Cognizant Technology Solutions Corporation

Ladies and gentlemen, welcome to the Cognizant Technology Solutions fourth quarter 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 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 for you to pick up your handset before pressing the star keys. Thank you. I would now like to turn this conference over to Mr. Tyler Scott, Vice President of Investor Relations. Please go ahead, sir. You may begin.

Thank you, operator, and good afternoon, everyone. By now, you should have received a copy of the earnings release and investor supplement for the company's fourth quarter and full year 2021 results. If you have not, copies are available on our website, cognizant.com. The speakers we have on today's call are Brian Humphreys, Chief Executive Officer, and Jan Siegmund, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the 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 on the company's earnings release and other filings with the SEC. With that, I'd now like to turn the call over to Brian Humphreys. Please go ahead, Brian.

Thank you, Tyler. Good afternoon, everybody. Throughout 2021, clients have meaningfully accelerated spend on digital transformation initiatives. accelerating the demand for IT services. Elevated attrition in key digital skills is, however, a direct consequence of this, creating revenue fulfillment challenges and cost pressure that need to be carefully navigated. I'm therefore pleased that we had another quarter of solid execution, delivering against our commitments to clients and to you, our shareholders. Four-quarter revenue was $4.8 billion, up 14.5% year-over-year in constant currency, above the high end of our guidance. Growth was led by digital, which grew 20% year-over-year. Four-quarter adjusted operating margin was 15.3%, and full-year adjusted operating margin was 15.4%, in line with our guidance. During the quarter, we also progressed against our key strategic initiatives, including scaling our digital capabilities, globalizing the company, helping our clients be successful by leading with greater industry insights and solutions, and repositioning the cognizant brand Turning now to industry segments, our recovery in financial services continued with four-quarter growth of 19% year-over-year in cost and currency. This includes an approximate 9 percentage point benefit for the impact of the prior year charge related to SAMLINK. As you know, we've been rebuilding our strength in financial services by refreshing our leadership and client-facing teams, strengthening our partner engagement, shifting our portfolio of services to more attractive market segments, and sharpening our focus on priority industry solutions and clients. We expect to build further on this progress in 2022. As we reposition Cognizant as a digital transformation provider in larger banking clients, we've complemented this with sustained momentum in regional banks. KeyBank, where we've just renewed our engagement as their primary digital partner, is a great example of this. We will further enable their digital transformation by digitizing their products to increase their digitally active customers to approximately 85%, by driving remote self-service growth by more than 40%, by automating front-to-back processes, and by migrating more than half of their application portfolio to the crowd. In insurance, we see continued demand for core modernization and digital transformation, including cloud and analytics. Unum, a global leader in disability insurance and group benefits, is partnering with us to pursue their digital transformation focus on agent and customer experiences and associated analytics. These digital solutions enhance our existing application development and maintenance services relationship with Unum. And for a long-time client, Royal London, the UK's largest mutual life, pensions, and investment firm, we're now extending our partnership to reimagine their customer engagement through personalized, seamless, connected customer journeys enabled by cloud, data, and customer-centric principles. In healthcare, revenue grew 8.2% year-over-year in constant currency. We've substantially increased our competitiveness in healthcare by investing in digital solutions, domain expertise and partnerships, and by modernizing our core platforms. We've seen continuing momentum in our TriZero product business, which grew 13% in 2021. We continue to add new footprints, and in 2021, increased the number of overall members supported by our platforms to approximately 210 million. We see solid commercial momentum across our healthcare payer and provider business. For instance, Humana, a large national payer, is modernizing and moving their legacy ecosystem to the cloud, and has chosen Cognizant as a partner for agency, marketing, and clinical transformation. These initiatives will help improve the humanist customer and employee satisfaction, reduce costs, and enhance the delivery of integrated, personalized experiences to their members. We also have momentum with next-generation healthcare companies like Relic Health Technologies, a rapidly growing global telemedicine firm, which turned to us to expand their care management capabilities. Relic will leverage Cognizant care management services to support the deployment of their care platform across managed care organizations, hospital networks, and health insurance providers. In life sciences, we partnered with AbbVie, a leading global biopharma company, to help advance their digital transformation in safety and risk management, which will improve patient care and outcomes. Through our digital health consulting services, augmented by capabilities in human-centered design and digital product engineering, AbbVie can understand the needs of patients and care providers design fit-for-purpose solutions that support the patient journey and incorporate feedback for ongoing innovation. These improvements will help AbbVie better support patients and care providers across a broad range of therapeutic areas and products. Within products and resources, we continue to deliver excellent growth in client success across travel and hospitality, and in manufacturing, logistics, energy, and utilities. Drawing on our extensive experience helping automakers streamline their operational tasks, Volvo Cars shows us to help harmonize their finance and accounting and procurement processes and implement intelligent process automation to support their digital transformation. This is a great example of our growing momentum in digital business operations, which