The operator welcomes participants to the Cognizant Technology Solutions Fourth Quarter 2023 Earnings Conference Call and introduces the speakers, Ravi Kumar and Jatin Dalal. The speakers remind participants that some statements may contain forward-looking statements and reference non-GAAP financial measures. Ravi Kumar discusses the company's fourth quarter and full year results, progress in 2023, and outlook for 2024. He also mentions using his first year as CEO to gain a better understanding of the company's operations, services, and culture.

In the fourth quarter, Cognizant met its commitments and exceeded expectations in revenue and operating margin. They also made progress in increasing the percentage of large deals and saw a decline in employee attrition. The quarter developed as expected with cautious clients limiting discretionary spending. The company also won seven large deals, two of which were new business. The voluntary attrition rate for their tech services business also saw a decline.

In the fourth quarter, Cognizant's revenue was slightly down from the previous year, but their adjusted operating margin was higher than expected. They also saw a 9% increase in booking growth and signed several large deals. The company has made efforts to focus on large deal demand and strengthen their delivery operations. In the financial services segment, they are working to stimulate growth through new leadership, investments, and expanding service offerings. In the healthcare segment, Cognizant believes they are well positioned to become a central player in the evolving healthcare ecosystem.

In 2023, Cognizant is investing in expanding their TriZetto platform and healthcare BPaaS solution capabilities to capitalize on the opportunity presented by Gen AI. They have also made progress in enhancing their industry expertise and collaboration with clients and partners. A strategic partnership with ServiceNow has been formed to advance AI-driven automation and improve their WorkNEXT modern workplace services solution. Another core strength of Cognizant is their collaborative approach with clients.

Cognizant's annual client Net Promoter Score survey reached a record high last year, showcasing their empathy for clients and ability to innovate. The company launched the Bluebolt grassroots innovation program, generating over 100,000 ideas and implementing 21,000 of them. They have also partnered with Microsoft to launch an AI-powered tool. Cognizant has consolidated their performance objectives into three long-term strategic priorities: becoming the employer of choice, accelerating revenue growth, and simplifying operations. They have seen improvements in voluntary attrition and employee engagement, and are committed to providing continuous learning and upskilling opportunities for their workforce.

Cognizant has made significant efforts to promote and recognize employee excellence, particularly among women through their Shakti initiative. They have also focused on accelerating revenue growth through platform-centric approaches and investing in AI solutions. They have introduced several platforms such as Cognizant Neuro IT Operations, Cognizant Skygrade, and Cognizant Neuro AI to help clients transition to modern technologies and improve their AI capabilities. They have over 250 engagements using generative AI.

The company has a variety of AI-driven projects in the works, with plans to expand further. They are also focused on simplifying their business through cost management and optimizing corporate functions. They recently acquired a partner that specializes in ServiceNow solutions, which will help them advance their strategic partnership and focus on AI-driven automation. The company's NextGen program is aimed at simplifying their operating model and adapting to the post-pandemic work environment. This will not only reduce costs, but also make the company more agile, productive, and innovative.

Last year, the company simplified its metrics structure and reduced layers in the organization to improve client relationships and decision-making. In 2024, they have identified six strategic imperatives, one of which is capturing the potential of AI in the enterprise market. They believe that system integrators like Cognizant will play a crucial role in managing and optimizing AI initiatives. As a result, they plan to invest $1 billion over the next three years in their generative AI capabilities.

Cognizant believes that generative AI will have a significant impact on the economy and society, with a projected injection of $1 trillion into the US economy over 10 years. The company's research also predicts that 90% of jobs will be disrupted by this technology, leading to a shift in how we approach work and economic growth. The demand environment remains uncertain and weak, with clients focused on cost reduction and AI-led transformation. Cognizant celebrated its 30th anniversary and is determined to sustain and extend its momentum. Jatin Dalal, who recently joined the company, is excited about the opportunities ahead.

The speaker expresses gratitude to Jan for helping make the onboarding experience smooth. They admire Cognizant's growth mindset, client focus, and entrepreneurial culture. The speaker has participated in global sales events and is excited to work with the leadership team to build on the progress made in 2023. The fourth quarter revenue was $4.8 billion, a decline of 1.7% year-over-year, with 90 basis points of growth from acquisitions. Full year revenue was $19.4 billion, a decline of 0.4% year-over-year, with 110 basis points of growth from acquisitions. The Financial Services and Health Services segments declined, while Products and Resources and Communication, media and technology segments saw relatively better performance.

The company's growth in the quarter was driven by recent acquisitions and new bookings. Margins were impacted by costs related to the NextGen program, but were partially offset by savings and currency depreciation. The company's GAAP tax rate was 26% and adjusted tax rate was 25.4%. The company ended the quarter with a strong balance sheet, with cash and short term investments of $2.6 billion. Free cash flow for the quarter was $659 million and for the full year was $2 billion. The company returned $1.7 billion to shareholders through share repurchases and dividends. For the first quarter, the company expects a decline in revenue of 2.7% to 1.2%, or 3% to 1.5% in constant currency, with a positive impact from currency of approximately 30 basis points.

Cognizant, a technology company, expects revenue for the full year to be between $19 billion and $19.8 billion, with a potential 1.8% decline or 2.2% growth year-over-year. They also anticipate a positive impact from currency and their NextGen program, with a total cost of $300 million and a focus on reinvesting savings for growth opportunities. They are pleased with their 2023 performance and expect a margin expansion of 20-40 basis points in 2024. They also provide guidance for net interest income, adjusted tax rate, and free cash flow, with a potential negative impact due to a tax matter in India.

