Ladies and gentlemen, welcome to the Cognizant Technology Solutions Q1 2022 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. I would now like to turn this conference over to Mr. Tyler Scott, Vice President Investor Relations. Please go ahead, sir, you may begin the presentation.

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 2022 results. If you have not, copies are available on our website, cognizant.com. Speakers we have on today's call are Brian Humphries, 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 risks 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, everyone. Thanks to our talented employees, we delivered on our first quarter commitments in what continues to be an intensely competitive global labor market. First quarter revenue was $4.8 billion, up 10.9% year-over-year in constant currency, above the midpoint of our first quarter guidance of 10.2% to 11.2% growth. Growth was led by digital, which grew 20% year-over-year and now represents 50% of our revenue. We had another exceptional quarter in digital business operations, which continues to meaningfully outgrow the BPO market reflecting momentum in intelligent process automation and digital native clients. First quarter operating margin was 15%, down slightly sequentially as expected, reflecting seasonality. First quarter bookings growth of 4% was in line with our expectations following exceptional bookings growth in the fourth quarter. On a trailing 12-month basis, we have a robust book-to-bill ratio of greater than 1.2x revenue reflecting bookings of over $23 billion. Given a healthy pipeline, we anticipate bookings growth acceleration in the second quarter and for the full year. Over the last 3 months, I've met employees, partners and clients across 4 continents. While the global economic environment is uncertain, based on these interactions, I remain optimistic about IT services industry demand for the foreseeable future. Clients are making the shift to digital operating models to become more agile, automated and innovative. They know that it is the only way to deliver customer-centric user experience and hyper personalization, to simplify complex workflows and to build a modern operating infrastructure that's Our strategic repositioning enables us to engage more deeply with clients, helping them to succeed and supports our growth trajectory. Our capabilities are in strong demand as digital becomes mainstream. Ultimately, I believe that our scale in India, complemented by our growing global delivery network, will differentiate us as…

Thank you, Brian, and good afternoon, everyone. Our first quarter results reflect continued momentum within our digital portfolio. While overall uncertainty around the economic outlook has increased, we continue to see a healthy demand environment across our portfolio of services and offerings. Q1 revenue was $4.8 billion, representing an increase of 9.7% year-over-year or 10.9% in constant currency. Year-over-year growth includes approximately 220 basis points of growth from our recent acquisitions partially offset by a negative 40 basis point impact from the sale of Samlink completed February 1. In Q1, Digital revenue grew 20% year-over-year and represented approximately 50% of total revenue. During the quarter, we reviewed the scope of our digital ensure alignment across digital skills, growth priorities and our pricing initiatives. This is the first time we have reviewed our definition since we updated it in 2020. Under the new definition, Q4 '21 digital revenue would have been about 49% of total revenue, approximately 4 points higher than the 45% we previously reported. For this quarter only, we are also providing some additional information to highlight the change in our digital definition. Under our previous definition, digital would have grown 18% in Q1, and represented approximately 47% of revenue. As Brian mentioned, Q1 bookings grew 4% year-over-year, which resulted in trailing 12 months bookings of $23.4 billion, representing a book-to-bill of approximately 1.2 unchanged from Q4. We believe this book-to-bill provides us a healthy opportunity to support our full year growth ambitions. Moving on to segment results for the first quarter where all growth rates provided will be year-over-year in constant currency. Financial Services revenue increased approximately 6%. Trends within this segment were consistent with last quarter as positive momentum within our North American banking business and improved performance in insurance were offset by softness in our global…

. First question comes from the line of Tien-Tsin Huang with JPMorgan.

Just I want to ask on bookings up 4%. You said that was in line. I think the math -- I guess my simple math suggests that it's a pretty solid book-to-bill in the quarter 2 in addition to the trailing 12-month figure that you shared. Is that accurate? And maybe can you give us a little bit more on why you're confident in the acceleration to close the year in bookings?

