Ladies and gentlemen, welcome to the Cognizant Technology Solutions' Fourth Quarter 2024 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. [Operator Instructions] Now, I would 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 investor supplement for the company's fourth quarter and full year 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 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 now like to turn the call over to Ravi. Please go ahead.

Thank you, Tyler, and good afternoon, everyone. Thank you for joining our fourth quarter and full year 2024 earnings call. I joined Cognizant two years ago, drawn by its heritage and unique DNA, along with its extraordinary ability to sense, incubate, and scale new technologies for global enterprises, often ahead of peers and clients. We set out to harness these trends and reclaim our place in the winner circle. I'm pleased to report solid progress in 2024. We successfully pivoted from stabilization to growth, building momentum throughout the year. Q4 marked a high point for year-over-year revenue growth, large deal signings, and bookings. Operationally, we completed our NextGen program, delivering savings reflected in our adjusted operating margin and strengthening our ability to make strategic investments and drive profitable growth. Our 2024 results reflect the strong execution of our strategic priorities, accelerating growth, becoming an employer of choice, and modernizing operations. Our North Star remains returning to the winner circle with top-quartile revenue growth, while steadily expanding our margins over time. Let's take a moment to reflect on 2024, starting with our growth initiatives, which gained momentum through large deals, platform enhancements, new and strengthened partnerships, and strategic acquisitions. With respect to platforms, our AI labs made significant advancements with our AI capabilities and offerings in 2024. We introduced Flowsource for full stack engineering, Neuro Edge for real time AI, Neuro Cybersecurity for AI-enabled proactive defense, and Neuro AI Multi-Agent accelerator for AI agent development. We also added multi-agent orchestration capabilities to our Neuro AI platform and we debuted our AI-powered Cognizant moment to help clients reimagine client experiences. In 2024, we expanded the breadth and depth of our global alliances' ecosystem and we added two strategic acquisitions to our portfolio, Thirdera and Belcan. Thirdera made us one of ServiceNow's largest…

Thank you, Ravi, and thank you all for joining us. Our fourth quarter results underscore the progress we have made against our strategic priorities to improve commercial momentum and enhance operational excellence. Fourth quarter revenue of $5.1 billion grew 6.7% year-over-year in constant currency at the high end of our guidance range. Organic revenue growth was driven by Health Sciences, which grew more than 10% year-over-year, and financial services, which grew approximately 3%. Our acquisitions of Thirdera and Belcan have supported our entry into new end markets with attractive long-term growth profiles. Fourth quarter revenue included approximately 450 basis points of year-over-year growth from these acquisitions. For the full year, revenue of $19.7 billion increased 1.9% year-over-year in constant currency and included approximately 200 basis points of growth from Thirdera and Belcan. We were very pleased with our fourth quarter adjusted operating margin of 15.7%. This performance driven by completion of our NextGen program and our rigorous actions to strengthen operations drove full year adjusted operating margin of 15.3%. This was 20 basis points ahead of our guidance. This also represents 20 basis points of margin expansion year-over-year, net of significant investments we have made to accelerate growth, such as Belcan and our AI platforms. Now let's turn to the details of the quarter. By segment, Health Sciences saw broad-based strength across payer, provider, and life sciences end markets. Clients continue to prioritize cost optimization, cloud migration, and legacy modernization projects, which are helping to more than offset the muted discretionary spending environment. Within financial services, growth was balanced with positive trends across capital markets, cards and payments, fintech, and commercial banking clients. We saw a further albeit gradual pickup in discretionary spending. In North America, we are seeing an improved pipeline of opportunities for transformation and modernization projects across…

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Bryan Bergin with TD Cowen. Please proceed with your question.

Hi, good afternoon. Thank you. I want to start with bookings here. So you're excited with building momentum on the larger deal front. Do you feel like you're reaching a rhythm now where you'll have more consistent quarterly bookings performance? Ravi, maybe talk about go-to-market and just a large deal edging now versus where you've been as you've gone through 2024?

Yes, thank you for that question. Yes, I mean we've got some phenomenal momentum on large deals. We did 29 of them, $100 million plus in 2024 versus 17 in 2023. So, there are multiple things which I believe are going to help us in 2025. First, we have a tail velocity of deal making. Second, we have a book-to-bill now of 1.4%. The third, I would say is the small deals are starting to come back. So we are excited about it because it has monetization in the same year. In fact, our ACV numbers, we track that internally are higher than before, which gives me, again, great confidence that it's a combination of ACV and TCV. We also do a bid versus bid inside the company and we are looking pretty good. On the deals we signed in 2024, the deals we signed in 2023, we are executing to a pretty good track. So, I would say we are now in the rhythm. We are accessing the deals well. Our win rates are significantly higher. It's a spread, in fact, over the two years, we have moved from application services to infrastructure services to now engineering services, which is a combination of the organic engineering strength we had and the stuff we got from Belcan. We also got a breadth of the industries from healthcare to -- from healthcare to financial services to products and resources to now progressively moving from Americas to other parts of the world. So, this is a great rhythm for us, good tail velocity to getting into 2025 and it is a very good spread. So, it is resilient and sustainable for the future.

