Cognizant Technology Solutions Corporation

Ladies and gentlemen, welcome to Cognizant Technology Solutions Q1 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. Thank you. I would now like to turn this conference over to Mr. Tyler Scott, Senior Director of Investor Relations. Please go ahead, sir. Thank you. You may begin.

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 2021 results. If you have not, copies are available on our website, cognizant.com. The speakers we have on today's call are Brian Humphries, Chief Executive Officer, and Jan Sigmund, 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 risk 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 like to turn the call over to Brian Humphries. Please go ahead, Brian.

Thank you, Tyler. Good afternoon, everybody. I would like to start today's call by addressing the humanitarian crisis in India. As many of you know, India is the heart of Cognizant and home to more than 200,000 of our associates. I would like to express my support and solidarity for our Indian associates wherever they are in the world, and my sympathy for any who have suffered a loss during the pandemic. In addition to the ongoing support of our associates, which includes home care and hospitalization assistance, vaccination cost reimbursement for our associates and their families, and making vaccine availability easier for those with disabilities, Cognizant is making a multi-million dollar investment to assist India through the crisis. This is focused on covering operational expenses at hospitals throughout India that are caring for COVID-19 patients, funding the efforts of UNICEF in India to deploy oxygen generation plants, COVID diagnostic testing, and medical supplies, and partnering with one of India's leading hospital chains to set up vaccination centers in locations across the country. including some of Cognizant's own facilities. The impact of the pandemic on industry attrition rates, absenteeism, and client delivery remains somewhat uncertain. We monitor our situation daily and will continue to prioritize the health and safety of our associates while serving our clients who've been particularly supportive in recent weeks. As the COVID situation differs throughout the world, our return to office strategy remains country driven. Currently, almost all of our associates are working from home, and business travel remains on an exception-only basis. Let's turn now to the first quarter. First quarter revenue was 4.4 billion, representing growth of 2.4% year over year in constant currency. Although we executed well in the quarter and delivered against our expectations, revenue upside was limited by elevated attrition. reflecting the intensely competitive market for digital talent that we spoke about in our last earnings call. This put some pressure on salaries as roles were filled by lateral hires or contingent workforce. And in some cases, commercial opportunities were foregone due to an inability to source talent. To address retention challenges, we've been executing a multi-part plan that includes stepping up our internal engagement efforts and increasing investments in our people through training and job rotations, to provide opportunities for career growth. Shifting to a quarterly promotion cycle for billable associates and implementing further salary increases and promotions for high demand skills and critical positions. And ramping our hiring capacity by adding hundreds of recruiters and making 28,000 plus offers to new graduates in India, a new record. Daily resignations increased through the first quarter, peaking in March. On a positive note, resignation slowed in April and continued to slow in May. However, given two-month notice periods in India, we anticipate further sequential increases in attrition in Q2 before a gradual recovery in the second half. Notwithstanding industry attrition challenges, we remain confident in Cognizant's standing as a magnet for skilled talent and a great place to build a career. In recent quarters, we've seen a meaningful increase in our brand perception in the talent market in India. For example, our campus acceptance rate amongst India's top engineering colleges has risen to more than 80% this year, up almost 10 percentage points since 2019. In addition, LinkedIn just ranked Cognizant the top company in both the US and India based on traits like the ability to advance, skills growth, and gender diversity. all of which are consistent with enabling professionals to grow their careers. In India, LinkedIn ranked as number two among 25 leading companies. This honor follows Forbes magazine, recently naming Cognizant to its list for world's best employers and best employers for diversity. Moving on, I'm pleased with the health of key leading performance indicators. For example, digital revenue growth accelerated to 15% year-over-year, Digital now represents 44% of our revenue mix. Bookings growth of 5%, which was strong considering outstanding December bookings and a tough prior year compare. Year-to-date bookings growth has since been boosted by excellent bookings in April. I'm confident that our sustained book-to-bill ratio of greater than 1.1 times revenue provides us with the opportunity to further accelerate revenue growth. Finally, our qualified pipeline and win rates are strong and give us reason to be bullish. Turning now to our industry sectors, financial services declines moderated. Leading performance indicators, including digital mix and qualified pipeline, have both improved in both insurance and banking. Our turnaround efforts are ongoing, and we expect financial services to continue to recover over the course of the year. I'm pleased with the growing momentum in our healthcare business. We had a strong quarter with growth across our payer and life sciences businesses and improving trends within our provider business. Over the past 18 months, we've refreshed our product strategy and better aligned our investments with market priorities. We recalibrated our product roadmaps to focus our core platforms on cloud enablement, customer experiences, digital workflows, and automation. This intensified pivot to digital has resonated well with both existing clients and prospects. enabling us to achieve double-digit growth in our software product business. Products and resources continues to be affected by the pandemic. Declines in retail and consumer goods and in travel and hospitality were offset by continued double-digit growth in