Tien-Tsin, it's Brian here. So look, all in all, we actually had an exceptional Q3, Q4 in bookings, if you remember, both quarters were up in excess of 20% year-over-year. And so some of that, there's natural behavior in a commercial team to pull in bookings in the latter part of the year to maximize their variable compensation. So the compares what the compare is. But I feel very good about where we are, a book-to-bill of 1.2, the book-to-bill in the quarter is fine too and generally good momentum behind digital bookings as well. So our pipeline plus the book-to-bill ratio, which is very healthy at this moment in time, give me confidence that we continue to do the right thing. On the contrary, we don't really have what I would view a demand issue as an industry that is faced with elevated attrition. The trick is always to optimize how much you want to sell, otherwise, you end up frustrating clients if you can't deliver against it. So it's more a demand supply and balance labor cost and attrition dilemma than a top line dilemma at this moment in time. Now in the same vein, I'll be the first to say that the economic backdrop is uncertain. And therefore, we continue to monitor, as you do on a daily and weekly basis the war in Europe, the inflation or the risk of stagflation, to broader economic sentiment, of course, and how this may impact not just us, but our clients and therefore, indirectly us. But at this moment in time, despite an uncertain backdrop, I'm certainly optimistic about the IT services demand picture for the foreseeable future and our role within that.

Great. Yes. No, that's encouraging and fair. So I guess my quick follow-up just on the inorganic change in the outlook. Is that a function of maybe some deals falling out of the pipeline or just a timing issue with what you've seen year-to-date? Just anything else to add there, that would be great.

I would say, Jan and I are quite judicious when it comes to M&A, quite disciplined, very intentional, and we tend to step out of certain deals. If they don't make economic sense, we're here to represent shareholders. Of course, we're custodians of the company. And in some cases, it's been us stepping out. In some cases, there are deals that we weren't able to get done or we weren't able to get the counterparty to engage. There's no fundamental change to our We continue to view that as a core element of our capital allocation framework, certainly a core element of us executing against our strategy. And where we do M&A, we'll be in tune with our digital aspirations, key vertical aspirations, geographic expansion and of course, our desire to be a little bit more advisory led. In certain deals, you hit multiple birds with the 1 stone. You can have an international deal that is aligned to a digital priority that is aligned to a key industry. And so it's more of the same going forward. It can be choppy. Sometimes you get more higher return average, but we feel pretty good about our strategy and how M&A will play a role within that.

Our next question comes from the line of Bryan Bergin with Cowen.

So I just wanted to follow up here on an outlook. First, just to unpack the revised revenue outlook. So you took down the inorganic by 100 bps and the FX headwind was obviously a little bit more than 2x what it was before. So collectively about $385 million of headwind versus the prior view. So I just wanted to clarify that, that was really the big piece there with obviously a little bit better organic. And then just on the M&A, just going forward, is it more fair to assume, let's say, a range, 100 bps to 200 bps a year versus a specific target, just given potential lumpiness?

Yes. It's a good comment. I'll start to tackle the M&A stuff first. I think we should expect a little bit of bumpiness in M&A just by the nature of it. And so it's fair to say we haven't really changed our capital allocation framework. So I think the general guideline that is on Brian’s and my mind is still a 2% thing. I think in this case, we had a couple of deals that fell out of the pipeline for the reasons that Brian described. And as we outlook, we see a little bit more activity in the third and fourth quarter happening. So we just felt it was prudent to let you know about that. There's no change. It's just like these are discrete items and in 1 or 2 deals can make a little bit of a difference. But no change for the medium-term outlook. I think we're sticking with our 2% revenue growth and 50% of our free cash flow allocation to M&A. On the guidance, I think you got it right. We basically took the inorganic down by 100 bps, and we increased the organic constant currency at the same rate. So we are sticking with our same organic -- constant currency revenue, not organic, but all in constant currency revenue was sticking at the same midpoint.

Okay. Okay. And then just on margin, has the margin progression gone as planned as it relates to maybe the timing of investments that you had budgeted for in 2022? Curious if just the wage inflation has shifted anything around for you? And maybe help us with the cadence of how we go forward from here on operating margin.

