improvement to come from gross margin, but rather from operating expenses maybe.
Speaker Change: Give us a little bit of color on it.
Speaker Change: There anything has changed with respect to the gross margin composition, whether that's due to the wage increases or something else. Thank you.
Speaker Change: Shortly and so on on the on the commentary on the on the on the way we look at the guidance for the year is really.
Speaker Change: At the lower end.
Speaker Change: That the environment has to further worsen.
Speaker Change: For that to come through at the lower end.
Speaker Change: The midpoint of the guidance really factors, though the impact that <unk> seen so far which is offset by the pipeline that we see in witches.
Speaker Change: Which is offset by the deal wins that we have had in quarter one.
Speaker Change: And at the high end of our guidance.
Speaker Change: We are assuming that the environment has to become better from from where we are in in.
Speaker Change: In quarter, three and quarter four so thats.
Speaker Change: The sort of spectrum of possibilities that we see for the rest of the year.
Speaker Change: We do feel we do feel good.
Speaker Change: Good for us.
Speaker Change: For what we what we have is our backlog is as you also spoke about it a couple of points that is that on.
Speaker Change: On a trailing 12 month basis, our book to Bill ratio is one three X, which is quite healthy.
Speaker Change: We have we have seen.
Speaker Change: Our higher net new or expansion deals more than 50% of total bookings that <unk> seen in quarter, one which is another aspect.
Speaker Change: Aspect of the bookings so that provides the coverage.
Speaker Change: That we see for <unk>.
Speaker Change: Four.
Speaker Change: For the rest of the year.
Speaker Change: As we Ain't got ourselves around the midpoint of the guidance.
Speaker Change: <unk>.
Speaker Change: Your question around.
Speaker Change: If I cover the gross margin question.
Speaker Change: I think all our contacts off of that comment was more around.
The fact that the pricing.
Speaker Change: The two together superior pricing in an environment like this as you can imagine is is is low and therefore, it's really the cost discipline that.
Speaker Change: That will drive the outcomes on the operating margin for the rest of the year.
Speaker Change: There'll be spoke about earlier.
Speaker Change: On gross margin that is clearly our three levers one is the utilization second as is the productivity that we can drive through Jenny I and Poland is the parameter action through inclusion of all four all four.
Speaker Change: Recent college graduates into into into the into the workforce and this is this will continue to be the driver for.
For us to improve the gross margin of course.
Speaker Change: Environment like this also offers opportunity for Youtube correct.
Speaker Change: Hum.
Speaker Change: <unk> looked at all of the cost aspects, which will inure G&A line and continue to find opportunities that so that also remains as an option that that will continue to pursue so so that's the context of what we have baked in.
Speaker Change: For operating margin guidance for 2025.
Speaker Change: A quick color on the I mean, a different lens on the pipeline with to what Jeff just mentioned.
Speaker Change: You don't.
Speaker Change: We spoke about.
Speaker Change: <unk> going up.
Speaker Change: Mega deals in the pipe.
Speaker Change: In quarter, two and hopefully it continues.
Speaker Change: And.
Speaker Change: Net new business.
Speaker Change: Higher than the renewal mix.
Speaker Change: The two other aspects, which are starting to make me feel really optimistic one is our new logo hunting.
Speaker Change: Has really improved.
Speaker Change: Since that time have come I have not seen such.
Speaker Change: Such an extraordinary run on new logos.
Speaker Change: We are starting to feel very confident about not just winning large deals, but winning large deals and new logos.
Speaker Change: And there is one other aspect the 1400 AI projects. We are doing a lot of them are innovation led the small prototypes proof of concepts and elaborate prototypes, but as the discretionary starts to trigger and more importantly, when we do this cost takeouts we underwrite.
Speaker Change: That money.
Speaker Change: The downstream opportunities are huge and we think we added a pole position on that so.
Speaker Change: As I mentioned.
Speaker Change: My remarks, we want to build this company for slow and fast velocity.
Speaker Change: Right now it is cost takeout.
Speaker Change: When the consolidation and productivity, but when the.
Speaker Change: Well the innovation engine fires.