Okay. That's good to hear. And then a follow-up on just the growth outlook as you built the plan here, the organic growth plan for 2025, can you comment on potentially how some of these industries unfold relative to what you saw in 2024 as it relates to healthcare versus financial solutions versus a P&R and commuter tech?

Yes. So because we have the breadth and the resilience now, I mean, our growth is going to be very broad-based and all-round. You've seen healthcare, we have done 10% Y-on-Y, which is pretty healthy on a good big base. We are having pretty all-round growth all the way from payer, provider to life sciences. On financial services, where I started last year to where I am today, we are -- we have now created a rhythm of Y-on-Y growth for subsequent quarters. And we are very, very excited about the fact that financial services, we are seeing discretionary coming back and we are actually capturing a lot of that. Now we are starting to -- with the muscle we have created on a broader capability, we are starting to see communications which -- and the technology, which is a muscle we created in the last two years is doing well. Products and resources with retail and consumer goods was otherwise doing well. And now we have strength in manufacturing with the power of the Belcan capability we built. So I'd say it's all-round comprehensive organic growth we are looking at. And I'm also excited about the fact that while Americas is actually a principal market and it is leading the way, the international markets are starting to contribute to this process. Our first-quarter guidance is pretty strong. I mean, this is one of those quarters which is normally seasonally weak, but if you see the midpoint of our guidance range, we are positive. So, it is tail velocity from quarter four cutting into quarter one, plus all the momentum we have.

All right. Thank you.

Our next question is from Jason Kupferberg with Bank of America. Please proceed with your question.

Good morning, guys or good afternoon, I should say. Thanks for taking the question. I wanted to just start on the organic growth for the year. It looks like we're targeting 1% to 3.5% organic constant currency. The midpoint of that, I guess, would be pretty consistent with how you exited 2024 on the same basis. So I'm just wondering, in terms of acceleration, it sounds like there's more discretionary spending going on and you have some bookings momentum exiting the year. So, it doesn't seem like we've built much acceleration into the guide on an underlying basis, but is that just conservatism, or are there other considerations there?

Yes. So it's the start of the year. The visibility into the second half, you kind of build it in the next few weeks. We are hoping there is continued buoyancy into the second half, so that the upper end of the range is doable. So, the way I constructed it is, there is a tail velocity to the first half of the year and that is constructed to the middle of the guidance range. And then we are hoping we continue to execute well. We continue to see the same buoyancy we're seeing now. I mean, discretionary is starting to come back. And as the visibility builds in, we do our best to outperform. If you look at the last four quarters, we got to the upper end of the guidance range in the last four quarters, including the one we just concluded. So I would say, I mean, that's how I'm seeing it. I mean there is -- when I spoke to all of you one quarter ago to where we are today, I'm more optimistic about the future.

Okay. That's very helpful. And I know you touched on agentic AI earlier. Wondering if clients are starting to talk more about it? And what's Cognizant doing to invest to prepare for that opportunity? And then just any views on how DeepSeek could ultimately impact the IT services industry? Thank you.