No, I appreciate that. You're familiar that our margin profile throughout the year has a typical curve with the second and third quarter being stronger, and we anticipate this year to have a typical curvature, so to speak, on margin. Clearly, you have seen an increased pressure on compensation costs. And so, we have built into our forecast, of course, offsetting measures relative to improvement in our cost to delivery efficiencies, investment into automation. We have -- of course, pricing is rolling out throughout the 4 quarters and will gain throughout the year. So all these things have to be coming together in order for us to achieve the 20 basis points to 30 basis points of margin expansion, which is our best outlook right now that we have.

Our next question comes from the line of Moshe Katri with Wedbush.

I have 2. Can you maybe get some more color on subcontractor use? I think you indicated that was 1 of the factors impacting margins for the quarter, maybe kind of look at that versus percentage of revenues where has it been trending? And then on top of that, maybe some color on the weakness you mentioned in your banking portfolio. Is that the same kind of issue that we've had during the past few years? Or is that anything different?

You broke up in the second question, the weakness in...

In your banking portfolio? And you indicated -- and the question is, whether this was the same weakness that we've been talking about for a couple of years now in BFSI.

Oh, BFS. Okay. Okay. Perfect. Yes. So we don't really break out our subcontractor cost explicitly for you. But the biggest impact on our operating margin by far is really a merit in off-cycle and then pair that with the subcontractor hiring. So it's just a bigger factor as you would expect, higher attrition leads to some of that use. But I don't think we're breaking it out publicly, but those were the major factors on BFS continues to be on a good path. We see steady expansion. I mentioned in my call that Samlink went out of the revenue that put a little bit of pressure in the European banking and financial services revenue growth. But overall, we see a steady improvement that shows that we are on the right path here. There's actually increased digital bookings. There are core projects, as Brian mentioned in his call that are driving up. So as we -- I think Brian used on this call, the continued and steady improvement for BFS is kind of where we are. We're not at the end of our work here, but we're feeling we are on solid ground.

Our next question comes from the line of Lisa Ellis with MoffettNathanson.

Sure. I'll start with the inflation question. And specifically, I know you called out you're taking some pricing actions. Can you just elaborate a bit on what components of revenue will be affected? Is this mostly in your kind of materials business that you'll be able to affect through pricing? And then also a bit of a more strategic question on inflation, how is it affecting your clients' agendas or mix of work at this point?

Yes. We have clearly -- pricing is always part of our business model, and many of our clients obviously have regular price increases built into their contracts. But I think the extraordinary situation of wage inflation and cost pressure that also our clients' experience has, I think, opened more opportunities for us to drive pricing initiatives across the entire company. And I think we are deploying really a variety of approaches. Each client a little bit individualized to it. But once we're finding basically for many clients, receptivity. So it will be still hard. We are in the business of generating benefit and value for our clients. But the discussions from what I can see have been starting and have been constructive with our clients. So I'm expecting pricing to build momentum and help us to contribute to the margin expansion throughout the next 3 quarters.

Okay. And then maybe as my follow-up question just on the BPO call out. Brian, in your prepared remarks, you highlighted again now this been a couple of quarters in a row, the strengthened BPO. Can you just elaborate what service line specifically, like which verticals is that showing are you sort of leaning into that opportunity, which seems to have come out of the tight labor market in the back of the pandemic.

Yes. Lisa. Look, the team has done an extraordinary job. I would say not just in this quarter or recent quarters. But in the last few years, we exited, as you know, content moderation. That has been a large driver of growth in that business, and we executed it seamlessly. We repivoted the company more towards certain categories, notably around intelligent process automation, ultimately contextualized to industry-specific use cases as well as a very strong focus on the digital native clients. But not just has that been a success story in its own right, we're also, Lisa, in every 1 of our 4 externally reportable segments, growing our BPO business in not just along the lines of digital natives. Margins have been improving, and we're obviously now using this to try to get pull through to the, let's say, tech services portion of the company. The -- if you think about our BPO business, I mean fundamentally, it's historically been about 80% aligned to verticalized plays. We continue to strengthen our hand in that regard, but we're also looking in other growth postures, including F&A and CRM and doing that in conjunction with partners and starting to see a pipeline behind that as well. So we have, I would say, very strong client references, a lot of swagger in that group that are consistently beating their forecasts and budgets. And that swagger correlates to broad-based momentum across indeed across all 4 verticals.