manufacturing, logistics, energy, and utilities. Communications, media, and technology posted solid growth when normalized for the exit of elements of content moderation. Jan will provide more details on the quarter in his prepared remarks. Let's turn now to the macro environment. Our client conversations suggest a robust and resilient IT services demand picture for 2021 and beyond. This is fueled by business model innovation, customer experience investments, technology modernization, risk mitigation, and efficiency initiatives, all driven by hyperscale roadmap and commercial investment. Creating better experiences is at the center of the digital economy. That's what clients are most interested in, how to orchestrate technology, data, and design to make their employee and customer experiences more productive, intuitive, relevant, and valuable. A good example is the work we've been doing with Papa John's International, one of the largest pizza delivery chains in the United States. We helped Papa John's transform its order operations into a centralized model that enables hyper-personalized offers for customers. We did so through an end-to-end intelligent cloud-based omni-channel solution powered by advanced analytics in 750 of its stores initially before being expanded to 1,500 stores given early success. This solution resulted in a revenue uplift of more than 15% per order, significant productivity improvements, and halving the time between order placement and delivery. It's also improved the experience of Papa John's employees by lowering their stress from multitasking while freeing up staff to focus on serving guests. The shift from traditional to a software-centric business requires clients to transform their business processes and their IT architectures in parallel. This starts with engineering a new digital stack enabled by software and consumer-grade apps that sit on intelligence, drawn from sophisticated data sets, all of which need to be instrumented and run on cloud platforms. Within this new stack, we see particularly strong opportunities to help clients in modernizing their applications, data, and infrastructure. And as you can imagine, this is driving increasing demand for digital engineering and cloud solutions portfolio. Our overriding aim is to help clients become modern businesses. That way they can innovate faster, become more agile, and above all, stay relevant to their customers. In that vein, we're collaborating with Inchcape, a UK-based automotive distribution and retail leader, to digitally transform and simplify their global finance and accounting infrastructure and services. We're applying machine learning, data analytics, or PA and advanced business process services to drive efficiencies and enable Inchcape to make faster and smarter business decisions. Moving now on to strategy. We remain focused on executing a strategy with four related priorities. Building a stronger global brand, further globalizing Cognizant, accelerating digital, and increasing our client relevance. I've covered these priorities in prior calls, so I'll just offer a few broad observations about our execution. We strengthened our portfolio and sharpened its focus on faster growing markets and geographic segments. All of our offerings are aligned to the market and aim at providing the capabilities clients want most, like accelerating cloud migration, enabling omnichannel commerce, unlocking value from data using AI and ML, creating modern mobility experiences, and more. As cloud computing has changed the way IT is delivered across infrastructure applications and platforms, we've continued to strengthen our relationships with the world's leading hyperscale and SaaS companies. With our dedicated business groups from Microsoft, AWS, and Google Cloud Platform, we can help clients run their core applications and create more agile workflows in the cloud. We're also maintaining our M&A pace to further expand our capabilities in our key digital focus areas of software engineering, data and AI, cloud, and IoT. In Q1, we acquired Servian, an Australian enterprise transformation consultancy specializing in data analytics, AI, digital services, experience design, and cloud. We also acquired Linium, a cloud transformation consultancy group specializing in the ServiceNow platform and solutions. Imogenix Technologies, a custom software development services company that expands our global software product engineering network. During the quarter, We signed an agreement to acquire ESG Mobility, a digital automotive engineering R&D provider for connected autonomous and electric vehicles. ESG Mobility complements our existing connected mobility offerings and our automotive industry presence. Before closing, I want to spend a moment on ESG, environmental, social, and governance. The public health, economic, and societal damage wrought by COVID-19 have caused most businesses to reflect deeply on what they owe their stakeholders. In keeping with our purpose, we strive to be a modern corporation that is responsive to the many larger contexts in which we operate, among them societal, environmental, economic, and technological. And that's why the principle of sustainability is so important to us. It speaks to our interdependence with local communities and global ecosystems. During Q1, we announced a five-year, $250 million global philanthropic investment to advance economic mobility, educational opportunity, diversity and inclusion, and health and well-being in communities as they emerge from the pandemic. We also recognize how much we must evolve to become a sustainable business. To do so, we will embed ESG into our thinking, decisions, and actions. This is a multi-year endeavor and one of increasing importance to our clients, associates, and indeed you, our investors. To mark our progress along this journey, we're planning a series of announcements that will include the publication of Cognizant's 2020 ESG report later in the second quarter. In closing, we continue to successfully execute our strategy. We are bullish on the industry and our prospects within it. We're working diligently through a multi-year plan to reposition Cognizant to achieve its full growth potential and reestablish our company as an industry leader. As we do so, we are committed to make the necessary investments that will set us up for sustained momentum. With that, I'll turn the call over to Jan, who will cover the details of the quarter and our financial outlook before we take your questions.