Yes. So I spoke in detail in the -- just a few minutes ago. Yes, I think I put this in three vectors. The first vector is writing code. I'm a strong believer that writing code with machines amplifying humans is only going to get us to write more. We will unlock billions of dollars of legacy debt -- legacy technology debt sitting on corporate landscapes, backlogs and we are seeing that in our deals now. I mean, one of the reasons why we are winning large deals is, productivity is baked into it and the early investments we made is helping us to win because the productivity assumptions between providers is very different. I mean, we have done now 29 plus 17 deals in the last two years. A lot of that productivity we have baked in is AI-led. So we're excited about the efficiency part of this process. The second lever is how does it help our innovation and growth. I mean, our clients are starting to invest on us. We have 1,200 projects running now and a lot of heavy lift in our cloud migration, data modernization, the last-mile infrastructure, we have platforms to help our clients. That helps us to create a stickiness and helps us to accelerate the journey and helps us to make the journey of agentification predictable. In fact, we have our own agentification platform, which is an orchestration layer. If you have existing software, which has agents, this can orchestrate between the software pools. If you do not have an agentification layer, this can actually act as an agentification layer. So we think we are way ahead of most of our peers and this is a -- probably an opportunity of a lifetime. It is also unlocking new pools of addressable spend, which we didn't earlier address, which is -- things I spoke about, which is say connected care or retail operations or drug discovery. So the service pools, which we didn't capture before are now available to us. So we are now seeing opportunities, which are not just at the CIO, it's actually across the business operations of the company. So I think the addressable pool of work is going to be multi-fold to where we are -- where we were before and that gives me confidence that this is a force multiplier for companies like ours. In context to DeepSeek, it's a simple quick summary. DeepSeek has uniquely democratized a layer at the back end, which is the foundation models and it has commoditized that layer, so a lot of that money will now flow into the front end and it will accelerate the adoption of AI into enterprise landscapes. And as it does so, we will be in the middle of it heavy-lifting and helping our clients. So the DeepSeek opportunity uniquely is a moment, is an inflection point on transferring that value from the back-end to the front-end.

Thank you, Ravi.

Thank you. Our next question is from Surinder Thind with Jefferies. Please proceed with your question.

Thank you. Ravi, just kind of building up on the last part, if you think about the proprietary solutions that you're building within the AI landscape and all of the changing demand, can you provide a bit more color there in terms of the sustainability of those types of solutions that you're building? Or is this one of those things where, as you go to a client, you build a solution and then somebody follows you really quickly? I just wanted to better understand that the shifting model of, before it was all about services, but now we're injecting what sounds like a bit more of a software there into the solution itself, and if that's sustainable?

Thank you, Surinder. If you remember in the London Conference, I started talking about this and we've come a long way from there. The layer of software you built, I call it, fast software is practical tooling needed by our clients to either accelerate the journey or to bridge a gap or potentially to build micro industry vertical templates, which the existing software doesn't contain. I mean very similar to how enterprise software was built many years ago. How the cloudification of technology in some ways changed the role of system integrators. Now I would say, all of this is helping our clients. I'll give you one example. We have a platform called Flowsource, which is an orchestration layer on top of code assist platforms like GitHub. Now that orchestration layer is something we built practically because we figured out that as you bring code written by machines and you bring code written by humans and you bring it together, you need a worker -- a developer workbench, which will synchronize that effort and improve productivity. And will some of the existing platforms replicate that functionality over a period of time? Maybe yes. But by then, we will start to look at advanced problems to solve. Some of the problems we have today, some of the gaps we have today will remain gaps and it's the job of the system integrator to fix them, and some of them will productize. And as they get productized, we move to the next endeavor -- the next problem-solving endeavor, there is work between efficiency of the output and cost efficiency is needed for making AI enterprise grade. Some of that optimization will automatically happen with software and some of it will not. So I would say it's an evolving role of a system…

That's helpful. And then when I think about -- as I look ahead and I think about all of the large deals you signed, the ramp, the managed services wins, is that where most of the growth should come from in 2025 as we wait discretionary spend to improve on the consulting side or how should we think about the two segments and maybe how much integration is there when we think about the large deals in terms of the sharing of work between consulting and managed services with the large deal?

Yes. So I'll take that, this is -- I think the texture of the work is changing a little bit between 2024 and 2025. In 2024, we saw that it was essentially the large deals and the volumes led by large deals were driving the growth. But 2025, as we exit particularly quarter four, we have seen some improvement as I described in my opening comments, in annual contract value terms, which means we are getting some discretionary spend back and therefore the volume or the texture of growth will be slightly different for 2025 where you will see both the short-end work as well as the volumes which are being added by the large contracts or large deals.

Especially in financial services where there is more discretionary. In fact, Surinder, I just mentioned earlier that our ACV numbers have significantly jumped in quarter four, which is an indication of not just large deals, but also smaller deals coming back.

That's helpful. Thank you.

Thank you. Our next question is from Jonathan Lee with Guggenheim Securities. Please proceed with your question.

Great. Thanks for taking our questions. Tremendous to see the margin outperformance here, can you unpack what drove that, especially with softer utilization and perhaps some [indiscernible] benefit? And what incremental levers could you see into calendar 2025?

Sure. So while using numerically the utilization looks softer in quarter four, but we continue to execute very well on the ground. So this is a -- this sort of underrepresents the operational improvement on that we have been able to achieve over the last 12 months the way we run the organization. So I think that is one big driver. That is also reflected in the performance on the gross margin side. We have definitely seen a benefit on the profitability coming through our NextGen program, that is another key contributor to the performance for 2024 in general and specifically for quarter four.

