Ladies and gentlemen, welcome to the Cognizant Technology Solutions first quarter 2017 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to David Nelson, Vice President, Investor Relations and Treasurer at Cognizant. Please go ahead, sir.

Thank you, operator, and good morning, everyone. By now you should have received a copy of the earnings release for the company's first quarter 2017 results. If you have not, a copy is available on our website, cognizant.com. The speakers we have on today's call are: Francisco D'Souza, Chief Executive Officer; Raj Mehta, President; and Karen McLoughlin, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC, including our Form 10-Q filed later today. I would now like to turn the call over to Francisco D'Souza. Please go ahead, Francisco.

Good morning, everyone, and thanks for joining us today. Cognizant is off to a solid start this year. Our first quarter revenue was $3.55 billion, at the top end of our guided range, and up 10.7% your rear. Our non-GAAP EPS for the quarter was $0.84. Turning to guidance, we expect second quarter revenue to be within a range of $3.63 billion to $3.68 billion, and we continue to expect full-year revenue growth in the range of 8% to 10%. I'd like to spend the next few minutes discussing how we're accelerating our shift to digital by helping clients become technology enabled across their businesses. As the markets we serve move away from the physical and towards the digital, our clients know that they must build new customer experiences and automated processes on top of secure and scalable technology. That's the only way to compete effectively in a world increasingly shaped by artificial intelligence, algorithms, bots, and big data. Doing so at scale, however, is a tall order, and that's why Cognizant's mission is to help clients transform their business models, their operating models, and their technology models in tandem to deliver the promise of digital at scale. Now we realize the word digital carries many meanings. For Cognizant, it goes well beyond building user interfaces or implementing collaboration platforms. For us, it's about using technology to enable clients to run better and run different. It's about the dual mandate to achieve more efficient and effective operations while reshaping business models for innovation and growth. This is the digital that matters. As noted on the Q4 call, Cognizant's digital revenue is generated by all the work we do to help clients excel in this new economy. That work spans the development of more engaging customer experiences, automated core business processes,…

Thanks, Frank. Building on Frank's discussion, I'll outline our progress in executing the shift to digital. And then I'll review our industry verticals, focusing on our financial performance and how we're helping our clients manage through their challenges. To speed our progress, we have many initiatives underway. Here are the top three. First, we're expanding our solutions portfolio. To do so, we're deploying repeatable industry-tailored solutions faster across our three practice areas, and we're further developing offerings through selected partnerships and acquisitions. Second, we're deepening and broadening our digital skills under the guidance of chief digital officers in each of our industry and regional business units. Our CDOs oversee the building of domain-based solutions, and they ensure that our teams, which focus on our strategic clients, have the skills they need. As a result, our teams are broadening Cognizant's reach and deepening our relationships, particularly with decision-makers who are outside the clients' CIO organizations. Third, we're enhancing our digital engagement with clients. For example, at our Newark laboratory, co-innovation centers in Amsterdam and Melbourne, our strategists, designers, data scientists, human science, and cyber security experts work with clients and partners to design, prototype, build, and run new customer experience and business processes. During the first quarter, about 50 clients visited our innovation centers. Today in every industry, our clients face common challenges. They must strike a balance between optimizing cost and investing in innovation. We help them to do both at the same time on their journey to implement digital at scale. Through our engagement, clients are able to drive profitable growth by enhancing their customers' experience, speeding products to market, and deploying new business models. I want to turn now to our financial performance in our industry verticals and provide examples of our customer engagements. Let's start with Banking…