Our next question comes from the line of Ashwin Shirvaikar with Citibank.

I guess I wanted to ask with regards to any indirect or flow-through impact you may have seen from the war in Ukraine, either clients coming to you to potentially move work away from East European clients or East European locations with other vendors or subcontractor work that might come your way or even on the supply side, any increased pricing wage pressure?

Yes. Ashwin, look, generally, we don't really have any exposures to Ukraine or Russia and are now significant operations there whatsoever. And I would say, at this moment in time, we've seen no material impact of the conflict on client demand either. Of course, we'll continue to monitor that situation. One, we have had clients come our way. I mean we're clearly aware of our digital engineering strength and our ambition to scale further there. I actually think if I stand back from the here and now, I believe that the implications will be lasting and that our scale in India, which we're actually tying into our digital studios around the rest of the world, which are very much part of our digital and global delivery network, they'll ultimately help us distinguish ourselves. And ultimately, as clients are assessing their vendors and strategic partners, and in particular, as digital becomes mainstream, I suspect that scaled players like Cognizant will stand to win in the long term. And India will continue to be an asset for us. And if you just think about the last few years in the COVID period, there's been a number of points mix shift to offshore, notwithstanding the industry scaling towards digital. And I think that will stand Cognizant in good stead given the tremendous strength and talent we have across India.

Understood. And with regards to just talking about wage inflation and pricing trends, I know there are many nuances as it relates to the ability to proactively pass price increases to clients, when you can do that, the number of times a year or the call or definitions, things like that. Could you sort of walk through what you're seeing areas?

Yes. I'll start and Jan, why don't you jump in if needed. Ashwin, I think, first of all, pricing is extremely topical at this moment time, given the services companies are knowledge-based organizations and therefore, our supply chain for wanted a better word is our talent. And as costs of our people go up, by definition, we have an obligation to, in one form or another, either automate, change the pyramid, change the offshoring mix or near-shoring mix and/or find a way to pass on cost to clients, notwithstanding automation agendas or whatnot. So I think at this stage, pricing is mainstream in terms of dialogue amongst not just Cognizant, but also our peers in the industry to try to offset the compensation pressure. So the classic situation that we have grown up with historically around MSAs being signed with rate cards associated with those and rate cards coming up for renewal every 1 or 2 years, that is not necessarily as relevant anymore because people have to intersect those natural cycles. Now on top of that, I'd just point out that well, as Jan said, we have a pricing initiative underway. Clearly, the business model evolution of Cognizant, which has been quite intentional in recent years, including a much greater shift towards digital and the commitment to try to evolve from being a provider of resources to be a solution provider that enables clients to address their pain points by a selling solutioning and delivering client outcomes, that puts us in a position where we are competing with sometimes very different competitors and we may have some margin opportunity via pricing leverage as well. So both of those factors, I think, are pertinent at this moment in time.

Our next question comes from the line of Rod Bourgeois with DeepDive Equity Research.

I just want to ask about acquisitions that you've completed in the past couple of years and how you're performing against the revenue and synergy targets on those acquisitions. And I would also ask if you could include any kind of update on TriZetto. I know that you made some good turnaround progress in that business' growth last year. And it would be helpful to hear your latest thoughts also on TriZetto's growth trajectory.