The speaker is asking for more information on the company's bookings, specifically in regards to ACV versus TCV expectations, new versus renewals, and when new contracts will start impacting growth.

Ravi Kumar discusses how Infosys has shaped their 2023 bookings, with a significant focus on large deals above $50 million, $100 million, and $250 million TCV. These deals have a longer period and are driven by managed services and cost takeout opportunities. There is also a significant upside on new and expansion deals, with names such as Fortrea and Takeda being publicly announced. These large deals provide a good backlog for the future and have a longer runway into future years. In comparison, smaller deals in the range of $0 million to $5 million are consumed in the same year and are driven by discretionary spending.

In 2024, the wins from 2023 will contribute to revenues and create a backlog for the future. However, the impact of discretionary spending is unknown and will depend on how much it holds in 2024. The company is assuming some sequential growth and plans to focus on cost-saving and productivity deals to continue winning new business and expanding existing clients. The level of discretionary spending is currently uncertain.

The company's margin outlook is positive, with potential for improvement in both gross margin and operating margin. The drivers for gross margin include efficiency of operations and utilization upside, while the drivers for operating margin include AI and automation processes.

The company is expecting an increase in gross margin through traditional measures and opportunities with pyramid and Gen Zs. There is also potential for an increase in operating margin due to cost reductions from the NextGen program. The company is focused on both areas and believes they have sufficient actions in place to achieve their expansion goals. The CEO also mentions a unique opportunity to share productivity benefits with clients through technology arbitrage and generative AI tooling, which has contributed to winning large deals. The company is ahead of the curve and expects this to contribute to future growth and operating margin. The analyst asks about revenue growth and the CEO highlights the recent deal flow and expects it to continue.

Ravi Kumar, responding to a question about when the company will see an inflection point in revenue growth, states that the wins from 2023 will start to ramp up in 2023 and have a larger impact in the second and third year. He also mentions that the company has seen an increase in new business and logos in the large deal category, which will contribute to future revenue. However, the uncertainty lies in the $0 million to $5 million deals, which are discretionary and could potentially neutralize the impact of the large deals. Kumar believes that if discretionary spending picks up, the company will see revenue momentum. Overall, the company is executing well on these deals.

The speaker, Ravi Kumar, is not worried about the slower start to revenue in the first year and believes the company is in good shape. He also mentions that the healthcare sector is strong for Cognizant and they are investing in TriZetto to take advantage of the transformation in the industry. TriZetto is a key platform for the company and they plan to double down on it. They have a large client base and are investing in generative AI.

Wipro has made several announcements about incorporating generative AI into their offerings, including a partnership with Microsoft. They are confident that this will be a key part of their healthcare strategy going forward. When it comes to pricing, Wipro sees three areas of potential growth: last mile holding, making foundational models enterprise-grade, and reinforced learning. They are excited about the platforms they have built and how they are helping clients achieve production-grade generative AI.

The company has over 250 prototypes in use and 350 more in development. These prototypes will help the company monetize and improve productivity for clients. The company plans to use AI to disrupt client landscapes and offer better productivity. This is a slow process but will eventually lead to a sharp increase in growth. The company is excited about the opportunities and has also incorporated AI into their platforms like TriZetto.

The speaker is asked about the current discretionary spend environment and the factors that are holding back clients from spending more. He responds by saying that the banking, financial services, and insurance sector is burdened with high interest rates, causing a pause on discretionary work. He also mentions that transformational work is tied to certainty, and if the current period of uncertainty starts to go away, it will trigger discretionary spending to come back. The speaker believes that the positive catalyst of change ahead will also contribute to this.

The speaker discusses the impact of elections on the discretionary sector and how the AI cycle and interest rate cuts can affect it. They also mention the current situation being different from previous shocks and the uncertainty surrounding the COVID era and its effect on discretionary. More visibility on the sector is expected as the year progresses.

The operator introduces a question from James Faucette of Morgan Stanley about Cognizant's win rates for large deals. Ravi Kumar, CEO of Cognizant, responds by stating that their differentiated value proposition and ability to unify the company with high velocity have helped them maintain strong margins and win deals. He also highlights their strong capabilities in certain sectors and their ability to be provocative with clients. Kumar credits his leadership and the company's sticky relationship with clients for their success.

The speaker discusses three main factors that have helped the company win deals and maintain margins: their execution muscle, a differentiated value proposition related to productivity and automation, and a focus on AI. They also mention a slight increase in headcount, which is due to a combination of retaining flexibility for potential growth and targeted hiring for specific skill sets.

Ravi Kumar and Jatin Dalal discuss the company's success in reducing attrition and increasing retention, which has positioned them well for potential growth in the future. They also mention that it is difficult to predict the future due to the uncertain environment, but they have assumed a certain level of growth in their guidance for the year. Additionally, they mention that clients are showing interest in generative AI.

Ravi Kumar discusses the progress of enterprise adoption of new technologies, specifically in the areas of employee productivity and customer service. However, there are still challenges in terms of accuracy, explainability, and performance versus cost. These technologies have the potential to disrupt 90% of jobs, with some being more affected than others. A study by Oxford Economics has also identified the tasks within jobs that will be disrupted.

The speaker discusses how customers are becoming more open to incorporating generative AI into their businesses, and how this technology will become increasingly prevalent. They also mention the challenges this presents for system integrators. The call concludes with the speaker thanking the audience for their interest and looking forward to the next quarter.

This summary was generated with AI and may contain some inaccuracies.