Thank you, Raj, and good morning, everyone. The business got off to a solid start in Q1, which positions us well to achieve our full-year guidance. First quarter revenue of $3.55 billion was at the high end of our guidance range and represented a year-over-year increase of 10.7%. We had a negative currency headwind, which impacted year-over-year revenue growth by $35 million or 110 basis points. Non-GAAP operating margin, which excludes stock-based compensation expense, acquisition-related expenses, and realignment charges, was 18.9%, and non-GAAP EPS was $0.84. Our GAAP tax rate for the quarter was 14.2%, and our non-GAAP tax rate was 27.2%. Our GAAP tax rate for the quarter is lower than our previous guidance, as we recorded certain income tax benefits that were previously unrecognized in our consolidated financial statements. The timing of this adjustment was primarily driven by the lapse of the statute of limitations. As Frank outlined in his comments, we are committed to a comprehensive return of capital program. In March we launched a $1.5 billion accelerated share repurchase, or ASR, program. Today we declared our first quarterly cash dividend of $0.15 per share for shareholders of record at the close of business on May 22, 2017. This dividend will be payable on May 31, 2017. Now let me discuss additional details of our financial performance. Consulting and Technology Services and Outsourcing Services represented 57.8% and 42.2% of revenue respectively for the quarter. Consulting and Technology Services grew 10.6% year over year, driven by strong performance in Cognizant Business Consulting and an increased demand for digital solutions. Outsourcing Services revenue grew 10.9% from Q1 a year ago. During the first quarter, 38% of our revenue came from fixed-price contracts. We continue to make progress over the long term towards changing the mix of our business towards…

Thank you. We will now be conducting a question-and-answer session. Our first question is from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.

Hi, guys, congrats on the strong quarter. Just looking over at 2Q revenue guidance, that range seems to be a little bit wider than usual. I was just curious. Is that some different demand outcomes from clients that's causing that wide a range? Because I think historically we've seen more of a pickup between 1Q sequential and 2Q growth rates.

Sure, Bryan. This is Karen, good morning. So Q2 revenue, the range is actually about the same as the ranges we've been providing in recent quarters and in Q1. It's about a $50 million range between the low and the high end of the range. One thing that we should point out that was not in the prepared remarks is this year is a little unusual with the calendar, so Q2 actually has less billing days than Q1, which is the first time in my history with the company that that's happened. And it's partially just because of the way the holidays and weekends line up this quarter. So that's why a little bit the Q2 seasonality doesn't seem quite as strong as it would in prior years. But we're very comfortable. The demand environment, as we were talking about in our prepared remarks and obviously I'm sure we'll have more conversation over the next few minutes, the demand environment continues to be solid. We haven't seen any change in that as we went into Q2. It's primarily just a matter of the number of bill days.

Okay, and then a quick follow up, maybe Francisco. Any changes in clients' appetite to use Cognizant services due to some of the stuff going around on immigration reform? Has anybody pulled back or looked to be more hesitant than usual? Thanks so much and congrats on the quarter.

Good morning, Bryan. I would say specifically related to immigration, we really have not seen any slowdown or impact on client demand. And overall, we were pleased with Q1 at the top end of our range. And so I think that there wasn't any impact obviously in Q1, and we haven't seen anything that concerns us going forward.

Thank you. The next question is from the line of Tien-Tsin Huang with JPMorgan. Please proceed with your question.

Great, nice start to the year here. I'll ask about the healthcare outlook. Just a lot of noise there obviously, just curious about the progress or maybe movement in the BPaaS pipeline. Are you seeing any pent-up demand at payer clients? Maybe anything else you can give us on the outlook in healthcare this year would be great. Thanks.

Hi, this is Raj here. Look, I think we're pleased with the start of healthcare this year. Obviously, as you know, Q1 has a lot of seasonality in there with the TriZetto business being a software business, and in addition to that our life sciences business, which has a lot of discretionary spend and budget flush that happens in Q4. So overall, we're pleased with the start of healthcare. I think obviously there's still a lot of uncertainty out there in terms of what happens with proposed legislation around the Affordable Care Act. But we are seeing some stability, especially given that some of the large M&A deals that were out there, we're starting to see some. Given that those are not moving forward, we're starting to see some pent-up demand, which is a good start for us as well too. I think look, BPaaS in terms of our platforms, we continue to see a lot of traction, a lot of client interest around our solutions, and along with that, a lot of initiatives around digital, especially around customer engagement and analytics, security, and cloud-related services.

Thank you. Our next question comes from the line of Ed Caso with Wells Fargo. Please proceed with your question.

Hey, good morning, congrats. Does TriZetto, could you remind us if TriZetto has a license fee impact on the model and what quarter it might hit, or is it all spread over the life of whatever the engagement is? Thanks.

Good morning, Ed. This is Karen. So as you know, obviously when we brought TriZetto, they were very focused on software sales and had tremendous seasonality in their business, with Q4 being their strongest quarter historically. That still continues to be true. But over time, obviously, one of the things we've been trying to move them towards is more of an annuity-based structure. So in Q1 of this year, the sequential decline in TriZetto revenue was about $20 million from Q4 to Q1. That's down from last year, where it was over $25 million sequential impact from Q4 to Q1. So we're slowly starting to move them into much more of an annuity-based structure so that over time we would have less of that lumpiness.