Hey, Rod, I'll take your second question first. TriZetto had actually -- interesting that you're asking -- the best product sales quarter ever in the history this quarter. So the product modernization that we had undergone with TriZetto continues to show benefit and so they are doing really well and the pull through implementation services and other services to it. Relative to the M&A performance. We had -- our M&A portfolio is performing well against our budget, and we are generating actually revenue synergies as we had planned for. And I think we have probably a little bit more work to do to counter the margin dilution that our M&A does. But I'll give you 1 example. Our Softvision acquisition that we did now a number of years ago is now the core basis of our digital engineering business, and we're really integrating our entire engineering practice, digital engineering practice based on the Softvision model. So I would describe our M&A program is largely successful as a portfolio. Now you always have in a portfolio of companies, some that are not doing quite as well, but as a portfolio, we are very satisfied with the progress we're making on M&A.

Great. You could have just said TriZetto's performance is so good, it can make you cough, but that's my bad analyst humor.

I'm sorry. I'm a little bit under the weather with a little bit of a cough. So sorry for that, Rod.

Understood. Hey, just on the attrition front, is the attrition challenge starting to abate? And what levers are being pulled that give you some encouragement about where that might be going from here? Where are you getting some benefit on the efforts that you're making to attract and retain talent?

Rod, it's Brian. So first of all, we're delighted. We've reduced voluntary attrition for 2 quarters in a row. This quarter, attrition fell 5 points sequentially on a voluntary basis, and we are extremely comprehensive in our disclosure of attrition perhaps the purest in the industry. That being said, I actually anticipate attrition will pick up in the second quarter. In fact, I know attrition will pick up because we look at resignations on a daily basis, and we anticipate it will be elevated for the course of the year. We have done a tremendous amount in the last year. We call this early. We substantially overspent our allocated budget last year for compensation and promotions because we wanted to invest in our talent try to mitigate attrition and make sure we capture the market opportunity. But this is above and beyond simply financial measures. It's total rewards, vacation policy, 401(k) policy, stock purchase price policy, et cetera, within total awards. And on top of that then, there's a significant amount that we've been doing around investing in our employees, whether that is skilling or indeed enabling career path advancements, Cognizant as you know very well, has always been a company that invested heavily in our people, attracted smart people, put them into accounts and really enable ourselves to ingratiate ourselves at accounts. Well, we've furthered that in the last year by doing what I would view as clever things with regards to our promotion process, really trying to make this a little bit more self-service and constant through the course of the year by tying it much greater to skilling as opposed to longevity of tenure and making sure that we try to correlate that with bill rate increases as well. And then there's a broader notion of us getting back on the front foot growing double digits, which creates career path opportunities for people and upward mobility and just a celebratory sense of winning bigger deals, winning in digital and delivering with success. Now all of that comes against the backdrop of us also in the course of the last few years taking some pain by really balancing our visa dependency in North America given the regulatory backdrop as well. But the heavy lifting of that is now essentially behind us. So we've been working very hard to mitigate attrition. But the reality is the market is red hot behind certain skills and try as we might, and we track the data when we promote people or when we give them salary increases. We know how long it mitigate attrition before it picks up again. So I just think this industry is perhaps at a different curve than it was in the last 15 to 20 years, perhaps the return to office are much more of a hybrid work will help mitigate what we've seen in the last year, but I'm still somewhat pessimistic about the industry attrition trends.

Our next question comes from the line of Brian Essex with Goldman Sachs.

Brian, I was wondering if you could address headcount growth, a number of quarters here of nice strong double-digit headcount growth in spite of attrition, although attrition has been improving. Can you maybe unpack that growth a little bit and give us a little bit of insight around have you been able to improved lateral hiring. Are you making some digital ads? Is this primarily freshers that you're bringing on board? And how that might translate into revenue related -- I guess, headcount-related revenue growth going forward?