significantly outpaced the BPO industry in 2021 and is set to continue to gain share Topline growth has been fueled by momentum in intelligent process automation and strength in our digital native client portfolio. Our work at Grundfos, a global leader in water technology and the world's largest pump manufacturer, perfectly illustrates our growing digital credentials. Grundfos initially selected Cognizant to establish an IoT-based intelligent platform to gather real-time pump data from the sensors and perform analytics to prevent, predict, and respond to issues caused by leakages. Based on this success, we've since been selected to build a modern enterprise system based on SAP S4 HANA. Finally, in communications, media, and technology, we saw continued strength in technology in particular, where we've sustained strong double-digit growth over the past three quarters. Turning now to bookings, which grew 22% year-over-year in the fourth quarter, our second consecutive quarter of 20% plus growth. For year 2021, Booking's growth was in the mid-teens. We entered 2022 with a healthy book-to-bill ratio of 1.2. Throughout the year, our booking strength, which has been fueled by digital, has been broad-based across industries and geographies. Moving to the macro demand environment, industry demand remains robust, and I expect it to continue throughout 2022. Clients are embracing digital operating models to become more efficient, agile, automated, scalable, innovative, and indeed secure, whilst also responding to the expectations of their customers and employees for hyper-personalized experiences. Continuing to scale our digital capabilities is at the heart of our company strategy. Digital represented 45% of our revenue mix in Q4. As we noted during our recent investor briefing, we believe digital can become 55% to 60% of revenue in the coming years. Reflecting our strength in digital credentials, during the fourth quarter, we were named an industry leader in 17 new industry analyst reports. They highlighted the company's client partnerships, scalability, digital capabilities, and expertise as factors in recognizing our leadership. Accelerating digital is not only a driver of double-digit revenue growth and improved margins, it also fosters greater client intimacy and higher levels of employee engagement. as we partner on strategic transformation projects that leverage advanced skills. Moving on now to an industry phenomenon you're accustomed to hearing about, the unprecedented competition for talent, reflective of the industry-wide demand supply imbalance in key digital skills. Four-quarter voluntary attrition moderated a little, to 31% on an annualized basis, or 28% on a training 12-month basis. As a reminder, when we measure attrition, we count the entire company, including trainees and corporate across IT services and BPO. We've been working aggressively to mitigate attrition levels whilst intensifying our efforts and focus on employee training, promotion cycles, professional development, and total rewards. During 2021, we also facilitated more than 14,000 job moves across 40 countries, continued to revitalize our campus recruitment program in India, established new compensation measures, and a revised promotion cycle to retain employees, and invested heavily in upskilling. In fact, our associates completed 23 million hours of learning and consumed 130,000 courses in 2021. Given that we compete on our knowledge and skills, we're proud to have won 42 awards for excellence in learning and development from the Brandon Hall Group, often considered the leading independent HCM research analyst firm. We more than offset elevated attrition levels in 2021 by accelerating our hiring, allowing us to increase company headcount by 14%. I'm pleased to say that in recent years, we've made meaningful progress in correcting our delivery pyramid by significantly increasing the number of college graduate hires onboarded in India. In 2021, we added a record 33,000 college graduate hires in India, up from 17,000 in 2020. In 2022, We plan to add approximately 50,000 in India. Digital acquisitions have also brought incredible talent to Cognizant. During 2021, we completed seven acquisitions that extend our digital leadership, the most recent being our four-quarter acquisition of DevBridge. The software consultancy and product development firm expands our software product engineering capabilities and global delivery footprint by adding more than 600 engineers, designers, and product managers in Lithuania, Poland, the UK, and North America. This extension of our global delivery network complements recent announcements in the United Kingdom, Australia, and indeed Canada. In closing, I'm proud of our execution against our strategy in 2021. We've reestablished commercial momentum and have a healthy book-to-bill ratio. Our delivery teams executed against our commitments despite challenging labor market conditions. Our performance in our two largest industries, financial services and healthcare, has strengthened. Growth in key international markets, such as the UK, has meaningfully accelerated. Our digital portfolio has been extended and has never been stronger, and we've made significant progress in our people strategy, our internal digitization agenda, and indeed our brand repositioning. For several quarters now, I've been holding hour-long, open-ended virtual sessions with small groups of employees. What I've learned from these intimate sessions, as well as from our large virtual town hall meetings, is that employee pride in the company is building. Employees see not only how far we've come, but also a clear path to an exciting future. Our employees also recognize the consistent execution of our strategy, our commercial momentum, and a commitment to our purpose, vision, and values. This purpose has kept us focused on executing our ESG agenda despite the stress of the prolonged COVID-19 pandemic. Our ESG-focused commitment is evident in our Cognizant Combats COVID-19 initiative in India, in our intensified efforts to drive a culture of belonging throughout Cognizant, in our $250 million philanthropic initiative to advance diversity, equity, and inclusion, along with health and well-being in communities around the world, and in many other areas covered in our 2021 ESG report. In summary, our broad-based progress allows us to approach the new fiscal year with confidence. in our ability to execute against the multi-year financial outlook we presented at our November investor briefing. So 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.