Speaker Change: Like it is doing today in financial services as well as in other sectors.
Speaker Change: We think we're in pole position to seize those opportunities.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.
Bryan Keane: Yeah. Thanks for taking my questions. Congrats on entering the winner's circle I guess Ravi My question is how sustainable is it can you stay in the winter circle and why would that be.
Speaker Change: Yeah. So.
Speaker Change: It'll be humble here to say that.
Speaker Change: One quarter is not enough we have to consistently do this every quarter.
Speaker Change: And our belief is being in the winner's circle is about consistency and durability of who we are.
Speaker Change: What we did this quarter were very proud of it but I.
Speaker Change: I would feel like I would say I am in the winner's circle with the with.
Speaker Change: With a sense of paid only when I do this consistently for a couple of quarters. We feel excited about where we are in relative to our peer group how we are winning.
Speaker Change: And if we get some tailwind from the from the external market as.
Speaker Change: As the hydro lottery market kicks in.
Speaker Change: We get too much.
Speaker Change: A much bigger growth numbers, but what we are comparing ourselves now is relative growth relative organic growth.
Speaker Change: And we feel like it's a good starting point it is.
Speaker Change: To answer your question I think it it can be sustained I mean, we just have to keep doing this again and again.
Speaker Change: And it's a treadmill, we just have to keep running on it again and again and we have the gas.
Speaker Change: The tanks to sustain it.
Speaker Change: And.
Speaker Change: I'll tell you why this is why I feel so we've also built the.
Speaker Change: Portfolio, which is broad based.
Speaker Change: We had always a company.
Speaker Change: It's broad based we are now operating on four pillars of services Tech services BPL services in for our lead cloud transformation.
Speaker Change: And engineering services, we were not operating before on four.
Speaker Change: Four pillars now we're operating on four pillars.
Speaker Change: We had allow expensive beyond health care and financial services I have a new leader for manufacturing now.
Speaker Change: Now who has come on board.
Speaker Change: We were able to find cylinders there.
Speaker Change: We have.
Speaker Change: Had traction in comps comps in technology retail and CPG. So we have a breadth of industries and not dependent on just too and as Youll see in this quarter, we now have.
Speaker Change: Growth beyond North America in North America, We are leader I think we are leading we are probably the number one player in North America today, but we are now wanting to do this globally. So if you if we broad basis.
Speaker Change: It gives us the opportunity to make it consistent and resilient because if one falls the other picks up and it gives us the way it gives us the opportunity to keep our numbers intact. So that's how we've built this portfolio and therefore I feel confident too.
Speaker Change: Hopefully sustain this end.
Speaker Change: Hopefully do it for at least a couple of quarters and then <unk>.
Speaker Change: I truly think we are in the winner's circle.
John: Got it got it got it and then John just a two part.
John: Question, I guess first I I know, we talked about 4% organic growth in the first quarter.
John: If I do another 400 basis points of Adam M&A or so we're talking about a one to two 5% organic in the in the second quarter. So it's a little bit of a T cell is that just the reflection of what youre seeing in April and pushing it through the model. That's question. One and then question two is just that gap between organic revenue growth at <unk>.
John: Head count growth a widened again is that just utilization or is that some <unk> benefits as well. Thanks.
John: Sure. So the answer to your first question is yes.
John: The environmental uncertainty that we saw in that has been factored in our quarter two guidance and therefore the numbers that you described about directionally where that.
John: And we'll continue to have to see how we execute during the course of the quarter.
John: To your second question, yes, absolutely I think.
John: We have driven.
John: We have driven.
John: Significant utilization improvement, which is from 82% to 85%.
John: Let me just share a simple math.
John: If youll see compared to last year, our head count and now we are down 8000 employees.
John: And if I add back.
John: Add back another 6000 odd that came through belkin.
John: Which is that in the numbers now but were not present in the numbers for Q1 of 2004, we are talking about approximately 14.
John: <unk> thousand employees lower now than what we had before and we have delivered 4%.
John: Organic growth with that many lower number of employees that utilization.
Speaker Change: Is a part of it 3%.
John: But.
John: The total number is somewhere around 7% to 8%. So remaining number has really come through a superior utilization of our resources in delivering the outcome, which has been growing.