Yes. Well, the holy grail of course, in a services company is somehow to decouple headcount growth and revenue growth, but there are multiple factors at play, including accelerators and the mix of their headcount onshore versus offshore and indeed within the pyramid. Clearly, if I start with the pyramid, at the bottom of the pyramid, I felt 3 years ago, we were light. We hadn't been as aggressive on campus hiring, et cetera. And in the last few years, we have really, I would say, materially changed our hiring practices, 17,000 a few years ago, 33,000 freshers onboarded and infused in the last year. And then we're aiming for 45,000, 50,000 this coming year. And I'm assuming that will continue to grow. So that by definition, adds headcount at lower levels from a billing perspective. And clearly, as you go through rightsize that, then you bring people on board, you get them trained for a few months, you infuse them into accounts and ultimately get them into more billable type roles. So that's been 1 factor where you've seen us materially add headcount. And I think it's fundamentally so core to our success in the years ahead because with those people being skilled and with this internal job moves program that creates upward mobility in our organization, we are therefore able to promote from within more often, particularly when we have fixed bid or managed services type deals versus a more traditional deal staff augmentation or interview-based role. The second factor I'd say is our mix has shifted like many in the industry, about 2 points towards offshore in the last year, and that has different dynamics in terms of average bill rate per employee or margin dollars per employee but also margin rate per employee can be higher…

Got it. Very helpful. I appreciate that. And maybe just a quick follow-up for Jan. On FX, maybe any way to quantify the contribution from rupee depreciation versus the dollar and how you might be thinking about that going forward given the margin guidance you've given?

Actually the rupee movement going forward, which is largely affecting basically, of course, our cost base is, as you know, moderated by our hedging program. So we really don't make an assumption around this. In the quarter, I think I mentioned in the script that the rupee did contribute about 50 basis points in a set of ups and downs to our margin. But that may help you a little bit to extrapolate for what it is. So this is largely driven by our revenue forecast that's going to be the euro and the pound are going to be the most impactful one in that.

Our next question comes from the line of Keith Bachman with BMO.

I'll ask my 2 questions concurrently since they're related. Brian, first for you. When you last -- since you last gave guidance, based on our discussions with folks in India, in particular, it seems like wage rates have actually moved against you. In other words, wage rates have gotten more expensive even over the last 90 days. And assuming that supposition is true, I'm just -- what is going right that allows you to maintain the margin guidance even with perhaps wage rates getting more onerous. So perhaps you assumed in the previous continue to move against you. But is it as simple as pricing? Because when we do our calcs on the rupee exchange rate, it's not enough to offset the change in waste rates even over the last 90 days. So, a, what is going right that helped you maintain the guidance? And are you comfortable that, in fact, with the current wage rate structure, you're leaving enough room as you said, to strengthen your hand or invest appropriately for the longer term?

Well, we have continued to invest in the company. As you know, over the last few years, our SG&A has outgrown revenue and margin dollars substantially on a year-over-year basis for a whole host of initiatives, from IT security to marketing to reinvigorating the commercial momentum story that is now few in the growth that we're seeing. Keith, by definition, it's not an easy environment. By definition, when we look at forward guidance, we anticipate not just the here and now, but month and quarter, we have more lateral layers that we're bringing in from the outside, which are coming in at rates. But I still feel in the same vein that the negatives of labor cost increases, the attrition impact on utilization, the increased costs associated with travel and entertainment and return to office, we still have possibilities to offset that with moderated SG&A growth, with revenue growth leverage, pyramid optimization, shoring optimization, automation, real estate and, of course, pricing. And arguably, pricing is the big one. We are seeing some nice green shoots there. It's a programmatic approach that Jan and I are heavily invested in with our pricing team globally and with the markets to make sure that we have the courage to talk to clients around the importance of investing in our people, which will help mitigate attrition on their accounts and the various other actions we're taking. So pricing is ultimately the factor that gives us an ability to maintain margin growth of 20 basis points to 30 basis points for the year.

Right. In other words, those pricing discussions, even since the beginning of the year, those are perhaps a bit more favorable where clients are willing to listen or it's a more equitable discussion at least it sound.