Our next question is from the line of Jim Schneider with Goldman Sachs. Please proceed with your question. James Schneider - Goldman Sachs & Co.: Good morning, thanks for taking my question. I was wondering if you could maybe dive a little bit more into the immigration comments you touched on earlier. Can you maybe give us any kind of quantification around absolute numbers of visas you applied for either last year or this year, just to give us a sense about what the half, the 50% mark implies? And maybe just give us a sense about what your plans are in terms of campus recruiting, both in India and the U.S., over the next year, and how you think about the head count additions for the rest of the year relative to some of the rationalization efforts you talked about, part of the restructuring.

Okay, why don't I – Jim, this is Frank. I'll take some of that and then I'll ask Karen to cover some parts of it. We don't disclose numbers around our use of visas for competitive reasons. But I think, as Raj said in the prepared comments, this year we filed for half the number of H-1s that we had filed last year. We wanted to put that out there just to give you a sense that we are continuing to aggressively shift the model, to continue to give you a trend line that says as the business shifts more toward digital, as our clients – as the demand from clients is more about collocation and co-innovation because that's the kind of work that digital demands, that we're shifting the model accordingly. As a U.S. company, we're committed to hiring and reskilling employees, not just in the U.S., but really in all the markets around the world where we operate. Specific to the U.S., we're hiring more here. We've got what we think are very innovative training programs with colleges to help train the next generation of technology workers. As Raj said, we're expanding the number of our U.S.-based centers. He gave you an example of the Tampa center and some color around that one. Like Tampa, we have 20 other centers like that already around the U.S. that we will continue to build and grow and expand our footprint in. And let me ask Karen to cover head count and our thinking around head count as we look through the rest of the year

Yes, sure. Thanks, Frank. So, Jim, obviously we haven't and will not provide any head count guidance. But I think at a macro level, it's safe to assume that utilization will go up throughout the year. We will certainly continue to hire as we continue to drive forward with the change in the skills mix. So as you saw in Q1, we added about a net of 1,000 people. That will move up and down throughout the year as we bring on some of these new skills and continue to also retrain our workforce, as Frank talked about. In terms of the balance between campus and lateral hiring, that will continue to shift from quarter to quarter. As you know, we have a very robust campus hiring program in India. That continues. In the U.S., we continue to expand our campus hiring programs, and that's everything from working with local community colleges and retraining and skilling programs, all the way up through the big MBA and Master's programs. And then similarly in Europe, we also do a lot of campus recruiting there. So we've got very robust campus programs that we've put in place over the last few years, and continue to look to those as ways of expanding our local presence onsite.

Thank you. Our next question is from the line of Brian Essex with Morgan Stanley. Please proceed with your question. Brian L. Essex - Morgan Stanley & Co. LLC: Hi, good morning and thank you for taking the question. I was wondering if you could start by maybe touching on gross margin a little bit. It seems as though on the gross margin side, it was a little bit softer in the quarter. So I was just wondering what in terms of business mix, or maybe we're not accounting for charges correctly as we're backing them out, might be included in that number. And then I have a quick follow up.

Hi, Brian. This is Karen. So it was a little hard to hear you, but I think you were asking about gross margin for the quarter. Brian L. Essex - Morgan Stanley & Co. LLC: Right.

So gross margin, as we've talked about from time to time, will move up and down. Our focus is always on non-GAAP operating margin. But what you saw putting pressure on gross margin, we saw this last year as well, is in 2016 we hired a lot of people, and frankly, head count grew much faster than revenue. That already did start to subside, at least on a sequential basis, this quarter and will continue to subside this year and will bring those two back more in line. And certainly head count growth I would expect to grow actually slower than revenue this year. So it was really the lower utilization that was putting pressure on gross margin, but as I said, that will start to reverse itself as we get through the rest of the year. Brian L. Essex - Morgan Stanley & Co. LLC: And on operational efficiency initiatives, maybe if you can offer a little bit of color in terms of what you made progress with in the first quarter and how we should anticipate ongoing initiatives to trend through the remainder of the year?

