Cognizant Technology Solutions Corporation

Ladies and gentlemen, welcome to the Cognizant Technology Solutions first quarter 2024 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 this 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 star keys. Thank you. I would now like to turn the conference over to Mr. Tyler Scott, Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. By now, you should have received a copy of the earnings release and the investor supplement for the company's first quarter of 2024 results. If you have not, copies are available on our website, Cognizant.com. 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 risk and uncertainties as described in the company's earnings release and other filings with the SEC. Additionally, during the call today, we will reference certain non-GAAP financial measures that we believe provide useful information to 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 Ravi. Please go ahead.

Thank you, Tyler, and good afternoon, everyone. Thank you for joining our first quarter 2024 earnings call. I'm pleased to report that during the quarter, we continue to make progress against the strategic priorities I laid out last year while navigating a challenging demand environment. We delivered revenue growth that exceeded the high end of our guidance range and expanded our adjusted operating margin year over year. Voluntary attrition improved again, and we ended Q1 with trailing 12-month voluntary attrition for our technology services business at 13.1%, representing a decline of 10 percentage points year over year. And our next-gen program remains on track as we continue to focus on simplification and operational excellence. As we have all seen in recent earning results for our peer companies and economic headlines, the demand environment remains uncertain and geopolitical risks continue. These dynamics are shifting near-term client spending priorities from discretionary projects towards projects that will drive near-term cost savings and fund innovation for the future. Now, moving on to Q1 highlights, we delivered revenue of $4.8 billion, which was sequentially flat. and represented a decline of 1% year-over-year, both as reported and in constant currency. We expanded our adjusted operating margin by 50 basis points to 15.1% as we continue to execute our cost optimization strategy and take out structural costs. First quarter bookings on trailing 12-month basis were 25.9 billion, an increase of 1% year-over-year. While there is good sustained traction with our large deals, we saw softness in smaller deals in the range of 0 to 10 million total contract value, reflecting the tight discretionary environment. Our strong deal momentum in the quarter was evidenced by the fact we signed eight deals each with TCV of $100 million or more, compared to only four in the prior year period. We've also seen early green shoots in our efforts to diversify our large deals outside of North America. And in quarter one, two of the eight greater than $100 million contracts we signed were in the APJ region. On a trailing 12-month basis, our book-to-bill ratio of 1.3x remains strong, which we believe provides a healthy backlog of opportunities to improve revenue performance over the next several quarters. We continue to grow our pipeline for larger deals and make progress against our goal of increasing the value of large deals in our bookings. From a segment perspective, demand trends were consistent with what we have seen in recent quarters. We saw sequential growth in health sciences and communications media and technology, offset by declines in financial services and products and resources. While financial services has been impacted more meaningfully than other segments by weaker discretionary spending, we did see sequential growth among our banking and financial services clients, which represents about 60% of our financial services segment and are encouraged by the opportunities we're seeing in the overall pipeline, particularly within our intuitive operations and automation practice area. We see several teams that we believe are helping drive demand for our services. These include clients' continued investments in developing a modern technology infrastructure related to AI, cloud, and digital technologies, data engineering, prioritization of hyper-personalization and customer experience projects, and the need to deliver innovation. One example of infrastructure modernization this quarter was an agreement we signed with a new client, McCormick & Company, a global leader in flavor. Over the next five years, we will help transform and manage its global technology infrastructure, leveraging AI automated tools to enhance McCormick's employee and customer experience while improving productivity and driving financial savings for our client. Another example of modernization and hyper-personalization is our recently announced new strategic alliance with Shopify and Google Cloud. Under this alliance, we will help drive digital transformation and platform modernization, enabling global retailers and brands to unlock business value from generative AI. We believe today's retailers must drive a modernization agenda while investing in innovation to elevate their end users and customers' experiences. Earlier this week, we signed a strategic agreement with Telstra, Australia's leading telecom and technology company, to elevate their software engineering capabilities and enhance their customer's experience. We believe this is a key strategic win in our APGA market, and we will leverage our AI tools to drive innovation, enable more efficient software engineering and idea operations, and decommission legacy systems to improve operational efficiency, and support their employee experience by building them a superior engineering experience. And as a fourth example, we extended our long-standing relationship with CNO Financial Group during the quarter. Under this expanded agreement, we will implement cloud and digital technologies to help CNO deliver more personalized, digital, and convenient solutions to their customers. We'll also leverage GenAI technologies to help drive efficiencies across infrastructure, applications, enterprise software, and engineering services. Our clients' desire and need to drive innovation is apparent in all our client interactions. But funding for that innovation is being impacted by demand uncertainties in our clients' own end markets. The timing of a return in discretionary spending remains unknown, but our thesis remains simple. We plan to be prepared when it returns. By continuing our organic investments in learning and development, people, platforms, and innovation, while supporting those initiatives with inorganic capability and answering investments. On the client side, data from our project-level client feedback process for the first quarter of this year shows a 39% improvement in our net promoter score regarding our project delivery quality over the last two years. We believe this is a result of a self-reinforcing cycle we created through tighter client collaboration since the beginning of 2023. As a testament to our long-time focus on helping clients innovate, during the quarter, Fortune magazine recognized Cognizant as one of the America's most innovative companies in 2024. Our focus on innovation is reflected in our Blue Bolt grassroots innovation initiative, which we launched a year ago in April. Blue Bolt has already generated more than 130,000 ideas from our associates. 