Yes. Look, let's face it. I mean in every C-Suite conversation that I have as I go around the world, we all end up talking about multiple things around return to offers, hybrid work, culture and also about labor and supply chain disruption. And many clients over the years, as you know, have brought certain skills in-house and they're all dealing with the same trends we are dealing with ourselves in terms of elevated attrition and labor cost increases. So it is quite topical. It's quite known for our client base, and we're not the only company in the world approaching clients outside of standard renewal dates to intersect the classic rate card work. It's heavy lifting. It's not easy. I want to call out my team globally. We've worked very hard in the last 9 months to mitigate this to navigate our way through certain icebergs. And we know we've got some heavy lifting ahead of us as well. But the team are committed to do so. And we keep, obviously, everybody current on a quarter-by-quarter basis and see how much progress we can make in this regard.

Okay. Fair enough. And then, Brian, just to clarify, you did say that you've had a really nice move in quarter attrition over 2 quarters. You said it would go back up in June due to some seasonal factors. But do you think it flattens out there, even declines as you look at the back half of the calendar year? Or do you think it kind of stays at these elevated levels? Can you make progress in attrition, if you look over the horizon from the June quarter?

We just don't know. It's very hard to call, Keith. The reality is that attrition slows based on a series of financial measures we've made, serious promotion measures we've made. But obviously, there are elements of seasonality at play here as bonuses are paid, which triggered an increase in attrition in the last few months. And so therefore, I know that attrition will go up in Q2, and that's factored into our guidance. Once we get past Q2, we're just going to have to keep a close eye on this and see how we're able to continue to engage employees. I actually believe that the environment we're in these days, which I think we've hit a watershed moment of people no longer necessarily wanting to work in an office environment like in the past can be detrimental to employee engagement and cultural affinity and indeed can enable people to work more remotely. And then in countries like India, the notion of moving from a large urban center to a rural environment, trying to encourage people back to an urban environment can have meaningful consequences for their disposable income at the end of the month. So there's not just a philosophical debate in terms of whether you can commit your work on remotely leveraging technology, but it's very much a financial debate as well, notwithstanding the broader inflationary pressure in the urban centers or indeed in rural. So I'm somewhat of the opinion that we're at a new norm, the labor market as we set. And with that new approach to work, industry attrition may pick up on a more sustainable basis, particularly in today's demand environment, where I still feel that digital transformation is clearly throughout multiple industries, and there's a lot more legs on this in the years ahead.

Our next question comes from the line of James Faucette with Morgan Stanley.

Great. Just on -- kind of a follow-up question on pricing. Can you talk a little bit about -- well, historically, you've talked about there being a gap between your current pricing and the pricing you command in some of your acquisitions. Where are we in terms of closing the gap? And how much incremental benefit do you think can come from that this year?

I think I don't want to go into all the details of the pricing opportunity, but you're pointing out, I think, a key element of -- that is playing a little bit in our favor. The shift towards digital is on its own helping because we have a higher gross margin in our digital business. We're focusing, obviously, also on the pricing of these high-end demand resources. And so that gives a little bit more pricing opportunities. Also these projects tend to be a little bit shorter term compared to other long-term contractual things. So in that area, we're going to expect to make some progress, and I think our clients have also shown more receptivity in the area of these set of digital skills to discuss pricing with us. So I think that's helping. So you have a double effect of driving higher share using our acquisitions and pricing levels that have been established by our acquisitions as a guide to establish better pricing levels for the entire enterprise. So I think you're intuitively pointing out 1 area that gives us -- is definitely part of our overall thinking relative to revenue generation. There's also an element, if I come back to the question is really the overall margin discussion and pricing has been a focus on this call. But we do have, with our shift towards hiring of Gen Zs dramatically shifted our cost pyramid development and the internal promotions not only help, of course, generating better group happening for our associates, but also help us to mitigate the cost of lateral hires. And we hope that as we execute on our strategy of increased Gen Z hiring that -- and we plan on cost efficiencies and in our delivery model, helping in a similar way to offset the compensation pressure that we're good seeing just on wages, basically.

Got it. Got it. And then how would you talk about -- and maybe just for you, Brian, how do you feel about the current state of your delivery organization and even outside of attrition, obviously, attrition and hiring is always going to be a challenge for delivery. But how are you feeling about that structurally and skill wise, et cetera? And any unique challenges outside of hiring and attrition that you want to make sure you try to address as we go through the rest of this year?