So I think really the vast majority of the initiatives are just starting now, so I would say the January and February timeframe was a lot of planning. We want to be very thoughtful. It is most critical that we continue to invest for growth and the shift to digital that we're seeing in the business. So that's our – first and foremost, we need to make sure we protect that while at the same time, obviously, we're looking for opportunities to enhance our cost structure and further optimize our cost structure. So there were some small actions in Q1. As you saw, there was about $11 million of realignment cost that was a combination of advisory fees to help us prepare for this, as well as some severance. But most of the actions will begin here or have begun already in Q2. We just launched earlier this week a voluntary separation package. That program will go through the end of Q2, so we'll start to see the benefits of that as we get into Q3. Similarly, as we're looking at real estate and other opportunities and vendor consolidation and so forth, the vast majority of those benefits we'll start to see towards the end of Q2, but most of that will really start to kick in as we get into the back half of this year, which will then hopefully set us up very well as we move into next year and we start to see the full-year benefits of those.

Our next question is from the line of Ashwin Shirvaikar with Citi. Please proceed with your question.

Thanks. Hi, Frank. Hi, Raj. Hi, Karen. So the performance with regards to revenues and EPS was in line with our expectations, but the gross margin decline was a bit sharper than I expected. Can you break down the decline in terms of the impact from revenue mix versus the investments you're making or miscellaneous factors? What I'm trying to get to is how much of the impact is likely to be ongoing versus you get a recovery as you proceed through the year.

So, Ashwin, this is Karen. I'll take that. I think similar to the answer to Brian's question, this is really about utilization in Q1. As the business mix continues to take hold, digital becomes a bigger piece of the business. We are actually seeing that business continue to be margin accretive. And we expect that to continue, and that is certainly a big piece of what will help drive our margin profile in the outer years. But in the short term, because of all the hiring we did last year and the fact that we had such a big drop in utilization year over year as we went through last year, that's really what's putting the pressure on gross margin. And as I said, we would expect that to start to reverse as the year goes on.

Our next question comes from the line of Keith Bachman with Bank of Montréal. Please go ahead with your question.

Hi, thank you. Karen, is there a way to think about how your cost base is changing? What I mean by that is you're requesting or applying for fewer visas, but you're adding more onshore labor, so your costs – your general costs are increasing per head count. Is there a way to think about how that is unfolding for the year? In other words, are your costs per head count going up by 5% or 10% or not really changing? I know some of your strategic initiatives are designed to alleviate that pressure. But is there any way to quantify as you're growing your onshore head count how that's changing your cost base? And the second part of the question is, how much more can you move mix to be offshore? We've talked to some customers, and they seem more willing to move with the H1B1 – H1 issues that are arising. It seems like clients are more willing to let work move offshore. But how much more do you think room is there to move work offshore to mitigate some of the impact of what is generally I think higher cost wages that you have to pay for your onshore labor? Thanks.

Sure. So, Keith, I'll start and I think I'll let Frank add some color as well. In terms of the onsite costs, this is interesting. On a like-on-like basis, if we're hiring the same skills with a local worker versus somebody who comes over on a visa, there really isn't significant difference in the cost structure by the time you factor in the cost of the wages, the relocation, et cetera, versus the compensation that we're paying. And obviously, we have to keep in mind that when you're using the H-1B program, there are prevailing wage structures that set the salaries that we are going to pay to our people. So essentially, those salaries are set at market wage. So we're not seeing any significant difference as you shift the workforce. The biggest challenge is finding the right talent, and that has always been the concern and the challenge. So as long as you can find the right skill set, the cost structure is not significantly different. In terms of the ability to move work offshore and the willingness, I think it's the same issue. If clients can find the talent here in the U.S. or in Europe as it may apply, then I think certainly people would avail of that. But when the talent is not available, people are certainly willing to look at moving work offshore. And I will ask Frank, he may have color to add to that as well.

I think Karen has covered it well. I have very little color to add. All I would say is that on the issue of moving more work offshore, I think in general you have to look at that by line of service. I think that generally speaking, we're pretty optimized by line of service. But on some of the older lines of service, application maintenance, quality assurance, and so on, there may be some incremental opportunity to optimize the mix there. That's driven by maturity of those service offerings, more comfort that clients have with executing in a global delivery model, and to some extent driven by advances in technology, better communications technology, better collaboration and interaction technologies. I don't think that's a significant move. And to some extent, as we look at the portfolio overall, that move is somewhat at the portfolio level offset by the digital, the new digital work that requires more collocation, co-innovation closer to the client. At a portfolio level, I'm not sure you'd see significant shifts one way or the other.