So overall, our operational rigor has improved significantly in the last two years and we have some runway. I mean we have the pyramid -- continuing to sharpen the pyramid, AI-led productivity, sharing with our clients and part of it accruing to us. Our NextGen program, which we started in 2023 flew into -- it had a flow-through into 2024 and it will have a flow-through into 2025. So we are very excited about it. And the large deals for which we were, we were always budgeting if something goes wrong, but the reality is the bid versus did on large deals also contributed to the margin growth. I mean, we have really executed our large deals very well. So, we are very pleased with where we have landed on the margin and the runway we have for 2025. So -- and interestingly, we've also done M&A and we have absorbed the margin dilution plus we are investing heavily into AI. We are absorbing that as well. So I mean, the ability to contribute to margins, create an expansion, and that's going to be my desire. We've got to keep an expansive desire to improve our margins, but continue our investments and stay ahead of our peers.

Thanks for that detail there. And to support your growth in 2025, can you talk through how you're thinking about pace of hiring and perhaps geographic mix of talent base given Belcan as a new dynamic there?

Sure. So we continue to hire as we need for our growth and certainly, it's a cycle that you will see panning out in 2025 also. Probably from Q1 and onwards, you should start seeing the addition of headcount versus what you've seen in previous few quarters. Overall, we are well-placed in every geography from availability of talent from a bench standpoint as well as our capacity to hire as we need in each of the geographies. So, we feel quite good as we enter 2025 from a supply equation standpoint.

Appreciate the color, guys.

Our next question is from James Faucette with Morgan Stanley. Please proceed with your question.

Thanks. I appreciate all the detail and color here today. I just wanted to ask a quick follow-up question on Belcan I think if I heard you correctly that you expect that it will contribute roughly 200 basis points in 2025. Does that include both the inorganic and the organic period after August? And I guess as part of that in your growth assumptions, are you building in any other inorganic contribution from maybe deals that haven't been announced or closed yet?

Yes, sure. So essentially, this provides for -- the 250 basis point is the number that I have mentioned in my opening comments, and that 250 basis point is essentially for the additional eight months -- approximately eight months of revenue that we will get from Belcan in 2025. We have not factored in any additional inorganic in that 250 basis points.

That's great. Okay. So that's very clear. Thank you for that. And then I'm wondering as you're -- like I think your messaging, Ravi, has been really clear and we've seen kind of this consistent improvement where we're now to this point where it seems like discretionary is improving and that's great to hear. And on top of that, the large deals, et cetera. As we went into the end of this year and I know it's a little early still on budgeting processes to have a conclusive view. But did you see any budget flush type engagements or bookings, maybe like what you've seen in past years and what's your early temperature in terms of growth for most people's budgets? It sounds like it's pretty positive, but is that universal? Thanks, guys.

Yes. So I mean, this is totally in a way, but I also want to tell you that the mood is very business-favoring, right? I mean, people are expecting regulation to be coming down and it's a pro-business environment. The uncertainty around us is starting to settle down. There is lesser uncertainty in general across the world, which means all those dollars will actually trickle down to innovation and discretionary work. I would say financial services, we have -- I'm very pleased with where we are at financial services, which is where all the discretionary conversations are. We're very pleased with the progress we've made, how we are seizing the opportunities which are coming our way. You would have noticed one other area I spoke about, which is global capability centers. A lot of our clients are actually saying, can you help us set up the global capability centers, which is interestingly one of our biggest strengths, setting up ID shop for one of our clients, but doing it in a build-operate-transfer. So lot of all-round opportunities to play with. As the AI wave is hitting enterprises, the reality check on the data and their cloud migration is reopening that journey. I mean the heavy lift on data modernization and cloud migration is a unique opportunity for us. We are a very different company now in two years. I mean, I would say we have a heterogeneity in our landscape on services, all the way from experience application services, BPO Ops to engineering and we now have more vertical play. I mean, we aren't just a financial services healthcare company. We now have multiple verticals to play with. So I would say the -- I'm optimistic. I don't know if things will change in the second half, but I'm optimistic about the fact that where we were a year ago or where we were a quarter ago to where we are now, I feel very optimistic.

That's great color. Appreciate that, Ravi.

Thank you. Our next question is from Tien-Tsin Huang with J.P. Morgan. Please proceed with your question.

Hi, thanks so much. Just to build on James' question, you mentioned the GCCs here, Ravi. Can you expand on what that means for Cognizant in general, if that is a new theme that you see emerging? And does this change the balance of trade between in-sourcing and outsourcing? Just trying to understand how to read into that and how Cognizant is going to see that. Thank you.