23,000 of which have been implemented with clients. Overall, more than 220,000 Cognizant associates have been trained on Blue Bolt. In addition, Google named Cognizant a Google Cloud 2024 Breakthrough Partner of the Year. This is one of our industry's most distinguished awards. I will elaborate more on Google Cloud in a moment. And just this month, LinkedIn recognized Cognizant as a number three on its top companies 2024 employer list in India, which is home to more than 250,000 of our valued associates. This repeat recognition is a reminder that our focus on becoming the employer of choice is paying off in the country that is at the heart of Congress and success, India. These client wins and industry recognition demonstrate one of our core differentiators, our collaborative innovation. And nowhere else is the demand for innovation higher than in Gen AI. We have more than 450 early client engagements and more than 500 additional opportunities in the pipeline. We have seen increased demand for AI services across four key areas. First, customer and employee experience as clients seek to deliver improved interactions through hyper-personalization. Second, content summarization and insights to empower decision-making. Third, content generation. And finally, leveraging GenAI to accelerate innovation and technology development cycles. We continue to see strong interest from clients as they assess proofs of concept and the return on investment of these opportunities. These efforts are supported by a recently launched advanced artificial intelligence lab in San Francisco, where we are investing in state-of-the-art core AI research aimed to position us at the forefront of innovation in our industry. This builds upon our network of AI innovation studios in London, New York, San Francisco, Dallas, and Bengaluru. Incidentally, our advanced artificial intelligence lab has already produced 53 AI patents with applications for many more pending. This quarter alone, we had seven new AI patents approved and granted to us. In quarter one, we announced a series of new partnerships and co-innovations behind the strategy we announced last year to invest $1 billion in generative AI over three years. This includes our collaboration with Microsoft to infuse GenAI into healthcare administration. The TriZetto assistant on our facets platform will leverage Azure OpenAI service and semantic kernel to provide access to GenAI within the TriZetto user interface. We are already progressing from proof of concept to the piloting phase and are seeing strong interest from some of our largest healthcare customers. And last week, we announced another element of our expanded partnership with Microsoft. We plan to leverage Microsoft Co-Pilot and Cognizant's advisory and digital transformation services to help our employees and enterprise customers operationalize generative AI and realize strategic business transformation benefits from this technology. In addition, as a part of Cognizant's Synapse skilling program, Cognizant will train 25,000 developers of the use of GitHub Copilot, doubling the number trained on the technology. We are also collaborating with NVIDIA to leverage our deep life sciences and AI domain expertise with NVIDIA's pre-trained industry-specific generative AI models offered as a part of Buy Any More. Through this collaboration, we will provide clients access to a suite of model-making services, including pre-trained models, cutting-edge frameworks, and application programming interfaces that offer clients an accelerated path to train and customize enterprise models using the proprietary data. By leveraging GenAI-infused models, clinical researchers can rapidly sift data through extensive data sets more accurately predict interactions between drug compounds and create a new viable drug development pathways. We also expanded our partnership with Google Cloud. We'll adopt Gemini for Google Cloud in two ways. First, by training Cognizant associates to use Gemini for software development assistance, and second, by integrating Gemini's advanced capabilities within Cognizant's internal operations and platforms. Using Gemini for Google Cloud, Cognizant's developers will be equipped to write, test, and deploy code faster and more effectively with the help of AI-powered tools, improving the reliability and cost efficiency of building and managing client applications. Over the next 12 months, Cognizant expects to upskill more than 70,000 cross-functional associates on Google Cloud's AI offerings. This is another milestone in our Synapse initiative to upskill 1 million individuals globally by 2026. Additionally, Cognizant will work to integrate Gemini into its suite of automated platforms and accelerators, beginning with the recently announced Cognizant Flow Source platform for developers. As a part of our social responsibility platform, we recently announced that since 2018, we have awarded $70 million in philanthropic funds to global skilling programs for underrepresented communities. These 117 grants combined Cognizant's culture of continuous skilling, our focus and prioritization on empowering diversity through technology and the philosophy that AI and other advanced technologies can be a great equalizer for the future of work. We intend to continue following and participating in the AI innovation cycles by investing in last mile platform infrastructure, productivity studies, and capabilities to enable better and faster integration into enterprise landscapes. In the last 12 months, our AI platforms gained significant traction as we onboarded clients onto neuro, sky-grade, and flow-source platforms to cover various phases of AI deployment cycles. By investing in productivity studies which dissect the anatomy of skills and occupations and map the AI exposure scores to different roles, we have assisted our clients in realizing value and driving the scaled embrace of newer AI use cases. As we continue to navigate this ongoing soft demand environment, we remain focused on investing in areas to help our clients reduce total cost of ownership, boost productivity, enhance technology intensity, and enable better adoption of new age technologies like AI to capture the current demand and be prepared for the future. And we remain differentiated by investing in industry domain capabilities and platforms in select industries. We also believe in organic opportunities remain an important element of our investment strategy. We continue to seek to expand and deepen capabilities, diversify our business, including into industries where we are underexposed and improve our geographic mix. For example, we are pleased with the early traction of our Q1 acquisition of ThirdEra, an industry-leading ServiceNow platform, which has significantly expanded our capabilities and credentials. We already see a healthy pipeline of opportunities as direct result of this acquisition to cross-sell within our existing client base. In closing, I want to thank our 345,000 employees around the world for their dedication to our clients and cognizant. In 2024, we will keep working to increase our revenue growth, become the employer of choice in our industry, and to simplify our operations. Jatin, over to you.