Our next question comes from the line of Lisa Ellis with Bernstein. Please proceed with your question. Lisa Dejong Ellis - Sanford C. Bernstein & Co. LLC: Hi. Good morning, guys. Frank, maybe this one's for you, I imagine this transition that your business is undergoing right now is one of the biggest challenges you've had in the 20-plus years you've been there. Can you just talk about what are the most difficult aspects in your view of the transition both to digital on the revenue side as well as the margin expansion shift on the cost side of things and how you're addressing those?

Lisa, I would say while this is a transition that we're taking the company through, I think the company – and I give the team a lot of credit. I'll take a minute here to recognize everybody on the Cognizant leadership team and all of the people around the world who have gotten behind making this transition happen. It's not dissimilar to many other transitions that we've managed through in the past. We lived through the financial crisis and came out stronger at the other end when close to 50% of our revenue back then came from the financial services industry. We made the shift from year 2000 to the Internet and e-business and so on and so forth. The company is a little bit bigger today than it was back then, so the magnitude of what we're doing is a little bit bigger, but I would say the elements are similar. The reality is that we have a very, very strong market position that comes from incredibly strong client relationships that go back many years. We understand our clients. We understand their businesses. We understand their technology environments. And our advantage in digital comes from the fact that clients are moving into this phase where they are doing digital at scale, which means they're transforming their business models, they're transforming their operating models, and they're transforming their technology models, all of these in tandem simultaneously. That is Cognizant's advantage, that we have this capability to be able to work with them to transform their business model, their operating model, and their technology model through that in tandem in one strong, solid integrated fashion. So we've got a strong value proposition. We've got a strong – in the marketplace. Now in terms of the changes, the core capabilities that we…

Operator, I think we have time for one last question.

Yes, that question will be coming from the line of Arvind Ramnani with Pacific Crest.

Hi, good quarter. So when you look at these digital projects, they're certainly gaining scale, and clients value your consulting and advisory services even more so now than in prior years. Can you talk about your consulting offering and how you're looking to scale that given your onsite hiring? Particularly among the Indian players, you're certainly well positioned, but I'm sure there's more to do on building scale. And finally, how are you also leveraging your consultants on your account (56:20) management?

Arvind, it's Frank. There were multiple parts to that question, so I'll try to address them all, so a couple of things. I would say in terms of consulting scale-up, as you know, the consulting business at Cognizant is one that we've been building for years. And so in terms of the basics of that business and the basics of scaling that business up, I think we've got a very robust mechanism in place now. We've got strong campus hiring, MBA campus hiring, both in India and in the U.S. and Europe, so we hire MBAs from the top institutions around the world. That feeds the consulting permits. So the basic mechanism of scaling that up I think is very much in place and very strong. Having said that, as you pointed out, consulting has never been more relevant. And we continue to look to other ways to scale up our consulting group, particularly inorganically in addition to the organic things that we're doing. So you will continue to see us looking at consulting companies as part of our inorganic screen. I would say that in terms of areas of focus, we will continue to deepen in the industries that we serve our consulting capability. We're also looking to scale up technology consulting in particular areas that relate to digital around cloud migration. You will see us scaling up. We've already done, as you know, a few acquisitions in what I think of as the front end, the business model side of digital, so experience, design, creative, human factors, all of those kinds of things which are very consultative in nature. And then the last part of your question relates to integrating consulting more tightly in the client interface, and that's certainly something that we're doing. We've moved now increasingly to a model where, in addition to having client partners on our biggest clients, which is the historical model, we're also infusing the client interface with more dedicated, more full-time consultants from the Cognizant business consulting team. So all of that very much in the works and continues to scale up, so hopefully that addresses all the parts of your questions.

And with that, I think we're just about out of time. So I want to end by thanking everybody again for joining us today. Thanks very much for your questions. And as always, we look forward to speaking with you again next quarter. Thanks, everybody.

This concludes today's Cognizant Technology Solutions first quarter 2017 earnings conference call. You may now disconnect.