I'm very proud of our delivery organization. At the end of the day, Cognizant is a delivery company, whatever we sell a little more than a commitment to actually go and deliver against that. And come what may in the last few years, humanitarian crisis, a cyber attack and of course, in today's elevated industry attrition. Our delivery team have gone the extra mile time and time again to satisfy client demand and juggle various balls. So I'd like to complement them. We, of course, are complementing India as well by bolstering that with a global delivery network in Europe, in North America, onshore as well as nearshore locations. So they've done a really nice job for us. As we evolve the way we show up the clients and lead with advisory capabilities to sell solutions and deliver outcomes by industry, addressing client pain points, of course, there is an evolution that's happening in our delivery organization. And that includes how we solution and project and program management, and of course, the degree of efficiencies and accelerators we're able to use within our portfolio. And that's something we're making good progress on. And at some stage in the future, we'll talk more about that externally. But our delivery organization is the heart of Cognizant. I, frankly, was in India probably 4, 5 weeks ago, I'll be back there in the coming month or 2 as well. A lot of my team have been there in more recent weeks. I actually characterized the morale and the vibe amongst the delivery organization to be perhaps the highest it's been in the last 3 years. I really feel very good about where we are, notwithstanding the pressure everybody has been under given these either self-imposed or exogenous events.

We have time for 1 more question. Our last question comes from the line of Bryan Keane with Deutsche Bank.

Thanks for fitting me in. I'll keep it short here. I guess, I know focus of the company has been to do larger deals, just get an update on how that pipeline looks and if you're being able to close some of the larger deals? And then kind of the secondly, is there a bookings about? I know we started at 4%, you're talking about an acceleration. I know we've done mid-teens the last couple of years, just trying to get our models set up correctly.

Yes. Look, I think fundamentally, given the revenue guidance Jan and I gave in November last year in the multiyear outlook as well as the current guidance for 2022, we've got to maintain a book-to-bill ratio at 1.1 or above. That's certainly directionally what's going to be needed for us to achieve those goals. I always think it's very important to underscore the importance of thinking about bookings across a trading 12-month basis. And to your point, Bryan, we've had some very strong years now the last 2. And from my perspective, we are in a much better position than that and we've been at any stage as I came here a few years ago. And I feel good about our win rate, and I feel good or better pipeline within that. So that's kind of my perspective in terms of bookings and our readiness to get after the market opportunity in the years ahead. The demand picture is less concerned than the attrition and labor cost concerns.

And what about larger deals, Brian?

Larger deals, trailing 12-month basis, we've got $23.4 billion of bookings without substantial large deals within that. And I view that as a positive because our digital momentum has really picked up. But certainly, with, I would say, strong delivery capabilities, strengthening project and program management, strengthening solution name, discipline within Cognizant. We are continuing to review the opportunity to get into some larger deals. And hopefully, we'll have some good news for you on that in the next few quarters. Some of those will be aligned to really us like FSI, where we've done some good work in portfolio. We cleaned -- refreshed our client-facing teams, both in delivery as well as in commercial, and we've got a very strong industry solutions group that needs to continue to get stronger. And we've been spending a lot of time with clients that we haven't sold to in recent years, and I think we have the opportunity to get into some of those larger accounts as well. So hopefully, you'll see something in the coming quarters in that regard. But our momentum has ultimately been carried by digital momentum, the reinvigoration of our commercial sales team and client centricity at our core, clearly, a broader portfolio that's more compelling than ever before, which has been intentionally built to exposures to higher growth categories. Our international expansion, I'll call out the UK, our second largest country after the U.S. growing consistently now. 20% plus is a really strong post-merger integration opportunity to scale into our accounts. If we can complement all of that with a few larger deals per year, that will be done opportunistically judiciously. There's a lot of potential left in this company, and I really feel good about that.

Okay. With that, thank you very much for joining us today, and we look

This concludes today's Cognizant Technology Solutions Q1 2022 Earnings Conference Call. You may now disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.