Maggie Nolan: Thank you and our next and final question comes from Maggie Nolan.
Speaker Change: I'm William Blair. Please proceed with your question.
Speaker Change: Thank you Mike.
Speaker Change: My question is about the pace of conversion at the mix of business shifts more toward larger scale cost takeout deals do you feel confident that those can be signed and start contributing to revenue before the end of the calendar year or is there a possible pushout in and revenue next year.
Speaker Change: Great question in fact, this is an interesting one.
Speaker Change: Every time, a client has come to me, saying.
Speaker Change: The environment is.
Speaker Change: Uncertain I actually fared there'll be more paranoia too so it was cost take out deals.
So.
Speaker Change: There has been in some pockets.
Speaker Change: The Mega deals that I mentioned I am choosing.
Speaker Change: They were there.
Speaker Change: They've had in this quarter the rollover to the next quarter.
Speaker Change: But the pattern I about cost and productivity that timing can never be better than now.
Speaker Change: And when you are in a slowdown that is 1.1 way to look at cost takeout deals when there is a.
Speaker Change: High velocity market as another way to look at it. This is not a slower at a high market. This is an uncertain market. So when an alarm certain markets you really want to get the best value.
Speaker Change: In a slow market you might still not taking risk with an uncertain market do you want to get the best value. So I think there could be some movement lumpiness of these deals.
But.
Speaker Change: Well it can be a better time than an uncertain complex environment to do cost takeout and cost takeout not to labor cost vehicles through technology.
Speaker Change: The labor cycles have gone through multiple times, there's very little left on the line where it's at.
Speaker Change: Technology led arbitrage.
Speaker Change: And.
Speaker Change: And therefore I do believe this we believe will be active.
Speaker Change: Till I mean, this is a double engine transformation the ideas.
Speaker Change: The moment the markets take a little high velocity.
Speaker Change: We can swing to innovation I mean, that's what is happening in financial services to the financial services is a little.
Speaker Change: It's a little running on its own because.
Speaker Change: <unk> had a lull for two years of spend and now that that spend is coming back and that spend is also getting.
Speaker Change: The sentiment about deregulation, which is helping us so.
Speaker Change: I would say.
Speaker Change: And I'm very optimistic where that.
Speaker Change: I mean this is this cannot be a better time to winning tons.
Speaker Change: And.
Speaker Change: Cost takeout deals is the time the time put them as now.
Speaker Change: When the when the market is uncertain.
Speaker Change: There'll be some lumpiness on deals moving between quarters I think it would be but it is going to be a rebase lining of the cost of technology deployment.
Speaker Change: And we want to lead the way.
Speaker Change: Thank you and then what are you seeing in the pricing environment from clients.
And conversations with clients as well as any competitive behaviors from peers. Thanks for taking my question.
Speaker Change: So it's a it's a.
Speaker Change: Intense.
Speaker Change: Uh huh.
Speaker Change: Density is certainly there on the pricing for large deals.
Speaker Change: It is more led by your ability to reduce the total cost of ownership.
Speaker Change: Of owning owning a project or owning a technology for customer ads against negotiations around outright.
Speaker Change: Hey, Scott so so it's the better you are at the.
Speaker Change: Victor one capabilities of deploying <unk> into a solution and overall architecture of the deal the superior pricing would be and that's what is playing out in the marketplace and as you can imagine there are different scales of Av technologies.
Speaker Change: Capabilities out better and we believe that though that we do have <unk> and.
Speaker Change: Early more advantage that is really summarized in the beginning of the call.
Speaker Change: Thanks.
Speaker Change: Okay with that.
Speaker Change: Now I'd like to turn the call back to management for any closing remarks.
Speaker Change: Thank you. Thank you so much for listening to us.
Speaker Change: I look forward to model more dialogue and.
Speaker Change: We're looking forward to the rest of the year. Thank you again, thanks for joining today.
Speaker Change: Okay.
Speaker Change: And with that this does conclude today's cognizant technology solutions first quarter 2025 earnings Conference call you may now disconnect.
Speaker Change: Yes.
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