So you know, multiple things to -- for Cognizant to be a part of that chain. One-third of the GCCs, one-third of the worker -- one-third of the tech prof services in offshoring destinations like India is GCCs. So we have a big role to play. They are themselves directly buyers of services. So that's one. Second, a number of them who do not have access to that market because that's a different labor market. We are a sizable, formidable player in India. So it gives us an opportunity to help these companies build, operate, and transfer. In fact, last year, I signed a deal, it's in the public domain where I did build, operate, transform, and transfer. Essentially, we are building it for them, we are operating it to them, we are applying AI tooling and then we are transferring it to them. And then we underwrote all the AI tooling for the next couple of years, which means we are just going to give them -- they can draw from us. There is a third set of offering, which is the micro-services around GCC, which is, you focus on the core and offload the non-core to us and we will set up for you. I mean, there are a variety of templates on this and companies are reorganizing, I call them 2.0, and they're reorganizing their technology Ops and BPO together. I mean, you know, my universe is not technology anymore. Operations of companies are actually getting offloaded to nearshoring and offshoring destinations and that's a new addressable spend. And finally, engineering of companies. I mean, if you are a car company, you would probably outsource your HR applications and CRM applications, writing software to run the car, you are probably not going to outsource. You want to build it yourself. Building it is not easy. So we can actually give you deep engineering capacity to build your own core. So we have number of opportunities, which we have won and which we have in the pipe, and I've actually mentioned about one in my earnings, which is primarily an insurer who just signed up with us, so we are kind of excited about this opportunity.

Yes. That's really interesting and thoughtful. Always appreciate your comments. Just have to ask you, Ravi, as you're talking to clients and you've talked about a lot of themes here, how would you characterize just overall budget and client decision-making with all this news flow that's happening? You got tariffs and immigration and tax, all this stuff, how would you characterize that?

Yes, technology is a very interesting space. When everybody is growing, you use technology to grow, and if there is uncertainty, you use technology to improve efficiency. So you can win in the turns with technology. So I've seen it in both sides. And I think as a company, we are agile to anchor on both sides. When the market is soft, you want to anchor on efficiency. When the market is taking off, you want to anchor on innovation. And I think in some ways, AI can do both. So I'm anchoring on both sides and that's why I placed this opportunity in those three vectors because I do see this as a player on both sides, which is why it is exciting. Budgets are -- I mean, you know, the visibility of budgets are much better than last year. Is it completely up and running? I don't think so. As we move into the year, we will see more, but we are in a much better spot than last year.

Thank you so much. Always appreciate it.

Thank you.

Thank you. Our next question is from Jim Schneider with Goldman Sachs. Please proceed with your question.

Hi, thanks for taking my question. This is actually [indiscernible] on for Jim Schneider. My question is, how do you see the divergence in consumer behavior right now between the UK and Continental Europe? Is this being driven by geopolitical considerations or do you think it's being driven by the competition of industries of these clients such as like banking versus industrial? Thank you.

Is this specific to Europe or otherwise?

Yes, Europe, so between the UK and Continental Europe.

Yes. So I mean, Continental Europe still has uniquely first time outsourcing opportunities, which can manifest itself into not just offshoring, but outsourcing and offshoring, and sometimes -- in fact, Continental Europe has one of the most number of GCCs going back to the old topic. So I see that opportunity in some ways a very different -- it's in a very different stage of evolution in comparison to the US and UK. And some industries are very mature and some industries are really opening it up for the first time. UK is a much more mature market. We have a big role in UK, I mean, we are strong in financial services. We also do public sector in the UK. We are pretty strong in consumer and comms. So UK is a very different market. I think it's much more ahead in terms of outsourcing, offshoring, and actually efficiency cycles. But I would say, in Continental Europe, if we make the right investments, which we are doing over the last two years, we are unlocking much more than before. Our presence is much -- our -- the proportion of business we do out of Europe and Asia-Pacific is much lower than the US in comparison to our peers. So that's an area for us to capture more and be a challenger in some of this -- some of these geographies?

I just want to add a point on UK versus Europe. I think UK has really started to show a lot of momentum in the second half of 2024 than what we saw before. The current quarter, there is a delta between UK and Europe and that's more led by a fact that one of our CMT customers renewed a contract in US versus UK, so there is some movement of revenue between geographies, but otherwise, we continue to see good momentum in UK.

Thank you.

Thank you. This concludes our question-and-answer session. I would now like to hand the floor back over to management for any closing comments.

All right. Great. Well, thank you all for joining us tonight, and we look forward to talking to you next quarter.

Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.